As we close in on the end of this year’s tax deductible investment dates, a question that starts to loom large is how to plan ahead and reduce your tax burden for the subsequent year. There is definitely no dearth tax saving investment options out there. But this year, instead of running from pillar to post seeking new investment alternatives, why not take a closer look at your liabilities i.e. loans to help out with your tax saving goals. The following are 3 lesser known and often missed ways of reducing your tax burden:
Avail all home loan deductions
For the average individual, a home loan is often the largest liability that he/she will handle in their lifetime. The good news is that a home loan can generate tax deductions under various heads and the following is a short list of these.
- For starters, the home loan principal repayment is tax exempt up to Rs. 1.5 lakhs annually under section 80C, however this can be availed only after the house/flat is handed over after construction completion.
- Under Section 24B, the interest paid is tax exempt up to Rs. 2 lakhs per year and this benefit applies to a second home loan as well (i.e. additional Rs. 2 lakhs deduction).
- The above interest repayment benefit applies to joint home loans as well and the co-applicants can each claim up to Rs. 2 lakhs per annum as tax deductible on their interest payments.
- The registration fees and stamp duty paid for a house offer tax deductions under Section 80 C subject to some key terms and conditions.
Also note that these tax deductions especially those on the loan principal repayment, if claimed by you, may be reversed in certain cases at a later date. Such situations include sale of property within 5 years of purchase or handover. In such a situation your taxable income for the year in which the sale was made will increase as the sale proceeds from the house will be taxable.
Leverage Education Loan Deductions
The high cost of higher education leads a majority of students to opt for an education loan to pursue studies at colleges/universities in India and abroad. As this debt is quite common among individuals who are just starting out in the workplace, it is a no brainer to claim this tax exemption benefit if possible. This tax deduction benefit under Section 80 E is applicable to the interest portion of the education loan. The loan principal however does not offer any tax benefits and the interest repayment exemption benefit is available for the first 8 years of loan repayment only.
Utilise Personal Loans tax benefits
Personal loans are often considered to be one of the least desirable forms of debt and they are second only to credit cards in terms of interest charges. However, not all personal loans are created equal and a specific type offers tax benefits on the interest repayment component of the loan under Section 24 B. This type of loan is classified by most banks as a home renovation loan (i.e. a subtype of a home loan) and you can receive tax deduction benefits of up to Rs. 2 lakhs annually on this personal loan’s interest component.
So keep a close look and figure out if you have missed out on any of these lesser known benefits after all, every rupee saved is nothing less than a rupee earned!