Tax Benefits

How Home Loan With Tax Deductions Is A Lucrative Deal

by Shruti Agarwal on Financial Planning, Personal Wealth
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How we wish to have a genie in our life. How we wish that with the blink of an eye our dreams true.

So what would you dream of? – A dream home may be. Apart from our preferable location, floor area, preferable layout and similar aspects, the major discouraging factor that keeps our dream home on hold is the ever escalating real estate prices.

We may have to save for a substantial period of time to be able to purchase/ construct our dream nests.  Alternatively, if we choose to take a home loan, the idea of enjoying our dream home will materialize today.

To manage your personal finances effectively, you can take assistance of Kredent Money App.

Taking a home loan is an icing on the cake itself, because you can also enjoy the tax benefits on the principal amount, interest paid, as discussed at length below, under the Income Tax Act, 1961.


Let us know more about the deductions that can be claimed under the Income Tax Act, 1961:

How to avail the tax benefits?

Repayment of monthly installments:

In case you pay the monthly installments in respect of the loan taken for the purchase or construction of a house, then the principal component of the total installment in that respect can be claimed as a deduction under section 80C of the Income Tax Act, 1961.

Since the total limit under section 80C of the Income Tax Act, 1961 is Rs. 1.5 lakh, the maximum amount that can be claimed is limited to the said amount.

Interest component:

Apart from the principal amount, you can also claim the interest component of the total installment amount.

In case of construction, the interest amount can be claimed in the year in which construction is completed.

Let us take an example to understand this:

Mr. A completes the construction of a house on September 30, 2014. Hence, he will be able to claim the interest deduction for the entire financial year 2014-15. In this regard, in case Mr. A uses the house for his residential purposes, a maximum of Rs. 2 lakh can be claimed for the financial year 2014-15 onwards. In case the house is rented, Mr. A can claim the entire amount as a deduction.

Pre-construction interest:

Pre construction interest means the interest paid before completion of construction. Apart from the post construction interest, you can also claim pre construction interest in five equal instalments limited to Rs. 2 lakh in case of self-occupied house for residential purposes.

Stamp duty:

Apart from the deduction that can be claimed on monthly installments including principal and interest components, you can also claim a deduction on the stamp duty and registration charges, subject to the condition that the deduction shall be allowed in the year the amount is paid.

My dream home

Apart from the above incentives, the government also provides additional tax benefits by inserting sections vide respective Finance Act year to year.

Most interestingly, the mission of Housing for all by 2022 is giving strong impetus to the real estate sector. Apart from banks, several housing finance institutions are being approved by National Bank of India to propagate the aforementioned mission.

So don’t wait much to get your dreams come true! Prune your strategy well and go ahead to materialize your action plan. For more details visit Tax Planning for Financial Planners.

Happy Learning!

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