While the existing income tax structure was easy for Indian taxpayers to follow, introducing a new regime in the Union Budget of 2020 led to a certain confusion. This new tax system, which will not replace the previous one, proposed several new revisions in the tax payment structure.
Under its reforms, the system has done away with most of the existing income tax exemptions. This has led to a dilemma among taxpayers regarding whether to stay with the existing regime or opt for the new one.
Housing loan borrowers should learn about the income tax benefits they are likely to miss out on under the new regime. In this regard, they can use a home loan calculator and check the effect of missing out on such exemptions on their repayment and make a decision accordingly.
4 Benefits that home loan borrowers will miss out on under the new taxation system
Here are four important benefits associated with housing credit that has been done away with under the new income tax regime –
- Under Section 24B
Section 24B of the income tax enables home loan borrowers to receive tax exemptions on the interest amount payable. The maximum threshold for this deduction is capped at Rs.2 lakh. Two essential points to be noted here are –
- For self-occupied properties, this benefit is capped at the aforementioned amount.
- For rented-out properties, there is no cap on tax deductions.
Now, to qualify for this benefit, the purchase or construction of a property must be completed in 5 years, from the year of availing credit. Borrowers can also claim deductions from the year the construction of their property is finished.
There are home loan tax benefits available for under-construction properties as well. A house loan calculator used for taxation purposes can assist individuals in computing their yearly tax rebates.
Utilise this online tool at the very onset while computing your interest payable using the online home loan interest calculator.
- Under Section 80C
Section 80C of the income tax act allows home loan borrowers to avail of deduction on the principal payment. The maximum benefit available under this section is up to Rs.1.5 lakh.
Nonetheless, a point to remember here is that individuals are not advised to sell a property on which they have claimed income tax deduction within 5 years. The reason being, the amount will add up to their income tax.
Furthermore, Section 80C deductions also include a rebate on stamp duty and registration of a particular property. The limit here is up to Rs.1.5 lakh. Individuals should also learn about the home loan tax benefits available for under-construction properties to reap further benefits.
While opting for the latest income tax regime, one can use a home loan calculator for income tax to check the amount he/she will miss out on.
The calculator functions like housing loan EMI calculators and allows individuals to calculate their tax liability in minutes.
- Under Section 80EEA
Section 80EEA also enables individuals to avail of an additional Rs.1.5 lakh deduction on tax payments. However, to qualify for it, the respective property value must not exceed Rs.45 lakh.
- Benefits of joint home loans
Taking a cue from previous pointers, it is easy to say that the benefits available under joint home loans are also non-existent in the new system. Under the other income tax system, each co-owner is eligible for taxation benefits on housing loan repayment under different sections. Apart from this, one should know the other benefits of availing a joint home loan as well.
These are four major home loan tax benefits and exemptions that every borrower should have on their fingerprint. Nonetheless, they are not available anymore under the new taxation system proposed in the Union Budget of 2020. However, a relief here is that the new system is not mandatory to follow, it remains as an option besides the existing structure. Hence, individuals can still continue paying taxes under the old system to avail the benefits of home loan tax exemptions.
Moreover, individuals can take the assistance of home loan EMI calculators to find the details of their loan in advance. Based on this information, prospective borrowers can calculate their tax benefits and make payment decisions accordingly.
Keeping the income tax documents handy can be useful during a housing loan application, as it is treated as the income proof of an individual. Also, one should keep the list of all other documents prepared to avoid delays.
Nonetheless, one can avoid this hassle on a home loan application with pre-approved offers. Leading financial institutions extend such perks to their existing customers that shorten this loan application process and saves time. These offers are applicable on various products like home loans, loans against property, etc. Debtors can check their pre-approved offer by submitting their essential contact details.
Nonetheless, this new system may not be entirely fruitful for home loan borrowers as they will miss out on different exemptions. They can take the assistance of online devices like home loan calculators or income tax calculators and take a decision accordingly.