There are various deals and offers, especially for first time home buyers, that one can take advantage of.

Home loans help homebuyers fulfil one of their most cherished dreams – purchasing a home. However, another aspect of a home loan makes it an attractive proposition – the monetary benefits that a borrower can avail of.

Tax Benefits 

The EMI that one pays towards a home loan has two components, i.e., principal and interest. A borrower can avail of a tax rebate on these components under the various sections of the Income Tax Act, 1961.

Nalin Jain, Chief Customer Officer and Head of Operations at Godrej Capital says, “Under section 80C, borrowers can enjoy a maximum tax rebate of Rs 1.5 lakhs on the home loan principal. This benefit is allowed only on a fully constructed property. Additionally, one can avail of a tax benefit of Rs 2 lakhs on the home loan interest under section 24. An essential thing to note is that tax benefit on home loan interest is available on a payable basis.”

For the interest paid while the property is under construction, Jain explains, “borrowers can claim a deduction of interest in five equal instalments starting from the year the property is acquired, or the structure is completed. This deduction is in addition to the deduction a customer is otherwise eligible to claim from the house property income.” That said, the maximum eligibility cap remains at Rs 2 lakhs.

For a jointly held property where the co-owners are also on the loan structure, “Jain points out, “both holders can claim a deduction of home loan interest of up to Rs 2 lakhs and principal repayment of up to Rs 1.5 lakhs under the appropriate sections in their tax returns.”

Reasons why you should not default on home loans

Defaulting on regular payments has serious effects on borrowers;

1. It affects credit score (maintained by Credit Information Companies)- which Jain explains, “reduces creditworthiness, thus limiting the borrower’s ability to borrow on preferential terms – amount, tenor and interest rate.” Depending on the default severity, an individual might be denied any access to loans in the future.

2. It can lead to legal action against the defaulter by the lender in pursuit of recovering the outstanding loan amount.

3. The defaulter, Jain points out “risks losing the homeownership as the same can be repossessed by the lender, to the outstanding loan amount.”

4. It attracts additional charges from the lending institutions, which get accumulated, thus increasing one’s outstanding liability.

5. It also affects employability as some organizations perform background checks, including credit score checks, and might be hesitant to hire employees with lower credit scores.