Purchasing a home is among the biggest aspirations in one’s life. For many, a home loan is the only way to fulfill the dream. Even though availing of a home loan doesn’t take much time, its repayment is lengthy, especially if you have a low EMI spread across a long tenure. But it shouldn’t stop you from investing or saving money. Just like you compare the home loan rates from different lenders before applying for a home loan, you should prepare a repayment plan while applying for a home loan. A home loan calculator will help you with the necessary calculations. The question of the hour is how to repay your home loan and save on taxes! Read on to know!
8 Tips for Home Loan Repayment
You can prepay your loan amount, negotiate for low home loan rates if your credit score is good, research thoroughly, invest in different schemes, and transfer your home loan balance to save money. Additionally, some tips you can follow to save big on home loan repayment are as follows:-
Take Advantage of Section 80C
Under Section 80C of the 1961 IT Act, you can claim tax subtraction on the principal amount you pay back to your loan provider. It applies to your home’s registration and stamp duty fees. In addition to claiming tax deductions on stamp and registration charges, you can claim the deduction of repaying the principal amount of your home loan on self-occupied residential property.
Deduct the Interest Paid on a Home Loan
Apart from claiming a deduction on the principal amount of a home loan, you can also deduct the interest paid on a home loan. For self-occupied residential properties, Section 24 of the 1961 Income Tax Act allows a deduction on the interest paid on a home loan up to approximately a maximum of 2 lakh in a given financial year. If you have two homes and one is empty, or your parents reside in them, you can save on taxes on both homes, especially if you rent out your vacant property.
Apply for Joint Home Loans
If you’ve applied for a home loan with a co-applicant, you and your co-applicant can claim a home loan deduction of approximately Rs.2 lakhs and a home loan principal deduction of around Rs.1.5 lakhs under Section 80C. However, to benefit from this deduction, you must be the co-owner of a residential property. You can apply for joint home loans if you’re searching for big savings on taxes and claim tax benefits.
Choose a Comfortable Tenure
A smaller loan term with a big EMI amount is a good idea to repay your loan quickly and save money. But you may fall into a debt trap if you don’t pay monthly installments. Instead of saving money or investing, you end up losing money. Hence, use a home loan calculator to select a comfortable loan term that makes repayment stress-free and saves money, taxes, and funds for unforeseen situations.
Under Section 80EE, you can claim additional deductions of approximately Rs.50,000 if you meet certain conditions. This tax saving on home loans applies to first-time home purchasers. If you’ve bought a residential property for the first time, you can claim deductions and save big on taxes for home loan repayment under Section 80EE of the 1961 Income Tax Act.
Choose the Appropriate Lender for Your Home Loan
With multiple ways to save taxes on a home loan, it is perplexing for first-time borrowers to benefit from available tax deductions. Therefore, selecting a lender cautiously and the right lender is vital. Choose a reputable loan provider offering informative guidance on tax exemption laws for home loans. It will let you achieve your dream of purchasing your home and save big on taxes.
Section 24(b) offers a rebate on income tax on a home loan but only on the loan’s interest part. It also applies if you have opted for a loan for construction or renovation purposes. The deduction applies to the prepayment charges and processing fees you pay to your loan provider. Suppose you rented out your purchased residential property. In that case, you can claim full deduction on interest charges. Nevertheless, the subtraction limit is Rs.1.5 lakhs in a fiscal year if you occupied your property.
The 2019 budget brought an extra subtraction under Section 80EEA for home purchasers for a maximum of Rs. 1.5 lakhs. To take advantage of this deduction and save big on taxes for your home loan repayment, you should meet the following requirements:-
- The residential property’s stamp value should be below Rs.45 lakhs.
- On the loan approval date, the first-time homebuyer shouldn’t own any other residential property.
- The home loan must have been approved between 1st April 2019 and 31st March 2022.
- The person must only be eligible for tax deduction towards home loan repayment under Section 80EEA.
Your home loan is among your biggest investments. You apply for a home loan after checking the home loan rates offered by multiple loan providers. You can save money while repaying your home loan. Yes, you heard it right. If you manage your well, you can save big. Although reducing your expenses will save you money, the tips will do the same and relieve you of the repayment burden and stress. Before opting for a home loan, use a home loan calculator and plan your repayment. Follow the simple ways mentioned in the article to save big on taxes for repaying your home loan. Always remember to prepay your home loan to the maximum, invest your hard-earned money, and channel your income well, which can be valuable in terms of saving.