The most significant benefit of acquiring a Home Loan is the financial security of owning a home that it brings along. However, there are numerous other advantages of availing SBI Home Loan or PNB Housing Loan or that from any other major public sector bank. One such major advantage is about Tax Benefits.
Let us take a quick look at the Home Loan Tax Benefits you can avail once your Home Loan application is approved, and you start repaying the credit in the form of EMIs.
You can claim a deduction of up to Rs. 1.5 Lakh, towards the principal repayment on your Home Loan under Section 80 of the Income Tax Act. To avail this deduction, it is essential that you do not sell off the property, within the first 5 years of obtaining its possession. If you do sell the property, you must be aware that the claimed deduction will be reversed in the year in which the deal is made.
This tax benefit is only available once the construction of the property is complete.
When you Take a Home Loan for a property that you intend to live in, you are entitled to a deduction of up to Rs. 2 lakh on the interest that you pay towards the mortgage, under Section 24 of the Income Tax Act. If, on the other hand, you have taken a loan for a let out property, you can claim a deduction on the entire interest amount, with no upper limit, whatsoever.
In either of the cases, it is essential that the loan is taken with the purpose of constructing a residential property or purchasing one. In addition, it is mandatory that the construction of the property is completed within 5 years from the end of the financial year, in which the Home Loan was availed.
Yet another aspect that you must remember is that the deduction on taxes can only be availed starting from the year in which the construction was completed, and NOT from the year that you took the loan.
If the construction of the property is not complete, you can place your claim for the pre-construction interest*. In this case, once the development is complete, you can claim the deduction in five equal instalments in addition to the deduction that you are eligible to claim.
It is that interest which is paid from the date of disbursal of the Home Loan to the end of financial year, which precedes the year in which the construction of the property was concluded. The interest component of all the EMIs paid within this time duration is known as Pre-Construction Interest or Prior Period Interest
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