What are Income tax benefits of taking and repaying a housing loan under EMI Plan?
From financial perspective, home loan is not only a good investment but also a great way to save taxes. The EMI for repayment of home loan consists of two parts, principal component and interest component. Tax rebate is available on both. For interest payment, you can claim tax rebate for up to 1.5 lakhs as per section 24(b). The principal payment gets tax rebate on maximum of 1 lakh under section 80C. Government has also recommended that first time home buyers can claim additional 1 lakh rebate on interest payment. This rule is for this year only and for the first time buyers for homes that cost under 40 lakhs.
There is also the provision for joint loan for home where both partners can save taxes on interest payment. For example, if two people (usually husband and wife) take joint loan, they both can claim 1.5 lakhs rebate on interest payment and principal payment user the section 80C separately. This means you can get rebate of maximum of 3 lakhs on your joint loan. However, you both have to be the owner of the property.
In case of a Home Loan, both the interest and the principal that you repay will qualify for tax deductions. The principal repaid will qualify for a tax deduction under Section 80C of the Income Tax Act. The maximum limit is Rs. 1.5 lakh. The interest repaid will qualify for a tax deduction under Section 24 of the Income Tax Act. The maximum limit will be Rs. 2 lakhs here. This applies to both self-occupied and let-out property. Earlier, there was no limit to the tax deduction that you could claim for interest repaid in case of a let-out property. Also, if you are a first-time home buyer, you can claim Rs. 50,000 as a tax deduction for interest repaid under Section 80EE. So, you can get tax benefits of up to Rs. 4 lakhs with a Home Loan.