Tax Benefits on Home Loans & Educational Loan

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Tax Benefits on Home Loans Educational Loans
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Tax Benefits on Different Types of Loans

• While taking a loan allows you to fulfill
  requirements like buying a house or financing
  your childs education, the repayment of this
  loan along with the interest levied on it, does
  affect your monthly as well as annual finances
  for other expenditures.
• However, there is an additional beneficial side
  to loans which is the tax saving angle.
• The Indian Government allows tax benefits on
  different types of loans.
• As per different sections of the Income Tax Act,
  1961, loans can be used as tax saving instruments
  as well.

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Tax Benefits on Home Loans

• When taking a home loan for purchasing a
  property, an individual is eligible for tax
  deductions on both principal amount as well as on
  the interest that is paid for servicing the loan.
• Deductions on Principal Amount
• Tax benefits for the principal loan amount as
  defined under Section 80C of the Income Tax Act,
  1961, now allows a maximum deduction limit of
  1,50,000 INR and this amount is inclusive of
  other tax saving investments as well.
• These deductions are applicable only once the
  construction of the property is complete and not
  for the time period during which the property was
  under construction.

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Tax Benefits on Home Loans

• Deductions on Interest Amount
• Section 24 of the Income Tax Act has certain
  provisions that allow tax benefits on the
  interest paid on the principal loan amount.
• For construction or purchase of a new property,
  you are eligible for deduction of up to Rs. 2
  Lakhs for the interest amount paid, if the
  property construction was completed within 3
  years from the end of the financial year in which
  the loan was issued.
• If the property is not acquired/constructed
  completed within 3 years from the end of
  financial year in which the loan was taken, the
  interest benefit in this case would be reduced
  from 2 Lakhs to Rs 30 thousand only.

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Tax Benefits on Educational Loans

• Unlike home loans, only the interest on
  repayments is applicable for deduction and not
  the principal amount.
• As defined in Section 80E of Income Tax Act,
  1961, this deduction is applicable only for an
  individual for higher education with no fixed
  upper limit.
• Here, higher education can be defined as any
  course that you pursue after Senior Secondary
  School Level in India or abroad.

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Tax Benefits on Educational Loans

• It is important to understand that the education
  loan should be taken from a financial or approved
  charitable institution, to be eligible for tax
  benefits and you can avail this tax benefit for a
  maximum period of 8 years or full loan repayment
  period, whichever is applicable.
• For e.g., if you have paid off your education
  loan within 5 years of the course completion,
  deduction benefit can be availed only for that
  time frame and not beyond that.

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