Opting for home loan? Here are various tax benefits you should know about

Section 80C of the Income Tax Act remains the most popular tax saving option, especially for the salaried class. It allows you to save up to Rs 1.5 lakh per annum. But, what if you exhaust the limit? In that case, a home loan can come to your rescue. Home loan is taken by those who cannot pay the entire amount to purchase a property. To encourage people to purchase residential property, the Income Tax Act, 1961, has various provisions to help borrowers claim tax deductions on home loan repayment. 

These tax benefits can be claimed under different sections of the income tax. Here is all you need to know – 

Benefit on Interest Paid 

Any home loan borrower is eligible to claim a tax deduction on the interest part of the loan under Section 24 of the I-T Act. If the borrower or their family resides at the purchased property, they can claim maximum interest deduction of up to Rs 2 lakh. If the property is on rent, there is no limit on  the interest deduction meaning you can claim 100% of the interest you have paid in a year to the lender.

If the property purchased in still under construction, the interest paid on loan qualifies as pre-construction interest. Once the construction is complete, you can deductions on this total pre-construction interest in 5 equal instalments. For example, if your pre-construction phase is Rs 5 lakh, you can claim Rs 1 lakh deduction in every financial year starting from the year in which the construction of your property is complete.

The borrowers need to remember that in both the cases, you can claim tax benefits only when the construction of the property is complete. Also, tax benefits claimed under Section 24 will be reversed if you sell the house within 5 years of the possession.