Housing finance provided by leading financial institutions in India also comes with scope for improved savings if appropriately managed. Like, comparing the lenders for the best offer, adopting smart repayment methods to reduce total liability, opting for balance transfer facilities, etc. are some of these. One such popular option to look for is the tax benefits of housing finance.
The Income Tax Act specifies sections that make way for home loan tax benefits for individuals financing their home purchase via a housing credit. However, to maximise tax benefits on their home loan, borrowers can make use of a few handy tips.
Here are the ways you can maximise tax benefits on your housing advance.
- Be a co-owner of the purchased property
Individuals can be one of the co-owners of the concerned property that is financed through housing credit, to avail maximum home loan tax benefit. Moreover, the property needs to be self-occupied, as well. After fulfilling these criteria, borrowers qualify for tax exemption on both repayable principal and interest accrued.
Understand it with the following elaboration. When it comes to loan repayment, it includes two components, i.e, principal amount and accumulated interest. As co-owners of a property, both borrowers are eligible for tax benefits of a maximum of Rs.1,50,000 towards their repayable principal amount individually as per Section 80C of the I-T Act.
Furthermore, each of the co-owners can claim a maximum deduction of Rs.2 lakh on the interest component of the repayment liability. The deduction can be claimed each year until the tenor completion.
Based on the property share, the entire interest amount is allocated between the co-owners. Nonetheless, if no share percentage is mentioned on the property document, the interest component of the EMIs is divided equally. Nonetheless, if the property is on rent, no deduction limit is imposed on interest payment. Co-owners can claim the total payout as housing loan benefits.
Other than principal and interest payment amounts, under Section 80C, co-owners can also avail home loan tax exemptions on registration and stamp duty charges. However, they need to file these charges in the same financial year in which these are paid. Property owners can divide these expenses and file separately to avail the highest possible deduction.
- Be a co-borrower of the availed home loan
Other than being a co-owner of the purchased property, individuals should also be a co-borrower of the home loan to avail the tax benefits. If an individual is only a co-owner and not a registered co-borrower, then he or she can’t avail the tax benefit. Owners who are not registered borrowers don’t make any monetary contribution to the loan amount, thus not holding any claims to benefits. However, as a co-borrower, individuals are equally responsible for loan repayment. In the case of default payment, both borrowers are equally obligated as well. The risks and responsibility of loan repayment thus also entitles them to home loan tax benefits.
- Complete the entire construction of the house
Finally, any home loan tax benefit can be claimed after the construction completes, and the property is ready for possession. From the financial year in which the construction is completed, individuals can be eligible for a tax deduction. Owners must note that there are no tax benefits for under-construction property. Nevertheless, paid interest during the under-construction stage can be claimed in the financial year in which the property is completely constructed in five equal installments.
Several conditions are needed to be met to avail tax benefits on home loans. Thus, to avail the maximum advantage, home loan tax exemptions and benefits should be on the fingerprints of every new and existing borrower. Besides these tax-benefits, financial institutions also tend to approve joint home loans as it increases the repayment capacity of borrowers.
As for maximising tax benefits on housing finance, individuals should look for the approved co-owner combinations while applying for a home loan. Financiers approve these loans only for specific combinations of co-owners of a property.