Should you take home loan to save income tax?
2 min read 12 Jul 2023, 02:49 PM ISTLosses from rental income can only be set off against other income up to ₹2 lakh per year. It is not advisable to buy a property solely for tax benefits
PremiumI and my wife both are salaried. Our income includes salary, interest on fixed deposits with banks, and dividends from companies. We are in a 30% tax slab. We fully avail the deduction under Section 80C. Is there any way we can save more tax payments further like by taking a home loan to buy residential or commercial property? Can we offset the interest on such a home loan against our income to reduce the tax liability? Can we buy a commercial property and let it out? The rental income so generated can be repaid back to the bank towards the home loan, as EMIs. Will this help us in saving tax and asset creation ?
Answer: In addition to the tax benefits under Section 80C, you both can avail of the tax benefits under Section 80CCD(1B) by investing in NPS up to ₹50,000. As far as your query on tax benefits available for a home loan is concerned, please note that the income which you earn from letting out any property shall be taxable under the head “Income from house Property". From the rent received, you are allowed a deduction of 30% of the rent received. In respect of the interest on loan taken for such let-out properties, you can claim the full interest under Section 24. Please note that the interest paid on a loan taken from anyone is eligible for this deduction. The income tax law also allows you tax benefits in respect of principal repayment of loans taken for the purchase or construction of residential houses from banks and specified financial institutions. However, this benefit is available within the overall limit of ₹1.50 lakh under Section 80C.
Yes of course this will help you in saving tax and asset creation. The tax benefits will be available on the basis of your share in the home loan. So if you buy a commercial property you will be able to claim the benefit for interest paid. Please note though there is no restriction on the quantum of interest that you can claim in respect of a let-out property but any loss under the head “Income from house property" can only be set off against other income to the extent of ₹2 lakh every year and the unabsorbed loss is allowed to be carried forward for set off in 8 subsequent years.
I personally feel that it is not advisable to commit huge funds to buy a house property just to claim the tax benefits.
Balwant Jain is a tax and investments expert and can be reached at jainbalwant@gmail.com and @jainbalwant his Twitter handle.
