If you are planning to apply for a home loan for the first time, you must know that the home loan tax benefits can help you save substantial money during tax filing. Availability of a home loan is a big decision, and if you make the most of the tax deductions available under the Income Tax Act, 1961, you can maximize your savings.
Home loans are a popular financial instrument to buy a house, and lenders offer various types of home loan products with different rates of interest. However, while choosing a home loan, it is crucial to find the one that offers maximum tax benefits along with other features.
In this article, we will explain how to maximize your home loan tax benefits if you are availing a home loan for the first time.
Claim Tax Deduction on Interest and Principal Repayment
The most significant tax deduction available for home loan borrowers is the interest and principal repayments. Under Section 24(B) of the Income Tax Act, borrowers can claim up to Rs. 2 lakh per financial year as a deduction on the interest payable on the home loan. Additionally, under Section 80C, borrowers can claim a deduction of up to Rs. 1.5 lakh per financial year on the principal repayment of the home loan.
It is vital to note that these deductions are available only if the home loan is taken for purchasing or constructing a new house, and the construction of the house should be completed within five years from the end of the financial year in which the loan was taken. Besides, the borrower should be the owner of the house.
Use Income Tax Calculator to Evaluate Savings
Before applying for a home loan, it is essential to evaluate how much you can save on the taxes by using an income tax calculator. The income tax calculator will help you understand how much tax you need to pay based on your income, investment, and deductions. It will also help you determine how much tax you can save by taking a home loan.
Suppose you are in the highest tax bracket of 30% and have taken a home loan of Rs. 40 lakhs at an interest rate of 7% per annum. In that case, you can claim a deduction of up to Rs. 3.5 lakhs per annum on the interest and principal repayments, giving you a tax benefit of Rs. 1.05 lakhs per annum.
Select the Right Home Finance
When you avail of a home loan, it is essential to choose the right home finance that offers the best interest rates and maximum tax benefits. Different lenders offer various home loan products, and it is crucial to do some research and compare the different options available.
For instance, if you are buying a house for investment, you can consider taking a home loan with an offset account. An offset account can help you save interest on the home loan by offsetting the balance in the account against the outstanding loan amount, reducing the interest payable. Additionally, an offset account can be used for keeping idle money that can earn interest while offsetting the home loan interest.
Consult a Financial Advisor
Before taking a home loan, it is advisable to consult a financial advisor who can guide you through the process and help you maximize your tax savings. A financial advisor can assess your financial goals, evaluate your tax-saving potential, and suggest the best home finance options that suit your needs.
Additionally, a financial advisor can help you plan your finances and budget to ensure that you can manage your home loan repayments and still have enough money for your other expenses.
Conclusion
In conclusion, if you are availing a home loan for the first time, it is essential to make the most of the tax benefits available under the Income Tax Act. By claiming deductions on the interest and principal repayments, using an income tax calculator to evaluate your savings, selecting the right home finance, and consulting a financial advisor, you can maximize your tax benefits and save substantial money during tax filing. So, make an informed decision and enjoy the benefits of owning a house.
