As per the Income Tax Act, 1961, you can opt for tax exemptions when you take a home loan. You can claim these home loan tax benefits on principal and on the interest as per Section 80C and Section 24 respectively.
Section 80C provides tax benefits up to Rs. 1.5 Lakh per financial year on various schemes like National Savings Certificate (NSC), Sukanya Samriddhi Yojana, Life Insurance premium, Senior Citizens Savings Scheme (SCSS), 5-Year Fixed Deposits, etc. Here is all you need to know about tax deductions under Section 80C.
The section also provides a tax exemption for a home loan principal. You must complete the purchase or construction of the property within 5 years after availing the loan to claim these benefits. Furthermore, you must remain in possession of our property for at least 5 years after construction or purchase. The deductions previously taken will be added to the price of your property in case you have sold it.
Section 24 provides tax benefits as standard deduction and deduction on the home loan interest.
As per standard deduction, 30% of your property’s Net Annual Value (NAV) can be exempted from tax. NAV is calculated by subtracting Municipal Taxes from Gross Annual Value (GAV). If you have let out your property, the GAV is calculated as the total rent received per year.
You can claim deductions up to Rs. 2 Lakh on the total home loan interest only if you occupy the property. This section enables you to make claims even when your property is under construction.
Both Section 80C and 24 can help you save tax when taking a home loan.
Under section 80C, you may also claim the deductions if you invest in other schemes also, like investing in fixed deposit and other saving schemes in India will let you avail upto 1,50,000 Rs. of tax exemption. The tax exemption under section 80C also covers the health and endow insurance policy.
If you invest in Fixed Deposit, then the thing you must consider is you can’t claim the deductions under section 80C, if you withdrawal your fixed deposit before the maturity period. That’s the reason you should always say No to premature fixed deposit withdrawal.
However many times, in your life you could face the situation of emergency that may push you to premature fixed deposit withdrawal, but you have one of the best alternative option to deal with these emergency. You may choose short-term personal loan to deal with emergency fund.