Understanding tax benefits of home ownership in India
In India, owning a home comes with tax advantages under the Income Tax Act. This article delves into the crucial sections pertaining to homeowners, focusing on deductions on home loan interest and the principal repayment benefits. Such knowledge helps in making educated property investment choices, influencing financial planning for homeowners and prospective purchasers.
Deductions on home loan interest
Section 24 of the Income Tax Act allows homeowners to claim a significant deduction of up to ₹2 lakh on the interest paid on their home loan for a self-occupied property. In the case of let-out properties, you can claim the entire amount of interest as a deduction without any cap. This tax benefit aims to incentivize individuals to invest in residential properties by making home loans more affordable.
Benefits on principal repayment
Section 80C offers up to ₹150,000 deductions on home loan principal repayments per year. This falls under the aggregate limit, encompassing Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), and life insurance premiums. It encourages property investment and facilitates tax savings for homeowners, fostering financial planning objectives in real estate.
Additional deduction for first-time homebuyers
First-time homeowners enjoy a further advantage under Section 80EEA. This section offers an additional deduction of up to ₹150,000 for interest paid on loans taken for residential house property from any financial institution, provided certain conditions are met. This is in addition to the ₹200,000 deduction under Section 24, making it a highly beneficial option for new entrants in the real estate market.
Exemption on capital gains
Section 54 provides an exemption from capital gains tax if you sell your residential house and reinvest those gains into another house property within stipulated timelines. This exemption applies to long-term capital gains and is intended to promote investment in residential properties. It also gives homeowners the flexibility to relocate or upgrade their homes without incurring significant tax burdens.
Joint home loan benefits
In case of co-owned properties where both the owners are also co-applicants of the home loan, each co-owner is eligible to claim separate deductions under Sections 24 and 80C for interest and principal repayment, respectively. This means the tax-saving limit is effectively twice as high compared to a scenario where a single individual solely owns and finances the property, making joint ownership a financially advantageous option.
