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A home loan is the best way to fulfill your dream of owning a house. Because of the various benefits of home loans, many are encouraged to invest in house property. Repayment of home loan offers various benefits which include a deduction in Tax under the Income Tax Act 1961. Many people take the benefit of home loan tax saving.

What is a home loan?

A home loan is an amount of money that is borrowed by an individual from the bank in order to be used either in commercial or personal property. The bank charges a certain rate of interest, which needs to be paid with EMI every month. When the borrower defaults, the bank has all the rights to recover the loan amount by the sale of the property.

Home loans are of various types:

  • Home purchase loan: This loan is taken from the bank to purchase a home.
  • Home improvement loan: This loan is taken to meet the expenditures of home repairs and home renovation.
  • Land purchase loan: This loan is taken when someone wants to buy a plot on which he wants to construct his own home.
  • Home construction loan: The loan is taken when someone wants to construct his home.
  • Home extension loan: The loan is taken to add another room, garage, or bathroom in an already existing home. The loan can also be taken when you want to add another floor to your home.
  • Joint home loan: These are the loans that are taken by two or more than two people. Even spouses can take joint home loans.
  • Top-up home loan: The loan helps you to borrow more money above the loan amount.
  • Home loan balance transfers: The mechanism can be used to switch the existing loan amount to the different lenders offering better terms and conditions along with low interest.

Tax deductions on home loan:

The home loan consists of principal amount and interest amount. Home loan tax benefits can be taken in both these categories under section 24(b) and section 80(c) of the Income Tax act.

Under section 80(c) of the income tax act, a person can avail of the tax deduction of the maximum amount of up to Rs. 1.5 Lakh in per financial year on the payment of EMI. The benefit can only be availed once the property construction is complete. However, if you sell the constructed property within 5 years, the benefits will be reversed.


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