Among all the different forms of loan, the home loan takes the longest time to repay. Usually, the loan amount is rather high, and the EMIs are also heavy on the pocket. However, the demand for home loans has been growing significantly over the last decade, and in 2019, the home loan market is expected to increase by 17-19%. This indicates more people are turning to home loans to buy or build a house of their dreams.  

The average rate of interest for home loans is anywhere between 8.25% and 14% in the market. In banks and other financial institutions that offer secured personal loans, the EMI on these loans vary, and these interest rates keep changing as per RBI’s monetary policy.

While most people are aware of the unusually tiresome and lengthy process of taking a home loan, not many know about the many tax benefits which come along with a home loan as well. If you are contemplating about buying a home or constructing one, you must take note of the income-tax benefits provided towards the same by the Government of India.

Discussed below are the various provisions of Income Tax Act, 1961 (ITA) which can help home loan borrowers save tax:

Can I get a loan based on my tax return?  

First off, let’s understand the role of ITR records in order to get a home loan. All banks and financial institutions that offer secured home loans against collateral and securities usually require ITR records in order to approve the loan application.

There are minimum requirements for salary and income tax categories that you must fulfil to be eligible for a home loan, and these criteria usually vary from bank-to-bank. It is important to note that other factors like age, credit score, credit history, and loan tenure also help the bank in deciding the loan eligibility of the customer. 

How much home loan can I get on Rs. 50,000 salary? 

The first and foremost thing which is checked when you approach a bank for a home loan is the eligibility criteria. If you know about how the banks calculate your eligibility for a home loan, it will become much easier for you to apply for the right amount and get an approval. The maximum amount which you can borrow from a bank is calculated based on many factors. Before learning about the bank’s way of calculating the loan eligibility, try putting yourself in the lender’s shoes and think about the things on which you will base your decision while granting a home loan to somebody. This way, you will be able to understand the bank’s terms and conditions in a better way.

Your net monthly income—after deducting PF, ESI, and gratuity—is used to evaluate your creditworthiness by banks because it helps them determine if you are capable of paying EMIs after taking care of basic expenses. For example, if you earn INR 50,000 per month, at an interest rate of around 8%, you will be eligible for a loan amount between 58 lakhs and 66 lakhs (approximately), depending on your age, credit score and other factors. This is assuming that you have no existing loans and are not paying EMIs currently. In this case, your credit line is reduced as your EMI paying capacity decreases. 

However, many new-age fin-tech companies, like PaySense, that offer unsecured personal home loans approve loans on lower salaries as well. For instance, PaySense has incredibly inclusive eligibility conditions, wherein anyone earning INR 12,000 per month as a salaried professional or INR 15, 000 per month as a self-employed individual can avail a loan. Naturally, the higher your salary, the more loan amount you are eligible for. 

Can I get a home loan without ITR?

If you want to get a loan of a higher amount, you will have to approach a bank and provide your ITR. However, if your loan requirement is not very high, several NBFC and credit lenders, like PaySense, offer loans without ITR documents as well. The difference is that these organisations provide unsecured home loans. They evaluate your creditworthiness based on your current employment and offer you loans accordingly. 

Tax benefits on home loans under income tax laws

There are several benefits and deduction to be claimed while filing your income tax if you are paying EMIs on home loans. Let’s take a closer look at what these provisions are:

Section 24

In case of a property occupied by you, the deduction which comes under section 24(b) cannot go beyond INR 2 lakhs; provided that the home loan is acquired on or after April 1, 1999. Also, this would be applicable for construction and acquisition and not for any repair or reconstruction.

If you want to avail the deduction which comes under section 24(b), the construction or acquisition has to be finished within a period of 5 years from the end of the FY year during which you would have availed the home loan. 

Section 80C

The principal loan amount that is repaid each year can also be claimed for deductions up to Rs. 1, 50, 000; within the overall limit of Section 80C. Similarly, deductions can be claimed on registration fees, stamp duties and other charges related to transfer of property as well, if they are claimed in the same year. Conditions to be eligible for these deductions are:

The home loan must be for the purpose of purchasing or constructing a new house property.

The property must not be sold in the next five years from the date you took possession. If you do so, it will add back the deduction to your income in the year that you sell the house. 

Section 80EE

First-time homebuyers can avail an additional deduction of up to Rs. 50, 000 for the interest paid on a home loan until they fully repay the loan; provided they meet the following conditions:

  • This must be the buyer’s first house
  • The value of the house must be Rs. 50 lakhs or lesser
  • The loan amount should be Rs. 35 lakhs or lesser
  • The loan must be sanctioned by a financial institution of a housing finance company
  • The loan must be sanctioned between 1-April-2016 and 31-March-2017
  • On the date of sanction, no other house mist be owned by the buyer
  • Buyer can be both resident and non-resident 

To conclude and reiterate, these are the benefits that you can avail:

  • Under Section 24, tax deductions up to Rs. 200,000 are permitted for interest repaid annually.
  • The entire amount of interest repaid can be claimed as a tax deduction on the property, which is let-out (up to a maximum of Rs. 200,000 for each year).
  • Under Section 80 C, the principal loan amount repaid can be claimed for tax deductions (up to Rs. 1, 50,000).
  • A maximum of Rs. 1, 50, 000 can also be claimed as deductions on registration fees and stamp duty under Section 80C.
  • Under Section 80 EE, first-time homebuyers can claim up to Rs. 50,000 as deductions (subject to certain conditions).

Other things to keep in mind while taking a home loan

  • Generally, home loan borrowers think about increasing their loan tenure while keeping the EMI unchanged. However, the impact of this will be felt at a later stage as the burden of the increased rate of interest will mount later on in the loan tenure. Experts advise that the home loan borrowers must instead, increase the EMI and not change the loan tenure at all.
  • Borrowers may think about switching to a lender that is offering a lower rate of interest on home loans. While this can result in improving your savings, it primarily is dependent on your balance repayment tenure. If you have recently acquired a home loan, undergoing the tedious process of availing a new loan may not be worth your efforts. If in case you are an older borrower, you can definitely explore this option after a cost-benefit analysis.
  • Another way in which you can reduce the burden of the increase in the rate of interest is by prepaying the amount whenever possible. This will have a significant impact on your payable interest and reduce the loan tenure as well; thus proving to be extremely beneficial in the long run.

To sum up, there are various things to consider before applying for a home loan. If you are applying for a home loan from a bank, your ITR record will play an essential part in the process. However, there are ways to get loans of lower amounts without furnishing the ITR as well. PaySense offers loans up to INR 5,00,000 without ITR, collateral, securities or credit score. You can also avail relevant tax deductions on these personal home loans taken from PaySense, provided you use them to purchase or build your house. Get in touch with us to know more about how to get instant personal loans