Have You Calculated Income Tax Rebate on Your Home Loan
Tax calculations are somewhat confusing for a layman to understand easily. Firstly, they have more income and secondly, they want to save tax on their income.
Mr. Vijay is fond of reading housing loan & tax advices on newspapers at a regular basis. He wants to save the maximum possible income tax. Again, tax calculations are somewhat confusing for a layman to understand easily. Like Mr. Vijay, today most of the people face difficulty in comprehending their tax sheets. In this blog, we will discuss how income tax is calculated on your home loan.
Often we have seen people in their 30s make their mind for purchasing a property. Firstly, they have more income and secondly, they want to save tax on their income. Let’s take a case study of the 2 tax payers for financial year 2017-18 and understand how a tax is calculated at different income levels.
Let’s say Person X earns Rs 8 lakh per annum.
| Income | Tax Rebate | Remaining Amount | Taxable Income | Tax Amount |
|---|---|---|---|---|
| 8 lakh per annum | 3,50,000 (Housing Loan Principal +Interest) | Rs 4,50,000/- | Rs 4,50,000- 2,50,000 (free) = Rs 2,00,000 | 5% of 2,00,000 =Rs 10,000 |
Mr X has availed a home loan and is tied up with EMI installments. The housing loan EMI consists of - principal amount as Rs. 1, 50,000/- deductible under section 80C and interest amount as Rs 2, 000, 00/- deductible under section 24 of the Income Tax Act. The total claimed tax rebate is Rs, 3,50,000/- So, the remaining amount is Rs 4,50,000/-
As we know there is no tax obligation for amount up to Rs 2,50,000/-The taxable income will be Rs 2,00,000 (i.e. remaining amount). On a 5% income tax rate, the payable income tax amount will be Rs, 10,000/-
Let’s say Person Y earns Rs 18 lakh per annum.
| Income | Tax Rebate | Remaining Amount | Taxable Income | Tax Amount |
| 18 lakh per annum | 3,50,000 (Housing Loan Principal +Interest) | Rs 14,50,000/- | Rs 14,50,000- 2,50,000 (free) = Rs 12,00,000 | Calculated below |
| Amount | Tax Obligation |
| 2.5 lakh | No |
| 2.5-5 lakh | 5% of 2.5 lakh =Rs 12,500 |
| 5-10 lakh | 20% of 5 lakh = Rs 10,0000 |
| 10-14.5 lakh | 30% of 4.5 lakh = 1,35,000 |
| Total | 2,47,500 |
Like Person X, if we calculate the tax of person Y, we can note Rs 2, 47,500 is the taxable amount.
The discussion would not be complete unless and until we focus on tax laws of Income Tax Act.
Home loan EMI comprises – repayment of principal and interest amount. Both these components of installments are governed by different laws of the Income-tax Act.
Section 80C: Tax Benefit on Home Loans Principal Amount
Under this section, the maximum tax deduction is allowed Rs 1,50,000/- This is the section, where most of the people claim a deduction. Savings instruments such as fixed deposits, public provident funds, national savings certificate, and senior citizens savings scheme all can be claimed under this section. It is important to note that the deduction can be claimed only after the completion of the construction. No tax deduction can be claimed in under construction phase.
Section 24: Tax Benefit on Home Loans Interest Amount
The Tax benefit is available on the interest portion of your EMI under section 24. Whether you are residing on your own property or have rented out your property – you can claim deduction up to Rs 2 lakhs on interest portion per annum.
Is Joint Home Loan Save Taxes?
If you are availing a joint home loan, you are increasing your home loan eligibility and saving some extra bucks on taxes also. For an instance -
Both you and your spouse availed a home loan on a co-applicant basis for a property. In totality, both of you are paying Rs 4 lakh as interest towards EMI. In a case where both the applicants are participants in the home loans and property structure, they can individually file up to Rs 2 lakh per annum under Income Tax Return (ITR).
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