What Tax Benefits Are Available On Joint Home Loans
If you apply for a home loan with other individuals, your chances of getting the grant increase. Any bank or financial organisation is more likely to support a house loan application with many borrowers since they know that the loan will be repaid by multiple people. These co-applicants are also referred to as co-borrowers.
Besides increasing their chances of getting a home loan, joint ownership gives the borrowers more repayment flexibility, reducing the risk of paying the EMI all alone. Additionally, borrowers with joint home loans are eligible for joint home loan tax exemptions, which means you and all your co-borrowers or co-applicants can claim income tax benefits separately.
Each co-applicant can claim a tax deduction of up to Rs 2 lakh for interest payments and Rs 1.5 lakh for principal repayment under Section 24 and under Section 80C, respectively. Both applicants must, however, be co-owners of the property and pay the EMIs.
Home Loan Tax Benefits Under Section 24
Under the Section 24 of the Income Tax Act, you can claim income tax deduction of upto Rs 2 lakh on the interest payments on your home loan.
Take a look at the conditions involved in claiming tax benefits under this section:
- This limit of Rs 2 lakh applies only if the property is self-occupied.
- If the property is rented out , there is no maximum limit for claiming interest.
- You must purchase the property or complete the construction within 5 years of taking the loan.
Misconception : You Will Get A Tax Break
Despite the hype, the overwhelming majority of homeowners receive no tax break at all from the mortgage interest tax deduction. Keep in mind that to even qualify for the deduction, homeowners must itemize their deductions when determining their income tax liability. Itemizing provides an opportunity to account for specific expenses, including mortgage interest, property taxes, and partial medical expenses. As mortgage interest is often the largest of these expenses that a taxpayer pays, deducting it is often cited as a financial incentive to buy a home.
Once again, while an attractive idea in theory, the reality is that passage of the TCJA means that itemizing deductions no longer makes sense for most people. For taxpayers who are single or married but filing separately, the standard deduction is $12,550 in 2021 . For heads of households, it is $18,800 in 2021 . For married couples filing jointly, the standard deduction is $25,100 in 2021 .
Taxpayers who do not have deductions that add up to more than the standard deduction amounts would not need to itemize, and, therefore, derive no tax benefit from paying interest on their mortgages.
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Can I Claim Tax Benefits If I Borrow Money From Family Members Or Friends
In such a case, deductions can only be claimed towards the interest component under Section 24. The person from whom you borrow the capital, would also be obliged to issue you an interest certificate, based on which your deduction claim would be accepted. The lenders interest income would also be taxed, based on this document.
Most Homeowners Now Get Nothing
The Tax Cuts and Jobs Act passed in 2017 changed everything. It reduced the maximum mortgage principal eligible for the deductible interest to $750,000 for new loans . But it also nearly doubled standard deductions when it eliminated the personal exemption, making it unnecessary for many taxpayers to itemize since they could not longer take both the personal exemption and itemize deductions at the same time.
For the first year following the implementation of the TCJA, an estimated 135.2 million taxpayers were expected to opt for the standard deduction. By comparison, 20.4 million were expected to itemize, and, of those, 16.46 million would claim the mortgage interest deduction.
The mortgage interest tax deduction is perhaps the most misunderstood aspect of homeownership. It has taken on near-mythical status to the point where many would-be homeowners are sold on the benefits before they even examine the math to determine their eligibility.
Underlying the myth are two primary misconceptions: The first is that every homeowner gets a tax break, and the second is that every dollar paid in mortgage interest results in a dollar-for-dollar reduction in income tax liability.
So Who Can Claim Tax Benefit On Home Loan
For claiming the tax benefit on home loan you must be fulfill one basic requirement common with all the income tax sections.
You must be the bearer of both the titles, i.e., owner of house property and the borrower of loan for the property. Only ownership alone or being a borrower of funds alone cannot reap you these benefits. Though, you may be a co-owner or a co-borrower.
So, if you are thinking of buying a home in your wifes name and paying the EMI from your income, Then, unfortunately you will not get any tax benefit:(
Overall only an individual or member of hindu undivided family can claim tax benefits on home loan. No company, partnership firm or body corporates is allowed the benefit of home loan interest & principal deduction.
Deduction For Stamp Duty And Registration Charges
A Stamp Duty is nothing but a tax levied upon purchasing a home that the buyer pays to the sub-registrar in the area where the property is located. You can rebate this amount from your taxes under Section 80C if your total deductions under the section do not surpass the upper limit of 1.5 lakhs. However, it is important to remember that you can only take this deduction in the year that the expense takes place.
