Everyone wants to construct the house of their dreams. But, sometimes, we don’t have ample funding needed to build the house of our dreams. People decide to apply for a home loan when running low on the budget.
Anyone can apply for a home loan and purchase a readymade house or construct a house from scratch. Like other loans, a home loan is repaid via EMIs at fixed intervals.
Do you know anything about tax exemptions for people who apply for a home loan? Read on to learn more about tax exemptions for home loans in India.
Tax Exemption For A House Under Construction
People who have applied for a loan to construct a house are eligible for tax benefits, To avail of a home loan tax exemption, the house should be completely constructed within five years of applying for a loan.
Before a house is completely built, people have to pay the pre-construction interest to the loan provider. As per the ITA (Income Tax Act), people paying pre-construction interests can get tax benefits.
Pre-construction interest is charged annually for five years after applying for a home loan.
Tax Exemption For Repaying The Principal Amount Of A Home Loan
For every EMI of a home loan, there are two components.
The first component is the principal amount, and the second one is the interest charge.
Home loan tax exemption is also offered on paying the principal amount. Rules for tax exemptions on paying the principal amount of a home loan are mentioned in Section 80C of ITA. As per Section 80C of ITA, one can avail of a maximum rebate of 1.5 lakh on paying the principal amount of a home loan.
Conditions for home loan tax exemption on paying principal amount are as follows:
- One can receive tax benefits for payment of the principal loan amount only after the construction period is completed
- You must not sell your house within five years to enjoy this tax benefit; however, if you decide to sell your home within five years, the tax exemption is added to your income in the year of sale.
Benefits On Stamp Duty And Registration Fee
While buying a new house, one must register it in their name. Registration charges have to be paid by the owner while purchasing a house. Similarly, stamp duty charges are also to be paid by the owner. These charges can amount to a significant number while buying a house.
However, if you have applied for a home loan to buy a house, you can enjoy fewer stamp duty and registration charges. The loan provider will use an EMI calculator to calculate the monthly instalments for your home loan.
At the same time, you can ask about deductions on stamp duty and registration charges.
Tax Exemptions For People Buying A House For The First Time
First-timers can use an online home loan EMI calculator to get an idea of a housing loan. There are special tax benefits for people buying their first home on loan. As per Section 80EE, these people are eligible for an additional INR 50,000 tax benefit.
Some conditions for enjoying tax benefits on buying one’s first house on loan are as follows:
- The applicant should not have possession of any other property at the time; a housing loan should be taken for their first-ever property
- The price of the first-ever property shouldn’t be more than INR 50 lakhs
- The approved loan for the first-ever property shouldn’t be more than INR 30 lakhs
Conclusion
People who have bought a house jointly with a loan can also apply for tax benefits. It is important to know about such exemptions and benefits so that you can get the best out of the investment that you make.
