Home Loan is Super Tax Saver for all

One of the basic needs of every individual is that of having a shelter. But due to the constantly increasing property prices, not many people are able to realize the dream of owning their own house. To facilitate the realization of this dream, income tax has done its part by providing various tax benefits on availing a home loan.
Your home loan can be an interesting tax saver. Interest on home loan is deductible from your salary, provided you have possession of the house.
If your house is under construction then interest will be accumulated till the house is in the state of “ready to accommodate”. Thereafter, deduction will be allowed in five equal installments for next five years, along with the interest payable of that financial year.
The total interest deductible for a year has also been increased to Rs. 2 lakhs from Rs. 1.5 lakhs for self occupied house. It is even more beneficial when you have let out your property on rent. In such scenario, there is no ceiling limit at all on the amount of interest which is allowed as deduction. If your house is given on rent then full interest amount paid on the housing loan by you in a year can be reduced from your income and you are required to pay tax on the net income.
The interest rate of home loan has been on the rise. However, even today the effective interest rates are attractive i.e. home loan interest at 10% effectively gets reduced to 7% assuming you are in 30% tax bracket. Therefore, you should take a home loan if you have such opportunity.
You can prepay your home loan if the interest being charged is @12% or more, instead of keeping your money in fixed deposits, bonds etc. (@9%).
Another way of saving money is to take home loan with overdraft facility so that you can save interest by depositing additional funds in the home loan account. Banks like SBI, HDFC, and HSBC offer these loans as home saver, smart home etc.
Besides the deduction available on housing loan interest payment, Housing loan principal repayment is also an eligible deduction under Section 80C. Here, the maximum deduction allowed for principal repayment in a year is Rs. 1.50 lakhs.
Moreover, you can take the loan from your friends and relatives for the purpose of buying or constructing a house and the interest paid on such loans would also be eligible for interest deduction. However, the principal repayment of such loans will not be eligible for deduction under section 80C.
Home loan interest is deductible on accrual basis, i.e., even if the interest has not been actually paid by you to your relative/friend but accrued/payable in a financial year, the interest deduction is still allowed in that financial year.
There may be a good chance that you have a self occupied house for which you had paid interest more than Rs. 1.50 lakhs in F.Y. 2013-14 and Rs. 2 lakhs in F.Y. 2014-15. But the extra interest portion could not be claimed as deduction since maximum ceiling limit is Rs. 1.50 lakhs in F.Y. 2013-14 and Rs. 2 lakhs in F.Y. 2014-15.
This is where another section – Section 80EE comes to your rescue. Section 80EE is the place where you can claim additional deduction of interest over and above Rs. 1.50 lakhs in F.Y. 2013-14 and Rs. 2 lakhs in F.Y. 2014-15. The limit under this section is Rs. 1 lakh, i.e., additional interest upto an amount of Rs. 1 lakh can be claimed in totality for both these financial years under this section. If you have not consumed the limit of Rs. 1 lakh in F.Y. 2013-14 then the balance can be used in F.Y. 2014-15. However, point to note is that F.Y. 2014-15 is the last year for such consumption. If the limit of Rs. 1 lakh is still not fully utilized in F.Y. 2014-15, the balance shall lapse and its benefit cannot be taken in F.Y. 2015-16.
At the end, it is important that the house property is either self occupied or let out in order to utilize the tax benefits available on housing loan in the most optimal manner. Do not let go of these benefits by just investing the house property and keeping the house idle.
This case of availing tax benefits of housing loan may not apply to your financial situation. But there are many such instances when a tax expert may help you save tax significantly.
TaxOptimizer – our tax saving solution, caters to this need by offering a dedicated Chartered Accountant as part of an annual subscription that includes answering to specific tax queries, optimization of your salary package, updates on tax saving options, ITR filing and premium support. For more details, you can also write to tax.optimizer@taxspanner.com.