As per the Income Tax Act 1961, the maximum tax deduction allowed on a home loan is as follows:
Upto Rs 2 lakh on interest payment under Section 24 for a self-occupied houseUpto Rs 1.5 lakh on principal repayment under Section 80CUpto Rs 1.5 lakh on interest payment under Section 80EEA
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Save Each Year After Filing Taxes
Owning a home can be expensive. In addition to paying down your principle, you have to pay thousands in dollars in loan interest every year and thousands in property taxes, homeowners insurance, private mortgage insurance and perhaps homeowners association fees. Thats not even taking into account any repairs or improvements you might need to make from year to year, such as putting on a new roof or buying a new air conditioner.
One of the financial benefits of home ownership is that you can deduct the interest you pay on your loan up to a total of $750,000 of mortgage debt, which can provide some financial relief when it seems like your home is only costing you money.
How To Calculate Advance Tax
Advance tax is payable if you have income sources other than salary. This includes rent, capitals gains, lottery winning, and more. To calculate advance tax, apply the income tax slab rate applicable in the financial year. Follow the steps below:
- Estimate the income from capital gains, professional income, rent, and other income
- Add income from salary to the above total to arrive at gross taxable income
- Apply the income tax slab applicable to you
- Deduct the TDS as per the TDS slab
You are only liable to pay advance tax if your tax liability exceeds Rs. 10,000 after deducting TDS.
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Deduction On Interest Paid Towards Home Loan During The Pre
People frequently buy residences that are still under construction and will be ready to move into several years later. In this situation, the repayment of a home loan begins long before the borrower takes possession of the property.
In such cases, the Indian government allows you to claim tax deductions on the EMIs paid, which is called pre-construction interest. You are eligible to claim a tax exemption on the interest paid in five equal yearly instalments once the construction of the property for which you have obtained a home loan is complete. The maximum reduction continues to remain the same at Rs 2 lakh.
Consider that you have obtained a home loan for construction and are paying Rs 10,000 in monthly interest as EMI. Now the construction is completed after 2 years in 2020. As a result, you can start claiming the pre-construction interest in five equal yearly instalments starting from the year 2020.
Section 24 allows for a maximum interest deduction of Rs 2 lakh . An additional amount of Rs. 1.5 lakh can also be deducted under Section 80EEA only if you are a first-time buyer.
Its A Tax Break That Fewer And Fewer Homeowners End Up Taking
Lea Uradu, J.D. is graduate of the University of Maryland School of Law, a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, Tax Writer, and Founder of L.A.W. Tax Resolution Services. Lea has worked with hundreds of federal individual and expat tax clients.
A Tea Reader: Living Life One Cup at a Time
The home mortgage interest deduction is one of the most cherished American tax breaks. Realtors, homeowners, would-be homeowners, and even tax accountants tout its value. In truth, the myth is often better than reality.
Home Loan Tax Benefit Under Section 80c
The Section 80C of Income Tax Act allows home loan borrowers to claim income tax deduction of upto Rs 1.5 lakh on the principal amount repaid during the year.
There are certain conditions involved for claiming tax benefits under this section:
- The construction of the house must be completed before you start claiming deduction under Section 80C.
- You must not transfer / sell the property within 5 years of possession. If sold within 5 years, all deductions you may have already claimed will be considered as your income in the year of the sale of property.
Deduction For Interest Paid On Housing Loan
With an aim to help people buy their own home, the Income Tax Act of 1961 provides many provisions that allow home buyers to claim tax exemptions on various components of the home loan, including interests. When a person secures a home loan to either purchase or construct a house and is paying EMIs then they can claim tax benefit on the following two components
Section 24 allows you to deduct the interest amount of your EMI paid for the current financial year from your total income, maximum up to Rs 2 lakh. The maximum tax break for interest paid on self-occupied residential property is Rs 2 lakh starting with the assessment year 2018-19.
There is no cap to the amount of interest that can be reclaimed on rented property. However, the total loss that can be claimed under the heading of “House Property” is limited to Rs 2 lakh, which is obtainable from the year the construction was concluded.
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Tax Benefits On Principal Re
Under section 80C of the Income Tax Act, the maximum deduction allowed for the repayment of the principal amount of a home loan is Rs. 1.5 lakh. Deduction under section 80C also includes investments done in the PPF Account, Equity Oriented Mutual funds, Tax Saving Fixed Deposits, National Savings Certificate, etc. subject to the maximum of Rs. 1.5 lakhs.
Besides this, there are stamp duty and registration charges that one can claim under the aforementioned section. Though, the claim can only take place in the year in which the payment has been made.
Nevertheless, theres a condition under which this repayment of the principal amount of the housing loan is allowed. The deduction is only possible after the house gets entirely completed and there is a completion certificate for the same. The principal amount paid on any under-construction structure/property is not going to be a part of this section.
