Owning a home is a significant milestone for many individuals in India, and understanding the tax benefits associated with it can lead to substantial financial savings. Section 80C of Income Tax Act 1961 offers various deductions that homebuyers can utilise.
For individuals who are looking forward to starting on the journey of homeownership, understanding the tax deductions available under Section 80C is essential. This article focuses on providing a detailed overview of these deductions.
What is Section 80C of Income Tax Act?
Section 80C is one of the most popular sections of the Income Tax Act. It allows individuals and Hindu Undivided Families (HUFs) to claim deductions up to ₹1.5 lakh from their gross total income in a financial year through certain investments and payments.
Options under Section 80C include investments like Employee Provident Fund (EPF), Public Provident Fund (PPF), National Savings Certificate (NSC), Equity-Linked Saving Scheme (ELSS), and expenses such as tuition fees for children and the repayment of a home loan’s principal amount.
Eligibility for Section 80C Deductions
The deductions under Section 80C are available to all individual taxpayers and HUFs. This includes salaried individuals, self-employed professionals, and business owners.
Tax Deductions Under Section 80C for Homebuyers
Below are notable tax benefits under section 80C of the Income Tax Act that the homebuyer can avail of:
1. Principal Repayment on Home Loan:
The principal amount paid towards a home loan is eligible for deduction under Section 80C. The home loan principal in 80C includes payments for buying or constructing a residential house property.
2. Stamp Duty and Registration Charges:
The amounts paid for stamp duty and registration fees for a property are also eligible for deduction, but only in the year these expenses are incurred.
3. Home Construction or Purchase Costs:
Expenditures incurred on the purchase or construction of a residential property can be claimed as deductions.
4. Pre-construction Interest:
Although not under Section 80C, under Section 24(b), homeowners can claim deductions on the interest paid on a home loan before the construction or purchase of the property.
Limitations and Conditions
Following are some limitations from taxpayers’ point of view in section 80C:
- The ₹1.5 lakh limit under Section 80C encompasses all investments and payments, including EPF, PPF, life insurance premiums, tuition fees, and others.
- To claim deductions for stamp duty and registration charges, the claim must be made in the same year these payments are made.
- The property must not be sold within five years of purchase or construction to retain the benefits of Section 80C deductions.
- Only residential properties are eligible for these deductions.
Additional Benefits for First-Time Homebuyers
With tax exemption under 80C, first-time home buyers can also avail of additional benefits under Section 80EE, which pertains to deductions available to individuals on the interest paid on home loans, provided they meet certain conditions.
Joint Home Loans and Tax Benefits
If the home loan is taken jointly, then each co-borrower can claim a deduction for the principal repayment and interest paid, subject to the limits under Section 80C and Section 24(b), respectively.
Documentation for Claiming Deductions
Homebuyers must maintain proper documentation, including home loan statements, stamp duty and registration receipts, and construction-related bills, to claim these deductions.
Claiming Deductions While Filing Income Tax Returns
The deductions under Section 80C can be claimed at the time of filing the annual income tax returns. Homebuyers should ensure they choose the correct ITR form and accurately report their investments and expenses under the appropriate sections.
Common Mistakes to Avoid
- Claiming deductions for properties under construction for more than five years, as it is considered as ‘Let out property’.
- Assesee not keeping proper documentation and receipts for the payments made.
- Overlooking the five-year lock-in period for selling the property
- Note that Section 80C in the new tax regime does not provide a deduction. Taxpayers need to choose between the new tax regime with lower rates with no rebate under 80C and the old tax regime with deductions based on their financial situation and preferences.
Conclusion
For homebuyers in India, the deductions under Section 80C offer a substantial financial advantage. By effectively utilising these deductions, homeowners can reduce their tax burden significantly. Understanding the intricacies of these tax benefits, maintaining proper documentation, and adhering to the conditions are crucial to benefiting from these provisions fully.
With tax deductions, one most essential factor homebuyers look at is amenities at their residence. As the most preferred real estate developer, Piramal Realty takes care of all of these requirements of Individuals. As always, consulting with a tax expert can provide personalised guidance based on individual circumstances.
Disclaimer- This article is based on the information publicly available for general use as well as reference links mentioned herein. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim /disown any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.
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