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How A Home Loan Calculator Can Help You Calculate Tax Benefits

Updated: Jan 24, 2022
How A Home Loan Calculator Can Help You Calculate Tax Benefits

You must be aware of how a home loan can help save taxes on your income under different sections of the Income Tax Act, 1961.

For example, under Sec 80C, you can claim a tax deduction of up to Rs 1.5 lakh towards principal repayment. The provisions under Sec 24B allows you to get a tax relief of up to Rs 2 lakh on the interest amount paid on the home loan. And, Sec 80EE, under which you can get a tax relief of up to Rs 50,000 on the interest portion if you are a first time home buyer.

Combining all the tax benefits offered under different sections, one can get an annual tax relief of up to Rs 4 lakh. But, it is easier said than done. You need to have the right EMI amount as per your income to get the maximum tax deductions. And, manually arriving at the amount is very difficult and time taking.

Therefore, you should use the home loan tax saving calculator that will help you to compute tax benefits taking into account your repayment capability.

Let’s understand how the home loan tax saving calculator works.

What is a Home Loan Tax Saving Calculator?

Home loan tax benefit calculator is an extension of the home loan EMI calculator, which helps you to determine the total income tax benefits under Sec 80C and 24B against the repayments made towards your home loan.

To calculate the total tax benefits, you need to first know the interest payout and principal repaid during the financial year. For this purpose, you can use the home loan EMI calculator, which provides you with a home loan amortisation schedule.

The home loan amortisation schedule provides you with an accurate break-up of the total interest payout and the principal amount repaid during the financial year. Once you have all the necessary information, select your tax profile (regular or senior citizen), fill the gross annual income field, and provide the breakup of interest payout and principal repaid during the financial year in the calculator.

After entering all information, click on calculate. The calculator will display your total tax liability and the amount you can claim as tax deductions.

Tax Saving on Home Loan

While calculating, the home loan tax saving calculator doesn’t take into consideration different eligibility criteria for claiming tax deduction under different sections of the Income Tax Act. Let’s have a detailed look at each section.

Home Loan tax saving under Section 80C:

Under this section, you can claim an annual tax deduction of up to Rs 1.5 lakh on principal repayment for both self-occupied and let-out house property. However, there is one condition, i.e., the house property should not be sold within 5 years of possession.

If sold within five years, the entire tax benefits will be reversed. Also, you should note, sec 80C is not applicable on under-construction property.

Under Sec 80C, you can also claim a tax benefit on the expenses incurred on stamp duty for that year.

Home Loan tax saving under Section 24B:

Under this section, you can claim an annual tax deduction of up to Rs 2 lakh on interest payout for the home loan taken to purchase a new house or construction of a house. However, to avail of the benefit, the construction should be completed within 5 years of the sanction of the loan.

Must Read : How To Claim Tax Benefits On Joint Home Loans

Home Loan tax saving Section 80EE:

If you are a first time home buyer, you are entitled to an additional tax benefit of up to Rs 50,000 on the interest payout. However, the amount of a home loan should be less than Rs 35 lakh and the value of house property should be below Rs 50 lakh.

Home Loan tax saving Section 80EEA:

You can claim a tax deduction of up to Rs 1.5 lakh on interest payout and the benefit is over and above the benefits of Section 24B. The benefit is only for first-time homeowners and the stamp duty value of the property should be below Rs 45 lakh. Under this section, you cannot claim the benefit under section 80EE. For metro and tier 1 cities, the carpet area of the house should not exceed 645 sq ft, and for the town and tier 2 & 3 cities, it should be below 968 sq ft.

This benefit is not available from Apr 01, 2022 onwards

Summing Up

The home loan tax benefit calculator assists you in optimizing your financial resources, thereby maximizing tax savings. Also, it ensures you don’t miss out on any tax benefits.

However, before selecting the loan tenure and EMI amount, always verify whether you are eligible for tax relief under the different sections of the Income Tax Act. If confused, consult a tax planner, who will help you with the intricacies of different sections of Income Tax and help you with the process of claiming tax relief.

By planning your home loan application process, you make the experience of owning a home a lot smooth and less financially challenging.

Must Read : How Much Home Loan can I get on My Salary?

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