If you are purchasing a home for the first time, this article will help you know more about tax and other benefits on a first-time purchase.
Although purchasing your first home can be challenging, it has numerous advantages for your long-term financial health, ranging from the source of equity to tax breaks.
Homebuyers for first time, who make up about half of the mortgage market, have the opportunity to use numerous benefits explicitly designed for them. Central and state government programs offer multiple benefits for first-time home buyers to overcome the challenges of buying their homes.
6 Benefits for First-Time Home Buyers
Here is a list of merits given to first-time home buyers under different sections of Income Tax.
Construction of the House is Completed
Under section 80C, on the repayment of the principal amount of a home loan, tax benefits of up to 1.5 lakhs could be claimed. This deduction will only apply on properties where the construction has been completed, and since the date of purchase, it has been kept for at least five years.
Interest Repayment on Affordable Housing
Under Section 24, on interest repayment over and above the tax benefits offered, the buyers can avail of tax benefits of RS. 50,000. A new section was introduced under the union budget 2019 – Section 80EEA.
Under the term ‘affordable housing,’ the interest repayment on a home loan, the tax benefits are extended up to RS. 1.5 lakhs under this section. You can only avail of this benefit if you have not received any benefits from Section 80EE.
Deductions on Interest on Home Loans
Section 24, deductions of up to a maximum of Rs. 2 lakhs per annum could get claimed by first-time home buyers paying interest on a home loan. This section is only valid if the property is self-occupied and not rented.
Investments by Female Members of the Family
According to income tax laws, there are no special privileges for a female to invest in a house, and she can claim all the benefits above under income tax laws identical to men.
However, if a woman is a house owner, some state governments give a 1%-2% stamp duty benefit.
For instance, in Rajasthan, if you purchase a house of Rs 40 Lakhs, the stamp duty (including other charges) is 8.8% which is RS. 3,52,000, whereas if a woman is the house buyer, she must pay 7.5% stamp duty, which is RS. 3,00,000. So, if a woman buys the same house, there is a one-time saving of RS. 52,000.
Prospective Tax Benefits on Husband-Wife or Joint Purchase
The rules of income tax benefits remain the same, even if the house has been purchased jointly by the husband and wife. However, both husband and wife can claim the tax benefits in their files. Also, the maximum deduction benefits can be, at most, the amount paid, i.e. both husband and wife cannot receive the use of the same payment.
Suppose 2.77 Lakhs is the interest component, and under Section 24, the husband avails a tax deduction benefit of RS. 2 Lakhs; in this situation, the wife can only receive the benefit of RS. 77,000, which means that the benefit taken against the interest amount can never exceed the principal amount paid, which is RS. 2.77 Lakhs.
Tax Benefits on No HRA
Under Section 80GG, you can receive some tax benefits if your employer does not pay you HRA. On the expenditure incurred by an individual over 10% of their total income for rent, this provides them with a deduction for furnished/unfurnished accommodation in case they are not provided with any HRA by their employers or are self-employed. But there are some conditions laid ahead. The excess expenditure can not cross Rs.2,000 per month or 25% of their total annual income, whichever is less.
Benefit of First-Time Home Buyers under the Real Estate Regulation Act (RERA)
RERA aids homebuyers in multiple ways: the buyers’ rights are defined, standardised measures for a property (like carpet area), and strengthened, regulations on insolvency, data transparency on projects from builders, etc. It keeps in check the malpractices of the builders and increases the stakes of the purchaser it also regulates the sector.
GST and Housing Subsidy For First-Time Home Buyers
If a house is bought under PMAY, a GST of 12% will be applicable. In 2018, this was slashed to 8%. It means a first-time homebuyer with a family income of Rs.18 lakhs can claim a benefit of up to Rs.2.7 lakhs when purchasing an apartment or a house in contrast to the earlier benefit, which was Rs.2.5 lakhs.
Conclusion
After purchasing their first residential property, many first-time home buyers remain confused about the income Tax benefits they can receive on home loans. If you are a first-time home buyer, you can avail of the tax benefits under three sections- Section 80C, Section 24 and Section 80EEA of the Income Tax Act. The home loan benefit of first-time home buyers is RS.5 lakh annually under these sections of the Income Tax Act.
