The current union Budget has extended the same tax benefits for one more year. Now, Indians can save significant part of their tax liability if they have taken a home loan. The savings on tax payment as a result of the new budget declaration are significant.
Here's how the tax reduction works:
Interest paid on the home loan or housing finance
As per Sec 24(b) of the Income Tax Act of India, 1961 a deduction up to Rs. 150,000 towards the total payable interest on the home loan towards purchase / construction of house property can be claimed while computing the income from residential property. (The deduction stands reduced to Rs 30,000 in case of loans taken prior to March 1 of the year 1999). The interest payable for the pre-acquisition or pre-construction period would be deductible in five equal annual installments commencing from the year in which the house has been purchased, acquired or constructed.
The taxpayers should remember that in case of self occupied property, this tax deduction is allowed only for one such self-occupied property. The interest towards home loan taken for purchase, construction, repairs, renewal or reconstruction of house property is also eligible for deduction under section 24(b).
Principal repayment of the home loan
As per the newly introduced Sections 80C with section 80CCE of the Income Tax Act of India, 1961 the principal repayment up to Rs. 100,000 on the home loan will be allowed as a deduction from the gross total income of the tax payer subject to fulfillment of prescribed conditions. Let us consider a hypothetical illustration.
Net taxable Income: Rs 5,50,000
Principal repayment on for the same year: Rs 1,10,000 and Interest payable for the same year : Rs 1,60,000
Maximum Deductions allowed: Rs 2,50,000 (Rs 1,50,000 towards interest payable & Rs 1,00,000 for principal repayment of the loan amount)
Thus, total taxable income of the taxpayer will reduce to Rs 3,00,000 ( Rs 5,50,000 - Rs 2,50,000 ).
Tax payers in India can use the Tax Savings Tool (on the left) to ascertain the proper tenure of the loan they must take to minimise their post tax cost of the home loan. If the person has already taken a loan, it could be useful to refinance the same today at a lower interest rate and a higher tenure using the Refinance Tool of . So, happy days are now for the prospective buyers and taxpayers who have already purchased a home through loan.
