Tax on Home Loan

One of the inherent advantages that acquiring a home loan provides is the facility of providing additional tax benefits that are included according to the guidelines of the principal amount of the home loan which is availed by the borrower. Tax Benefits encourage borrowers to loan more monetary amounts of the loan. 

Home Loan is undoubtedly one of the most common and popular forms of the loan available in the market owing to its innate ability to attract a large pool of customers and also engage the consumers or borrowers in an attractive deal offering considerably lower rates of interest. The added benefit or advantage however that inclines borrowers towards availing home loan facilities is to generate a significant amount of revenue through the process of offering huge tax exemptions and benefits that will in hindsight encourage more customers to take more loans and approach the home loan option with a feasible outlook. 

The tax benefits provided are in the arc of both home loans granted through easy installments mechanism and also through the payment of the lump-sum amount where the interest rate of the loan varies from the organizational policies of one company to another. Following are some of the important tax benefits and exemptions offered through the system of home loans in place-

Tax Exemption on the Purchase of House

The first important activity that the borrower is involved in after availing of the Home Loan facility is the purchase of the house, considered to be the most prominent activity. After purchasing the house, the borrower has to pay a certain amount of money as a Home Loan Processing Fee which is considered to be the charges that are incurred for transferring the loan from the account of the banking authorities to the personal account of the borrower thereby completing the process of requisitioning the loan. 

On the purchase of the house, the borrower gets some added tax benefits in the form of Deductions under Section 24 which states that the purchase of a house entails some additional expenses. The taxable liability of the borrower when the activity falls under section 24 is the available exemption of 1.5 lac which may extend up to 2 lac rupees. 

Tax Exemption on the payment of Pre-Construction Interest

After buying the plot of land with the loan amount that has been sanctioned to the personal account of the borrower after the ratification of the loan, the borrower has to pay a certain amount of money as monthly interest. The interest payable also offers some tax exemptions to the borrower which falls under the ambit of Sector 24 (B) of the Income Tax Act which divides the interest exemption amount into pre-construction interest levied before the building of the house is complete and post-construction interest which is levied after the completion of the construction of the house. 

Under this tax ambit, with complex calculations of whether the house has been purchased five years prior, tax emotions are offered up to 1.5 lac to 2 lac rupees. The pre-construction interest amount is subdivided into five equal monthly installments which are payable through the bank transfer mechanism. 

Tax Exemptions under Licensing Charges and Additional Charges

Home Loan Processing Fees are considered to be the most primary additional charges under the sector of home loan provision. The additional expenses comprise short term interest, interim interest and brokerage charges, and commission which is levied on the loan facility offered by the banking institution from which the loan is taken. 

The exemption amount for the home loan is also the same for the other clauses falling under the ambit of Section 80 C deductions which states that the tax exemption amount should not exceed 1.5 lac to 2 lacs. For example- the SBI Home Loan facility offers considerable tax savings and tax advantages to the borrower of the loan.