Which Has More Tax Benefits? Paying a Housing Loan Emi or Staying on Rent?

0
42
Tax Benefits

Overall housing credit in India grew by 39% in the financial year ending in March 2018, according to a report presented by The Economic Times. The substantial growth in housing credits can be witnessed as it grew 16% in the fiscal year 2018 up from 9.5% in the financial year 2017. The report further adds in the prospect of a 17-19% growth of home loans in the near future.

Further, a recent report update stating the Budget 2019 shows revision of tax benefit rules on the interest applied for home loans. According to the reports, the maximum interest amount which is available for tax exemptions or home loan tax benefit is now increased to Rs.3.5 lakh up from Rs.2 lakh.

Subsequently, not only are the housing loan principal and interest amounts valid for tax exemption but one may acquire tax benefits for rented property as well if their terms of employment include house rent allowance (HRA).

Tax benefits on housing loan EMI

Individuals can claim exemptions from paying taxes for their home loan, according to the latest provisions of Income Tax Act, 1961. Borrowers can save more on the availed loan by availing the tax benefits on home loan under conditions as mentioned in the Act. The following are some of the pointers borrowers need to know about saving tax when they avail a home loan.

  • Tax benefits under Section 80C

Under Section 80C, every individual who has availed a home loan can claim tax benefits of up to Rs.1.5 lakh on the principal amount per annum. Nonetheless, owners of the property shouldn’t sell it within 5 years to avoid the reversal of tax benefits. In case the property isn’t completely constructed within 5 years, the tax exemption limit on principal amount is reduced to Rs.30,000. Tax exemptions are to be claimed after the completion of the construction process and one can claim for the expenses made for stamp duty and registration fees.

  • Tax benefits under Section 24(b)

Under Section 24(b), one can claim home loan tax benefits of up to Rs.2 lakh on the interest paid to repay the loan for a self-occupied property. In case the property is rented, there is no threshold for the amount that can be claimed as exemptions.

  • Tax benefits under Section 80EE

Section 80EE is an additional tax benefit regime applicable to first time home buyers. They can claim an additional Rs.50,000 tax benefit against the interest paid along with the tax benefits availed under Section 24(b) and 80C. It is applicable for homebuyers who have applied for a loan below Rs.35 lakh between 1 April 2016 and 31st March 2017.

It is advisable to use a home loan tax benefit calculator to compute such exemptions and claim them accordingly.

  • Tax benefits for joint home loans

Co-applicants or co-borrowers can avail tax benefits on a joint home loan as each of them would be able to claim the maximum tax exemption amount as per the Income Tax Act. This increases the benefits available for a housing loan.

Tax benefits on staying on rent

Individuals who reside in rented premises are entitled to house rent allowance (HRA) as part of their employment terms. They are also eligible for tax exemptions under Section 10(13A). The tax exemption is decided by considering any of the below-mentioned factors, whichever is minimum –

  • HRA component of the compensation or salary.

  • Difference between the rent paid to the property owner and 10% of the basic salary.

  • 50% of basic pay for individuals residing in metro cities like Delhi, Mumbai, Chennai, and Kolkata. For customers residing in any other city, it is 40% of the basic pay.

Accordingly, tax exemptions can be decided for individuals who reside in a rented property. In case the employer doesn’t provide HRA or one is self-employed, they can fill up Form 10BA to claim exemptions according to the following factors, whichever is lower.

  • Rs.5,000 in a month.

  • 25% of the total income.

  • Difference between actual rent and 10% of total income.

Paying housing loan EMI vs. staying on rent

Since EMIs are inclusive of the principal amount as well as interest levied on the loan, borrowers of the home loan are entitled to tax benefits under Section 24(b) as well as Section 80C. Nonetheless, first time home buyers are entitled to additional tax benefits on home loan rates. Additionally, those who have rented the property have no pre-determined threshold to claim tax exemptions. Consequently, first time home buyers and those who have rented the property can claim maximum tax benefits as per the Income Tax Act.

Moreover, an individual who has availed a housing loan and resides in a rented property can avail exemptions for housing loan interest as well as HRA.

Other than tax exemptions, borrowers can also look to benefit from repayment-friendly features offered by select HFCs.

Subsequently, customers can follow through these pointers to determine which is more beneficial according to their requirements and living expenses. They will be able to maximize their profit by being more informed about the home loan tax benefits.

LEAVE A REPLY

Please enter your comment!
Please enter your name here