Paying your taxes on time and diligently is part of being a responsible citizen. However, tax-filing also allows for deductions and tax benefits on home loan. Home loans help you avail of such benefits and allow you to claim deductions based on your repayment towards the borrowed amount. Home loans by far offer maximum tax benefits and allow you to save up to Rs.3.5 lakh from tax payments annually.
This is all thanks to sections 24, 80C and 80EE of the Income Tax Act, 1961. This income tax benefit on home loans also extends over to your salary as you can also enjoy a deduction on the House Rent Allowance (HRA) component even if you’re servicing a home loan. To help you better understand when you can claim tax deductions on HRA and home loan repayments at the same time, here are the special conditions you should know of.
If You Buy a Home That Is Under Construction
If you purchase an under-construction property using a home loan then, you can claim a tax deduction on the HRA component of your salary for the rented house you stay in until the construction is complete. On the other hand, you are eligible to claim tax benefits on the total interest repaid on your home loan payments from the date of purchase to completion.
If You Buy a Home in Another City or State
You may have purchased a house in Chennai, buy say you stay in a rented apartment in Delhi owing to your nature of work. Under such a circumstance, you are allowed to claim both HRA exemptions and tax deductions basis the interest and principal repayments of your home loan. This means you can claim the amount you pay as rent as an HRA exemption and the home loan repayment under Section 80C and 24.
If You Buy a Home You’re Unable to Move Into
This situation can arise due to several reasons. However, the reason has to be substantial enough to qualify you for a deduction. For example, you may buy a home in the same state but it may be too far from your workplace. In this case, you’re more likely to take up accommodation much closer. The income tax laws allow you to claim deductions on both HRA and home loan repayments only if the distance from your home and the workplace is at least 35 kilometers.
If You Buy a Home and Lease It Out
You can claim deductions on both HRA and home loan repayments if you’ve decided to rent out the home you’ve purchased and lived in a rented apartment yourself. However, in this case, you’re not allowed to claim deductions on principal repayments for your home loan under Section 80C.
Make the most of these rules for tax saving on a home loan, and use a home loan tax benefit calculator to know exactly how much you’ll save and possibly plan for future investments. To maximize your savings, you must also pick a housing loan in India that is best suited to your financial profile. This means that the housing loan interest rate, tenor and loan amount have to be a perfect fit.