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Deduction Dexterity Navigating Home Loans with TaxBuddy A Section 24B Tale

About the Case:


Mr. Keshav Rao, an individual resident earning a salary of Rs. 20,00,000, previously resided in a rented home. Upon contemplating a home loan, he approached with various doubts and concerns. The user-friendly interface and clear navigation of the solution alleviated his anxieties, specifically addressing how to maximize tax savings through the home loan. Seeking alignment between his financial goals and prevailing tax regulations, Keshav Rao found a solution tailored to his needs.


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Issues faced By

Mr. Keshav Rao's

Tax Savings Due to Home Loan:

  • Mr. Keshav Rao, initially uncertain about the advantages of taking a home loan, discovered substantial tax savings through this financial decision. By delving into the intricacies of home loan-related tax benefits, he realized that he could claim deductions of up to Rs. 2,00,000 on home loan interest, even if the property remained vacant. Furthermore, if the property was rented out, the entire home loan interest became deductible


Tax Deduction on Principal Repayment:

  • Mr. Keshav Rao is unsure if he can get a deduction on the principal amount.


Tax Deduction under Section 80EE:

  • Mr. Keshav Rao is confused about Sections 80EE and 80EEA and wonders how he can claim deductions under these sections and if he is eligible.


Benefit of Taking a Home Loan under Co-owners:

  • Mr. Keshav Rao wants to know if it would be beneficial to take a home loan under co-owners.


Calculating Taxable Income for Opting a Joint Home Loan:

  • Mr. Keshav Rao wants to understand how the tax would be calculated and what the exemption limit is for an individual if he takes a home loan as co-owners.


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How TaxBuddy Helped

Home Loan Benefits

  • Yes, taking a home loan is advantageous. Home loan owners can claim a deduction of up to Rs. 2,00,000 on the home loan interest, applicable even if the house is vacant. In case the property is rented out, the entire home loan interest is deductible.


Relevant Sections and Conditions:

Maximum Deduction

Deductions

Conditions

Section 24B

Rs. 2,00,000

Interest

For buying or constructing a new house completed within five years from the financial year end in which the loan was availed.

Section 80 EEA

Rs. 1,50,000

Interest

Property stamped up to Rs 45 lakhs (conditions apply).

Section 80EE

Rs. 50,000

Interest

Loan amount up to Rs 35 lakhs and property value up to Rs 50 lakhs.

Section 80C

Rs. 1,50,000

Principal

Sale of property should not be done before 5 years.

Section 80C

Rs. 1,50,000

Stamp Duty

Should be claimed in the same financial year as it was spent.


Principal Repayment Deduction Guidelines

  • The deduction for principal repayment is available for up to Rs. 1,50,000 within the overall limit under Section 80C.

    • Conditions to Claim this Deduction:

    • The home loan must be for the purchase or construction of a new house property.

    • The house property must not be sold within 5 years from the time of possession.

    • Stamp duty, registration charges, and other expenses directly related to the transfer are also allowed as a deduction under Section 80C.


1. Enhanced Benefits with Section 80EE:

  • Recently added to the Income Tax Act, Section 80EE allows homeowners with only one house property, at the time of the home loan sanction. The individuals must be first-time owners of the property, with a claim of Rs. 50,000. This deduction is over and above the Rs. 2,00,000 limit under Section 24 of the Income Tax Act.


2. Expanding Horizons with Section 80EEA:

  • A new section, 80EEA, is added to extend tax benefits for interest deduction on home loans taken during the period from 1st April 2019 to 31st March 2020. However, individuals should not be entitled to a deduction under Section 80EE.


Optimize Joint Home Loan Benefits suggested by TaxBuddy Experts

  • TaxBuddy facilitates tax optimization for couples planning to buy a new home with a loan. Joint owners, who are also co-borrowers of a self-occupied property, can individually claim a deduction on the home loan interest up to Rs. 2,00,000 and a deduction on principal repayments, including stamp duty and registration charges under Section 80C, within the overall limit of Rs. 1,50,000 for each co-owner. These deductions can be claimed in the same ratio as the ownership share in the house property.


Conditions:

  • Owners have taken the loan jointly.

  • Owners are co-borrowers for the loan.


Benefits of Taking a Loan as Co-owners:

  • Increased loan eligibility.

  • Ability to buy a bigger home.

  • Higher tax benefits.

  • Sharing the loan repayment amount.


Simplifying Joint Home Loan Tax Calculations

  • Elaborating Taxbuddy’s solution with an example here-


  • Example. Understanding Income Tax for Joint Home Loan:

    • Mr. Keshav Rao, a software developer, earns a salary of Rs. 20,00,000 p.a, and his wife, working in the same company, earns Rs. 15,00,000 p.a. They jointly own a property purchased for Rs. 35 lakhs, with a market value of Rs. 50 lakhs, having a 50:50 ownership share. Their monthly EMI is Rs. 40,000, with Rs. 20,000 going towards the principal and Rs. 20,000 towards the interest.

Solution:

Income/Deductions

Husband

Wife

Net Taxable Salary Income

Rs. 20,00,000

Rs. 15,00,000

Deduction under Sec 24 (50:50)

Rs. 1,20,000

Rs. 1,20,000

Deduction under Sec 80C

Rs. 1,50,000

Rs. 1,50,000

Deduction under Sec 80EE

Rs. 50,000

Rs. 50,000

Deduction under Sec 80EEA

Not applicable

Not applicable

Taxable Income

Rs. 17,00,000

Rs. 12,00,000

This breakdown illustrates the computation of taxable income for Mr. Keshav Rao and his wife, considering various deductions under different sections of the Income Tax Act for their joint home loan.

Note:

If the interest paid is Rs. 4 lakhs or more, each owner can get Rs. 2 lakhs as a deduction under Section 24B.

For Example:

Keshav Rao and his wife bought a house on loan and paid Rs. 5 lakhs as interest. With a 50:50 share in the property, Keshav Rao can claim Rs. 2,00,000 as a deduction, and his wife can also claim Rs. 2,00,000.



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The Conclusion: 

Mr. Keshav Rao's

Tax saving Journey