Why a Home Loan is the Smartest Way to Save Money?
Own property, enjoy long-term tax benefits, invest in the best asset class, secure the future… no investment pays more than a home.
Why buy a home?
This question presents itself invariably before ‘Why you should take a home loan’. Beyond the usual ‘Owning vs Renting’ debate, and the security and satisfaction of owning a home, the act of buying a home is a positive life event. One that hinges on a variety of factors: money being the chief one.
Imagine, if it were not for home loans, a significant number of middle-class Indians would still be living in rented apartments, moving homes constantly and leading a far more stressful life than they already do. In addition to having the satisfaction of owning an immovable asset, a home is a permanent safe haven for you and your family. It can even be treated as a gift, an investment that almost never fails to appreciate, and a hedge against financially bad times.
Why buy a home through a home loan?
While there are several benefits to buying a financed home, the most direct answer to the above question is people take a home loan when they cannot afford to buy a home with personal finances, be it their own money or friendly loans.
If you have the cash to buy a home, go ahead and spend it well. If you don’t, there are plenty of banks and financial institutions that can help turn your dream home into reality.
Benefits of a home loan
There are direct and indirect benefits of buying a home loan. There’s also a lot of fine print or uncommon home loan advantages that homebuyers miss. The first one is obviously the elimination of stress endured in raising money on your own to buy a home. In addition, a home loan offers long-term tax benefits on a manageable share of your income that is paid in EMIs. It means that despite repaying a home loan, you are not losing all of the repayment money because some of it is coming back to you by way of tax-savings and other avenues, such as renting if you don’t live in the home and long-term value appreciation when you sell, which has the potential to eventually outweigh repayment value.
Tax benefits on home loans
Tax benefits on home loans outweigh the potential tax benefits on all other investment avenues, especially for salaried individuals who can save significant amounts of money while owning an asset. These are the most commonly known benefits of home loans.
- Tax deduction on principal amount: Any individual or member of Hindu undivided family can claim tax benefits on home loan taken in India. Tax deduction can be availed under section 80C of the Income Tax Act for a maximum of Rs 1,50,00 principal amount repaid during the financial year. Bear in mind that the deduction can only be claimed after the completion of construction the financed property. Another criterion is the loan must be taken from a financial institution. It means that you could own a home with money borrowed from other sources but you won’t save tax on it and might end up paying a higher interest as well. You can continue to avail tax benefits for the entire tenure of your home loan or until you pre-pay it.
- Tax benefits for under-construction property: Don’t sulk if you want to take a home loan on under-construction property. Tax deduction can be claimed on repayment of up to Rs 1.5 lakh on principal and up to Rs 2 lakh on interest. However, tax deduction can be availed only after the construction of the building is completed. On completion of the construction, the total interest paid is deductible in 5 equal instalments.
- Tax benefits for first-time homebuyers: Rejoice if you’re buying your first home because there’s an extra tax benefit coming your way. First-time homebuyers can claim tax benefit of up to Rs 1.5 lakh under Section 80EEA provided the Stamp Duty value of the property is up to Rs 45 lakh, and the home loan is approved between April 1, 2019 to March 31, 2022.
- Set off of Capital Loss against Capital Gain: Most are aware of the tax benefits of buying a home, but few are aware you can claim tax benefits if you sell a home that attracts capital gains. For example, if you have made a long-term capital gain of Rs 10 lakh by selling your home and long-term capital loss of Rs 1 lakh by selling stocks which are either not listed or are sold off market, the total taxable amount would Rs 9 lakh.
- Tax benefits on repair and maintenance of home: Did you know you can claim a standard deduction of 30% towards repairs and maintenance costs from the gross rent which is annual rental value minus municipal taxes paid by you up to 30,000, subject to an overall limit of 2,00,000.
- Less stamp duty for women homebuyers: On the occasion of Women’s Day in 2021, the government of Maharashtra announced a 1% stamp duty reduction for residential property brought in the name of a woman. Several states already offer lower stamp duty for women home buyers in addition to numerous tax benefits. This, on top of buying a home in the wife’s name gets extra deduction on interest up to Rs 1.5 lakh each year. If property registered in the name of a woman is rented out, the woman can claim the total interest payable towards a home loan as deduction. Women and general homebuyers can also claim tax deductions on processing fees and service charges levied by the financial institution proving the home loan.
- Joint-ownership benefits: Jointly buying a home m entitles each owner to a deduction of up to Rs 2 lakh on interest and up to 1.5 lakh on interest.
Consider the numerous benefits and savings you make when buying a financed home. Isn’t money saved, money made? If you’re convinced about taking a loan to finance your home, take a look at our home loan service and call 9833717888 to speak our home loan advisor.