With rising real estate prices, it has become challenging for most people to buy houses without financial support. Home loans offer a way out as you fund your new house without using your savings. They provide the finances required for a house purchase and can be customised to suit every borrower’s financial needs. Most financial institutions offer home loan borrowers 20 years to repay the loan. It allows borrowers ample time to pay off the loan comfortably in affordable monthly instalments.
Additionally, a home loan can help you save tax. Three different sections are included in the Income Tax Act under which a home loan is eligible for tax deductions. There are tax benefits that a home loan borrower can enjoy on the principal amount and the interest rate of the home loan. Read on to understand the sections that include these home loan tax benefits.
- Section 24b
According to Section 24b of the Income Tax Act, home loan borrowers can get an income tax rebate on the interest payments made towards their home loans. This tax benefit can be beneficial since a housing loan rate of interest can significantly impact the EMIs that the borrower pays. This tax deduction is also applicable if the loan was taken for a house under renovation or construction.
The maximum amount one can claim for tax deductions under Section 24B is Rs 2 lakh. However, the house construction must be completed within five years from the end of the financial year in which the home loan was taken. If the house construction isn’t finished within five years, the borrower can only claim tax deductions up to Rs 30,000.
- Section 80C
Section 80C of the Income Tax Act states that a home loan borrower can claim tax deductions to repay the loan’s principal amount. Note that this deduction also applies to the registration and stamp duty charges. One can get a maximum tax deduction of Rs. 1.5 lakh in one financial year under Section 80C.
Many people also have several investment instruments, such as PPF, ELSS funds, and tax-saving FDs. These instruments are also eligible for tax deductions under Section 80C. However, the maximum tax deduction permitted in one year cannot cross Rs 1.5 lakh.
- Section 80EE
First-time home buyers are eligible for an additional home loan tax benefit of up to Rs 50,000 under Section 80EE. Do note that to be eligible under Section 80EE, the home loan amount should not exceed Rs 35 lakh, and the property cost should be within Rs 50 lakh.
Taking a joint home loan can benefit both borrowers, helping them enjoy tax benefits. However, before applying for a home loan, check with the lender regarding the documents required for a home loan. It will help improve the chances of loan approval without hassles.
IDFC FIRST Bank demands the following documents to process home loan application:
- Valid identity proof
- Valid address proof
- Valid income proof
- Salaried: Last 2 months salary slip/ latest ITR or Form 16/ last 6 months bank statement
- Self-employed: Latest ITR/ balance sheet or P&L statement/ GST return/ last 6 months bank statements or CC statements, etc.
- Property proof
- Photocopy of draft sale deed and chain title documents (if any)
- Allotment/Possession letter
- No objection certificate from the society and other documents as per legal report
- Business proof