Income Taxes Vs Payroll Taxes
The above rates are separate from Federal Insurance Contributions Act taxes which fund Social Security and Medicare. Employees and employers typically pay half of the 12.4% Social Security & 1.45% Medicare benefit each, for a total of 15.3%.
Self-employed people pay self-employment taxes, which had them paying both halves of the tax.
For 2020 the FICA limit is on the first $137,700 of income. On his Presidential campaign, Senator Joe Biden proposed also imposing the payroll tax on every dollar of income above $400,000.
On August 28, the IRS issued Notice 2020-65 which allowed employers to suspect witholding and paying Social Security payroll taxes for salaried employees earning under $104,000 per year through the remainder of 2020. As originally proposed these are not forgiven payments but rather deferred payments which need to be paid in half by the end of 2021 and in whole by the end of 2022.
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Personal Information And Documents
As your deadline to file your taxes gets closer, it is a good idea to get all of the necessary personal information and documents together in one place. If you have everything organized and in one location, this will ensure you don’t forget anything and have problems with your taxes later on after you’ve filed.
In order to properly file your taxes, the Internal Revenue Service has to know who is actually filing the tax return, as well as how many people will be covered or claimed on the tax return. You will need your social security number, your spouse’s social security number if you’re married, and the social security numbers of anyone you plan to claim as a dependent on your tax return.
You will need several important pieces to file your tax return efficiently and accurately. All of your income information must be documented, as well as your spouse’s if you’re married. The pieces you’ll need are listed below.
- 1099 Forms – These forms are used if you completed any contract work. If you’re married, you’ll need one from your spouse as well.
- Business Income – Accounting Records if You Own a Business
- Income from both local and state tax returns from the last few years
- Investment Income
- Moving Expenses
About Income Tax Calculator
Individuals and Hindu Undivided Families falling under certain income tax slabs are liable to pay income tax every financial year. For this, you should know how to calculate income tax. While you can do a manual assessment, this may lead to errors. Bajaj Housing Finance brings you a simple digital income tax calculator that you can use with ease. This online tax calculator is an easy and convenient tool designed to give an approximate figure of how much tax you need to pay. The income tax liability it determines depends on the inputs you enter such as your income, exemptions, and deductions.
Use the easy tax calculator to save time and help you with your taxes. An online income tax calculator is simple to use and easy to access. All you need to do is choose the assessment year you need to calculate income tax for. Enter or select basic details like your gender and whether you are a senior citizen or a super-senior citizen. Enter your income, deductions, and HRA exemptions. Submit all the required details. Thatâs it! The I-TAX calculator will process the information and give you results in seconds.
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What Are The Details You Need For E
You need the following details and documents for e-filing your income tax returns:
- Details of your Aadhaar card, PAN card number, and proof of your current address
- Details of all the bank accounts under your name for the particular financial year
- Proof of income such as salary slip, details of income from investments such as interest on the savings bank account, FDs, etc.
- All the deductions claimed under section 80 or chapter VI-A of the Income Tax Act
- Details of tax payments like advance tax payments and TDS
For your convenience, keep all the necessary documents ready. Calculate advance tax and use the TDS calculator for ITAX calculation.
What Is A Pre
HDFC also offers a facility of a pre-approved home loan even before you have identified your dream home. A pre-approved home loan is an in-principal approval for a loan given on the basis of your income, creditworthiness and financial position.
Apply for a home loan online with HDFC, click Apply Online
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to know more about home loans.
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Home Loan Tax Saving Calculator
You can use the Home Loan Tax Saving Calculator on Bajaj MARKETS to calculate the total tax benefit that you can get on your home loan. The calculator is simple and has an easy-to-use interface. All you have to do is enter the following details in the designated fields of the calculator:
Loan Start Date
The calculator will give you an estimate of the income tax that you can save on the principal and interest amounts of your home loan.
Let us try to understand this with the help of an example. Lets say your annual income is 12,00,000 and you have taken a home loan of 50,00,000 for a tenure of 20 years. Your tax savings on the house loan can be calculated as per the following table:
Principal Home Loan Amount
Tax Savings Because of Home Loan
Which Income Is Not Taxable In India
Several types of income are exempt under the Income Tax Act 1961. These are known as tax-free income sources. Here are a few of these that you should be aware of:
- Agricultural income
- Dividend income from shares and mutual funds
- Payment received on voluntary retirement or during separation
- Money received from government-recognized provident fund
- Any amount of gratuity received by a government employee
- Any payment in commutation of pension
- Receipts from Hindu Undivided Family
- Certain sources or receipts earned by NRIs
- Income and receipts earned by foreigners in India
If you are eligible for income tax, use the IT calculator to determine the income you are liable to pay.