Basics about Home Loan , TAX & Exemptions
Q – What are the sections in which I can claim tax benefit for Home Loan?
A – There are 3 main sections in which you can claim the benefit
- Section 24(b) – Claim deduction upto 2 lacs on interest payment done
- Section 80C – Claim deduction on Principal payment done (limit 1.5lacs)
- Section 80EE – Claim deduction for first time home buyers (exemption limit 50K, loan <=35 lacs , House <=50Lacs )
Q – How can I save tax if there is Joint Ownership on the property?
In case of joint ownership, the income from house property can be split between both the co-owners which can reduce the overall tax outgo. You are eligible for higher deduction on account of interest on home loan as compared to single home loan. In case of joint home loan, both the co-borrowers can take maximum deduction of Rs. 2,00,000 each.
Q – Can I claim exemption while paying interest on underconstruction property?
A – You don’t get any benefit on underconstruction property. All benefits start after possession of property after which you can claim 1/5th portion of unclaimed interest over 5 years (limit of 2 lacs)
Q – Which loan should I plan to close first ?
A – Personal / Credit card / Top Up loans offer no tax benefit and should be knocked off first , then Car loans (depreciating asset) & finally you can think of knocking off the home loan
Q – When to prepay ? When to not / invest elsewhere for my goals?
A – In order to take advantage of the 2 lacs limit in exemption – Broadly you may continue with home loan & invest elsewhere in following scenarios (assuming 30% income slab)
Single Ownership – Overall about 22-25 lacs O/S loan – yearly interest comes to about 2 lacs
Joint Ownership (both in 30% Income slab) – Overall about 35-40 lacs O/S loan – yearly interest can be claimed by joint owners
Rented out property – makes sense to persist with the loan of about 12-15 times the annual rental income (Eg: if annual rental income is about 2 lacs then you may continue with 30 lacs O/S loan)
IF you so not satisfy above conditions then prepay home loan to reasonable levels.