Your home can reduce your tax burden too

Your home can is not your shel­ter only it can reduce your tax bur­den too. There is only 3 months of time to end of this Finan­cial year, it is time to start plan­ning your tax sav­ing strate­gies. Your house can also be used to reduce the tax lia­bil­i­ty to a some extent. Under Sec­tion 24 of the Income Tax Act, inter­est paid up to Rs.2 lakhs per annum & under sec­tion 80C Rs.1.5 Lakhs on a home loan & can be set-off from salary or busi­ness income, for a self-occu­pied prop­er­ty. Fur­ther if you have got your house rent­ed than there is no lim­it on Inter­est paid, you can claim the actu­al inter­est paid, no mat­ter what is the Rent amount. The inter­est amount is eli­gi­ble for deduc­tion even if you took the loan for recon­struc­tion / renewal/ repair of your house.

Loan for con­struc­tion eli­gi­ble for deduction

A loan availed for the con­struc­tion of a res­i­den­tial prop­er­ty, pur­chase of a res­i­den­tial prop­er­ty, exten­sion of an exist­ing house, and major repairs and ren­o­va­tion of a house are eli­gi­ble for tax ben­e­fits. Under Sec­tion 80C of the Income Tax Act, a home loan bor­row­er can claim a deduc­tion of up to Rs.1.5 lakh from his tax­able income on repay­ment dur­ing the year along with spec­i­fied sav­ings instru­ments like prov­i­dent fund.

All co-own­ers eli­gi­ble for deduction

In case there are co-own­ers to a prop­er­ty, each of them can claim tax ben­e­fits. both of you are eli­gi­ble to claim the same amount of deduc­tion u/s 80C for the prin­ci­pal paid 7 u/s 24 for the Inter­est amount paid. There­fore your total deduc­tion would be Rs.7 lakh for a sin­gle home loan. This brings down the family’s total tax lia­bil­i­ty. How­ev­er, co-own­er­ship is manda­to­ry to avail of tax benefits.

Pre-EMI qual­i­fies for benefit

The entire pre-EMI inter­est amount (the inter­est paid dur­ing the con­struc­tion peri­od ) is allowed as a deduc­tion under Sec­tion 24 of the Income Tax Act equal­ly over five years (20 per­cent of total inter­est paid per annum), start­ing from the year in which the con­struc­tion is completed.

How­ev­er, if one avails a loan only for a land pur­chase, he is not eli­gi­ble for any tax ben­e­fits. In the case of a com­pos­ite loan (for land and con­struc­tion) and the house con­struc­tion is com­plet­ed with­in three years, only after com­ple­tion of the con­struc­tion will one be eli­gi­ble for the tax benefits.