When one buys a house, it is generally the single largest investment of their lifetime, whether the reason behind it is investment or purely residential. While people look at things like builder reputation, neighborhood, property prices and public transportation before concluding which property to buy, they often forget some of the finer aspects, especially when obtaining a home loan. Let us have a look at some of the tax benefits that home loan borrowers can avail in India as of 2017.

Tax deduction of up to Rs 1.5 lakh for principal repayment

This is applicable for a financial year under the Income Tax Section 80C for all housing loans, whether you are looking for villa plots in north Bangalore or beach houses in Trivandrum. However, it is important to remember that the total deduction amount can only be obtained after keeping other factors, like tax-saving FDs, ELSS, PPF falling in the 80C bracket, in mind.

Tax deduction of up to Rs 2 lakh for payment of interest

This again is applicable to a particular financial year as per Section 24 of the Income Tax Act. There are similar benefits for repairing houses, but the limit for that is set at a much lower amount.

There are other things related to buying a house like registration fees and stamp duty fees, which are also eligible for deduction under section 80C. Those benefits can be availed apart from the tax benefits on the principal loan amount. Things like prepayment, service and processing fees for sanctioned loans are all eligible for deduction under section 80C.

While there are a host of tax benefits to fetch while obtaining a home loan, one must keep in mind that the benefits are only pertaining to the financial year in which the house has been acquired. Another bit to keep in mind is the fact that those benefits do apply to houses under construction.

Interest that has been paid in the year prior to acquiring the house can be aggregated and a tax benefit can be claimed in equal instalments for the next five years under Section 24. It includes the year in which the house was obtained. For example, if an interest of Rs 5 lakh is paid for a loan, then 1 lakh (Rs 5 lakh/5 years) can be claimed as deduction for the next five financial years when filing for tax.

All the benefits under Section 80C can also be reversed in the event that the house is sold within five years from the date of buying. If such is the case, then the total amount of deductions availed under housing loans of previous years get added to the income of the concerned person and is taxed as per the tax bracket under which he/she falls. All these aspects are in addition to capital gains implications, which change from time to time.

More details

This article on EMICalculator explains more details about the new updates on property investment. Whatever the motive or source of money you use, make sure it is obtained with complete records and used carefully without employing child labor, B/C-Khata lands, etc. You don’t want to lose investment value or get into trouble after all that brainstorming you just did!