With a home loan, it is much easier to finance a residential property. Instead of making the entire payment towards the property, borrowers have the advantage of paying equated monthly instalments towards the loan. This makes owning a home or even constructing a property more affordable.

In addition to this, home loans also help save on tax payments. There are provisions available to get rebates on the EMI that is paid towards the loan each year. These EMIs are considered an investment and can be deducted at the time of filing income tax returns.

What Tax Benefits Do Home Loans Offer?

There are provisions in the Income Tax Act that allow borrowers to claim rebates on the various components of the EMI paid towards the home loan. These EMIs consist of a principal amount and an interest component, both of which are eligible for rebates on the income tax of the borrower.

Making repayments towards the EMI is a burden on the borrower and is a fairly large sum that is deducted from the available monthly budget. It is necessary to plan financial commitments accurately to ensure that all the bills along with the EMIs can be managed while preparing for possible financial emergencies. Fortunately, there are several tax benefits that are provided for Indian nationals on the repayments that are made towards home loan.

The tax benefits that are available on Home Loans are as follows:

  • Under Section 80C: This section of the Income Tax Act of 1961 allows borrowers to get tax deductions of up to Rs.200000 in every financial year on the payments made towards the principal amount. This amount is extended to Rs.300000 for senior citizens. The condition to avail this benefit is that the house must not be sold within 5 years of acquisition. It is also necessary for the borrower to be a first time home owner.
  • Under Section 80C: According to this section of the Income Tax Act of 1961, tax deductions of up to Rs.200000 can be claimed on the repayments made towards the interest of the loan. This amount is also extended to Rs.300000 for senior citizens. In order to avail this facility, it is mandatory that the property is constructed within 5 years of applying for the loan, failing which a maximum rebate of Rs.30000 is available.
  • Under Section 80C: According to the Income Tax Act of 1961, rebates of up to Rs.1.5 lakhs are available on the stamp duty and registration charges that are paid towards the property. This benefit is available only in the financial year when the individual made these payments.
  • Under Section 24:As per  this section of the Income Tax Act of 1961, tax deductions can also be availed on the service fees, processing fees and even the prepayment charges paid while applying for the loan. These fees are also eligible for rebate in the year when they were made.

How does Home Loan Calculator Work?

To understand how much can be saved on taxes through rebates on the home loan, the first thing that the borrower should know is the EMI that is to be paid towards the loan. This can be calculated using the Home Loan Calculator available online or on the official website of the bank where the loan application has been filed. These home loan calculators also provide customers with a detailed Home Loan amortization Table. This amortization table provides you with all the details of your home loan such as EMI paid and the amount outstanding in the form of easy to read tables.

With every Home Loan Amortization Table, 6 components are listed:

  • The amount that is borrowed from the bank, which is also known as the principal amount.
  • The tenure for any fixed payments that need to be made towards the loan.
  • The repayments made towards the principal amount.
  • The repayments made towards the interest component of the loan.
  • Payments made towards any taxes or even insurance on the home loan.
  • The outstanding balance after making all the repayments until that period.

The home loan EMI is calculated on the basis of three major components:

  • The principal amount or the actual amount sanctioned as loan.
  • The rate of interest that is charged per month.
  • The number of monthly installments to be paid or the loan tenure that is provided to the borrower.

With Online Home Loan EMI Calculators even components like the processing fees and any prepayments made on the loan are taken into consideration to provide the actual EMI that is payable. 

Determining Tax Benefits Using the Home Loan Calculator

Besides calculating the EMI, Home Loan Calculators also help the borrower determine the exact tax benefits that he or she is eligible for. Here are a few simple steps to follow in order to determine the tax benefits on home loans:

  • Log on to the official website of the bank that the loan account is held in.
  • Choose the category, namely, male, female or senior citizen. This option is provided because the interest rates may be subsidized according to the category that the individual belongs to.
  • Provide the details of the loan such as the principal amount and the tenure.
  • In some of these calculators, the customer can also enter other details like prepayments made towards the loan and the processing fees.
  • Based on the details provided and the interest rate that the individual is eligible for, the exact EMI is calculated for each month.

In the loan amortization schedule, one can even check the exact amount paid towards the principal amount and the interest. Based on these calculations, it is possible to make the deductions as per the provisions in the Income Tax Act.

This allows the borrower to compare the income tax payable before the home loan is taken and after the home loan is taken. The difference in these two values determine the tax benefits that the individual will avail each year. There are online tax benefit calculators as well to determine the amount more accurately.