Must Know Things About Home Loan Incentives

The Reserve Bank of India’s decision to keep the repo rate unchanged at 4% in the latest monetary policy meeting has also kept home loan rates unchanged in the market. Also, the reforms ushered in by the current Union Budget has brought some good news for home buyers. The honorable Finance Minister has proposed to extend the tax exemptions available on affordable housing by another year.

While such benefits have made home loan cheaper in the current scenario, availing the credits still remains a significant financial commitment. Keeping that in mind, homebuyers should be aware of the notable incentives available to maximize their gains.

Top incentives available on home loans

Here are some notable home loan incentives to keep in mind –

• Loans from other sources are eligible for deduction

Apart from the conventional financing methods, in case an individual borrows funds from any private lender or relatives, they can claim deduction on that. However, this deduction is only on interest and not on the principal amount. Moreover, borrowers must not forget to collect the certificate or legal documents regarding this to avail the incentive.

• Tax benefits on interest paid before taking possession 

Buying a property that is under development can be a cheaper option when compared to a finished one. Now, the Income Tax Act allows buyers to claim deduction on the interest they have paid before getting possession of their property. It is available in five equal instalments, beginning from the financial year when the property’s construction or acquisition is complete. The maximum threshold here is, Rs.2 lakh per annum.

• Joint loans are beneficial

Availing a joint home loan is beneficial for home buyers as it comes with a host of benefits. Here are some notable ones –

• The eligibility criteria are easier to meet.

• One can avail a higher loan quantum.

• Applicants can negotiate better loan terms.

Apart from these, one significant benefit here is the income tax deduction. As per the IT Act laws, every applicant of a joint housing loan is eligible for IT benefits separately. Therefore, each of them can claim up to Rs.2 lakh deduction on repayment of self-occupied property.

Furthermore, while the current home loan interest rate is at an all-time low, a joint home loan applicant can negotiate an even lower rate.

• No notional rent on a second property

Second self-occupied property’s notional rent will not be added to the taxable income. However, this benefit is available for up to two houses, and the third house that is not on rent will attract tax ‘deemed value’.

These incentives available on home loan in India further makes borrowing and repayment more convenient for individuals. Along with these, prospective homebuyers should also know the income tax benefits available on housing loans to maximise their savings.

Income tax benefits on home loans

• Section 24(b): This section allows you to claim up to Rs.2 lakh benefits on interest payment.
• Section 80EE: Here, individuals can enjoy exemptions of up to Rs.50,000 on interest payment.
• Section 80C: This section allows individuals to avail deductions of up to Rs.1.5 lakh on principal and stamp duty payment.
• Section 80EEA: Homeowners can claim IT benefits of up to Rs.1.5 lakh on interest payment. However, taxpayers availing benefits under this section cannot claim the exemptions of Section 80EE.

Besides knowing the incentives and benefits available on this financial product, one should also be aware of the home loan eligibility criteria to ensure he/she can avail it. Here are the highlights –

• Age: 18-70 years
• Credit score: 750 and above
• Employment type: Self-employed and salaried
• Work experience: Depends on the requirements of a lender
• Monthly income: Specific to the applicant’s city of resident

However, they can skip the hassle of this application process with pre-approved offers extended by leading financial institutions. These offers are available on various products, including home loans, loans against property, etc.

Consumers can check their pre-approved offer online by providing their name and contact number.

Home loans in the current scenario have further eased the process of purchasing a property. Prospective homebuyers can take the assistance of home loan EMI calculators to find their suitable loan offer.