How You Can Maximise The Benefits Of A Home Loan

By Adhil Shetty | April 6, 2018

A Home Loan can help you in saving on your tax outflow and thereby reducing the overall cost of borrowing. Read on to know about the associated benefits of a Home Loan.

How You Can Maximise The Benefits Of A Home Loan

If you are planning to purchase a property using a Home Loan, you should also be aware of the associated tax benefits associated with it. If understood properly, you can avail of them to substantially save on your tax outflow and thereby reduce the overall cost of borrowing.

Tax Benefits

Two different sections of the Income Tax Act provide certain Tax Benefits that a prospective home buyer can consider. Under Section 24, you can avail of a deduction on the interest on a home loan for a self-occupied property up to 2 lakh rupees. And under Section 80C, you can make use of the deduction offered on the repayment of the principal amount on a home loan up to Rs. 1.5 Lakh rupees.

You should do the math depending on your financial circumstances and work out the amount of tax you can save. Generally, the savings tend to be highest for those in the highest tax bracket.

Joint Home Loan

The above benefits can be further maximized in case of a Joint Home Loan, where you opt for a loan with your spouse, splitting the amount in half. By doing so, both you and your spouse can claim the benefits mentioned in the above acts separately. However, do note that it is essential to be co-owners of the property to claim these tax benefits.

Second Home Loan

Buying a second home on a home loan is also another way you can increase your tax benefits. Determined based on the property which is self-occupied, the other property is automatically considered rented out, whether or not it has actually been rented. For the property that you have deemed self-occupied, you are liable for tax relief both on the interest and the principal amount you’re paying towards your home loan as described above.

For the second home loan, you will get tax deductions only on the interest repayment and not on the principal repayments. There’s no ceiling to the deductions towards interest payments on the second home loan. Therefore you can claim deductions on the actual interest paid. Do note that these benefits on a second home loan are fairly limited in case of an under construction property: you can avail a deduction of 20% of the total interest paid during the pre-construction phase for a five-year period.

In all, while a home loan may be a necessity during the purchase of a home based on your financial situation, don’t forget about these associated benefits that help to make the most of your finances during the transaction.

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Adhil Shetty

About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of BankBazaar.com. Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

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