Certainly Saving Tax on your income is always a spot of interest for each one of us and why not save on it when there is a legal way? Home Loans are one of a better ways for saving on your taxes for a longer duration. So how it exactly works?
There are different sections of the Income Tax Act of India under which you can avail deductions on the taxes, confers you to save a signification amount on your total tax liability.
There are two sections of the Income Tax Act of India which will allow you to get a deduction if you have taken a home loan; this of course ignores home loans from private sources (Friend, Family, etc). The two sections are here under.
- Sec 24(b) of the Income Tax Act, 1961
- Sec 80(c) of the Income Tax Act, 1961
Section 24(b) is with respect to the Interest Paid on the Home Loan and Section 80(c) is with respect to the Principal Repayment of the Home Loan.
The Section 24(b) of the Income Tax Act, 1961 is applicable on Home loan for purchase of house or construction of the house property. You can avail a deduction of up to Rs. 1,50,000 of you total tax liability, Also reconstruction or renewal or repairs is eligible for deductions under the said section.
The Section 80(c) of the Income Tax Act, 1961 allows you a deduction of up to Rs. 1,00,000 on the principal repayment amount.
Suppose your total taxable income is Rs. 4,00,000.
Principal repayment is Rs. 1,50,000 and total Interest Payable is Rs. 1,80,000.
The total deduction allowed is Rs. 2,50,000 (1+1.5Lacs) under the sections. Hence now your total taxable income becomes only Rs. 1,50,000 (4-2.5Lacs) and that saves a lot of money!