Essential Tax Tips for First-Time Homebuyers

Buying a house not only brings joy but also helps save money on taxes. Being a homeowner gets even better when you can save money through various tax discounts and exemptions offered by home loans.

• The budget for 2023–2024 continues to support affordable housing by providing several tax benefits.
• Loans for affordable housing are eligible for interest deductions through March 2024.
• Tax holidays for affordable housing projects extended until March 2024.
• Proposed tax exemptions for Affordable Rental Housing Projects to help migrant workers.
• ₹48,000 crore allocated to the Pradhan Mantri Awas Yojana, showing the government’s commitment to affordable housing.

Understanding the tax benefits of sections 24, 80C, and 80EE of the Income Tax Act of 1961 is important when arranging a home loan.

• Section 24: Maximum Deduction Amount is ₹1.5 lakh annually.
• Section 80C: Maximum Deduction Amount is ₹2 lakh annually.
• Part 80EE: Deduction of Rs 50,000.

Under Section 80C, you can deduct up to ₹1.5 lakh from the total amount of principal repaid during the fiscal year. This deduction applies only after the property's construction is complete.

This deduction doesn't apply to loans for repairs or renovations, only for loans used to build or purchase a property. The loan should be from a reputable financial institution.

You will have to add the amount deducted back to your income if you sell the property within five years of taking possession of it.

Section 24: Interest Payment Deduction

• Take out all of the interest you have paid on your house loan, including interest paid before and after construction.
• You can deduct up to ₹2 lakh annually from self-occupied homes.
• The amount of interest that can be deducted is unlimited for properties that are rented out.

First-Time Home Buyer Deduction (Section 80EE)

First-time home buyers can claim an extra ₹50,000 deduction for the interest paid.

Consider these tips to maximize the tax benefits on your home loan:

• Stamp Duty and Registration Charges: You can deduct these expenses up to ₹1.5 lakh under Section 80C.
• Processing Fees and Service Charges: Deduct these loan-related costs under Section 24.
• Joint Loan Holders: If both spouses are eligible for deductions, have joint loans, and make money, the benefits could be quadrupled.

How to Reap Benefits from Income Tax on Home Loans

• Calculate Your Eligible Deductions: Using the information from your home loan, find out how much you can deduct from your taxes.
• Provide Documentation: When you submit your tax papers, include your home loan interest certificate and EMI statement with your income tax return or give them to your employer.
• Keep Documents: Store all important documents and papers safely for later use, in case the IT department needs them.

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Author - Abhishek Sonawane

Abhishek Sonawane, an MBA graduate from the prestigious Indian Institute of Management Visakhapatnam(IIMV), brings over ten years of experience in the finance domain. His extensive background includes various roles in financial management and strategy, providing him with a comprehensive understanding of the financial landscape. Abhishek’s expertise and dedication to financial education make him an authoritative voice in personal finance, helping readers make informed financial decisions.