Let’s assume that you own a plot on which you plan to build your house, or construct a building that you can rent or lease. Choosing a loan is a convenient option, considering the heavy investments you will need to make on the project.
Getting a Home Loan is easy if you meet all the Home Loan eligibility criteria. Once your loan has been sanctioned, you should immediately start taking advantage of the different tax benefits meant exclusively for people repaying their Home Loan.
But before we tell you about the types of tax benefits you can avail, let’s take a quick look at what you’ll need to know about housing property.
House Property and its Taxes
Whether it’s a house, a shop, a building, an office, or just vacant land attached to your building, the Income Tax Department considers all of these as house property. Residential and commercial buildings both fall under this category.
The taxes on such property are levied on the income earned by the house property head.
Income generated through buildings used for business, fall under the category of income from business and profession, and expenses made on the repair and maintenance can be allowed as business overheads while claiming income tax returns.
Types of Tax Benefits
Depending on your financial stability and requirements, you can avail a tax deduction that best suits how you’re making use of your building.
- Pre-Construction Interest Deduction
This is a tax deduction benefit, framed under Section 24 of the IT Act, which is available only after the completion of the construction of your home.
If you take a loan while the building is still under construction, the pre-construction period starts on the day your loan commences and ends with the financial year that is closest to the date of completion of the building.
Let’s say your pre-construction period started in February 2015 and the building gets completed in June 2017. So, the pre-construction period ranges from February 2015 to March 2017.
After making an Adequate Home Loan calculation, you can figure out the total pre-construction interest paid on your loan and claim it in five equal instalments.
- Self-occupied House Interest Deduction
After the construction of the house, if the owner himself is the resident, the property is a self-occupied housing property. It is classified as such even if only the owner’s parents or spouse and children are the occupants.
In such cases, you can claim a tax deduction of upto INR 2 lakh, under Section 80C of the IT Act. The same is applicable even if the house is left vacant.
If you own more than one property then only one of them is applicable to this benefit. The rest of the houses are considered to be rented out.
- To-let Houses Interest Deduction
In cases where the house has been let out for rent or lease, there is usually no threshold for the total interest. The entire amount lent out on interest can be claimed as a deduction when the occupants are your tenants.
For the complete amount deduction to be allowed, the Home Loan has to be taken for the purpose of purchasing and constructing a new property and not for reconstruction, repair, or maintenance of the building. It is mandatory for the construction to be completed within 3 years from the end of the financial year the loan was started in.
If these conditions are not fulfilled, the amount that can be deducted is drastically brought down to INR 30,000, as per Section 24 of the IT Act.
Depending on the reason you have applied the for Home Loan, you can get maximum monetary benefits in terms of tax deductions on the loan. Make sure you know all the necessary details in order to get the most out of your loan.
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