Tax Implications Of Home Loan Prepayment

When you prepay your home loan, it has obvious implications on the tax deductions you get for principal repayment and interest payment. Here is what happens on home loan prepayment.

Lower tax deduction for principal repayment
You get annual tax deductions of upto Rs 1.5 lakh for principal repayment under Section 80C. Since interest is regularly serviced through the EMI, any partial prepayment constitutes principal repayment. It brings down the outstanding amount of your home loan. You might become eligible for a lower tax deduction.

Lower tax deduction for interest payment
Home loan borrowers also get annual tax deduction for interest payment of upto Rs 2 lakh under Section 24 for a self-occupied property. There is unlimited tax deduction for a home under rent. A lower outstanding loan amount after prepayment could substantially alter the eligibility of the tax deduction, depending on factors such as the amount prepaid and the period of loan tenure completed.

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