Buying property is not only a dream that everybody has but is also considered a good investment because of the tax benefits involved. My post today is going to give you a birds eye view of the tax benefits available on taking a housing loan.
The principal part and the interest part, both, have different tax benefits available.
Section 80C of the income-tax act deals with tax deductions in respect of specified investments made (life insurance, contribution to public provident fund, repayment of principal on housing loans, NSCs, etc…) during the year. However, the tax benefit under this section has been capped at Rs. 1,00,000.
In other words, even if you have repaid Rs. 90,000 of the principal part and Rs. 25,000 as LIC premium during the year, amounting to a total investment of Rs. 1,15,000, the amount that will show as a deduction under section 80C in your Form 16* will be only Rs. 1,00,000.
The amount paid as interest shows as a loss under the head “Income from house property” visible in your Form 16* and the same goes on to decrease your taxable salary income thereby becoming a tax benefit of sorts.
It is a good time to consider buying your first house now from a tax perspective because the tax benefit on repayment of the interest part of the housing loan has been increased by Rs. 1,00,000. This is in addition to the original limit of Rs. 1,50,000 already available on self-occupied property. (If the property is not self-occupied, there is no limit on the amount of interest that can be claimed as a tax benefit).
If you take your first housing loan now, you can claim Rs. 2,50,000 as a tax benefit. However, this additional benefit can be availed only if the following conditions are fulfilled:
1. It is a new loan sanctioned after April 1st 2013 and before 31st March 2014;
2. The loan amount does not exceed Rs. 25,00,000;
3. The value of the property for which the loan has been taken does not exceed Rs. 40,00,000; and
4. When the loan is taken, there is no other property in your name already.
So far, this additional benefit is available for this year only.
*The loss from house property and the deduction under section 80C will only appear in your Form 16 if you have given the loan statement generated by your banker (detailing the amount of principal and interest repaid during the financial year) when your company asks for it. Otherwise you will end up paying more tax and will only be able to claim a refund when you file your tax return in July next year.
So, there you have it…the tax benefits available if you’re planning on taking a loan to buy a house. 🙂
Please leave any questions you have in the comments section and I will get back to you as soon as I can!