Buying Your First Home? Here’s How To Maximise Your Tax Benefits Under Sections 80C And 24(b)

By Aryan Singh

Purchasing your first home is a major milestone, both emotionally and financially. It is not only a home, an investment for the future that encompasses decades of saving, researching, and budgeting. However, the initial buyer does not neglect the fact that all buyers often overlook the collection of tax savings provisions, which might gradually reduce the cost.

Home buying is encouraged by the Indian government with tax relief under certain provisions of the Income Tax Act, 1961, namely Section 80C and Section 24(b). These sections, if availed and used to your advantage, can provide a considerable amount of relief on your tax liability for the current year, your dream home at hand.

Tax Relief On Home Loan Principal Under Section 80C

Section 80C is the most popular tax-saving scheme among individual taxpayers. The interest of your Equated Monthly Installment (EMI) under this section, when you buy a house on a home loan, becomes tax-deductible.

  • You can claim a deduction of up to Rs 1.5 lakh as a maximum per financial year on repayment of principal.
  • This cap is not only for house loan repayment; investment products like Public Provident Fund (PPF), National Savings Certificate (NSC), and tax-saving fixed deposits are also included. Invest wisely so that you do not exceed the total limit.
  • You can also claim a deduction for registration charges and stamp duty paid on your new property under Section 80C, but only in the case of payment in the same year.

Relief on the capital return made on the principal repayment will be taxed back and be considered as part of your taxable income in the year of disposition if you sell the property within five years of acquisition. These advantages are applicable only if you choose the Old Tax Regime. Under the New Tax Regime (effective from Budget 2020), you are not eligible to claim these deductions.

Cut Down Your Tax With Interest Deductions Under Section 24(b)

While the payment of the principal amount is dealt with under Section 80C, the interest payment on your home loan comes under Section 24(b). According to Section 24(b), a deduction of Rs 2 lakh annually can be claimed on the amount of interest on a self-occupied house property.

  • You can even claim a deduction of Rs 2 lakh every year on interest paid on a home loan against a self-occupied property.
  • Where house property is rented out, the deduction of interest is not limited, though the net loss from house property that is deductible in respect of income under other heads of income is limited to Rs 2 lakh per year.
  • Reduction is allowed only where acquisition or construction of property is done within five years from the close of the financial year in which the loan was brought forward as credit.

If you've been paying interest while the home is being built, you can spread this cost over five equal payments from the year the home was completed and occupied. If you sell the property within five years of acquisition, the principal deduction previously claimed is reversed and included in your taxable income in the year the property is sold.

Also Read : Tax Alert! Watches, Handbags, And Other Luxury Purchases Over Rs 10 Lakh To Face 1 Per Cent TCS Now

Maximise Your Tax Savings On Joint And Second Home Loans

Sharing a home loan with someone can greatly increase your tax benefits. Where both the applicants are joint holders and making installments on the loan, both borrowers individually can take a deduction of a maximum of Rs 2 lakh under Section 24(b) towards interest on the home loan and Rs 1.5 lakh under Section 80C for repayment of the principal amount. That is more than twice the tax relief as compared to the case of a single applicant. If you are taking a second home loan, tax relief is available within the same deductibility limits, so the second home is also a tax beneficiary now. Although a home loan is a long-term cost, judiciously taking advantage of the joint or second home loan schemes can greatly save your tax and simplify your life in the long term, and render your investment all the more valuable.

Effective Tax Planning For Homebuyers

  • Tax filing process: Take extra care that you properly reveal the deductions in your Income Tax Return (ITR) in the respective blocks so that there will be no trouble with the tax authorities.
  • Government Schemes: Even new buyers can avail of government schemes such as the Pradhan Mantri Awas Yojana (PMAY) that offer additional interest subsidies and benefits.
  • Revised taxation model: If you opt for the new tax regime (newly introduced in Budget 2020), you can't claim these deductions. Decide which tax regime should be more advantageous for you before filing.
  • Document preparation: Keep all the documents, such as the loan statements, interest certificates, and receipt of payment, handy. They will be requested to be furnished while submitting your income tax return, as well as while undergoing an audit by the tax authorities.

Your first property acquisition brings a high cost of spending, but tax relief under Section 80C and Section 24(b) and first-time buyer concessions can ease your burden. By knowing the sections and structuring your finances along their lines, you can save on taxes optimally, and homemaking can be a wonderful and affordable proposition.

(The author is Marketing Head at Bric-X Infra)

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