Owning a home is a significant milestone and a dream come true for many individuals in India. The Indian Government also promotes home ownership in India and thus has made it a key avenue for tax savings. This is done by providing tax deductions on the principal and interest paid on home loans. These deductions can significantly reduce your tax liability. While claiming tax deductions for interest paid on home loans is quite easy, you still need to be aware of the provisions allowing this and how you can claim the deduction.
In this article, we will take you through the step-by-step process of claiming interest on a home loan deduction in India. However, before that, let’s take a quick look at the legal provisions allowing tax benefits for interest paid on home loans and how you can get affordable home loans.
Various Tax Deductions Available for Interest on Home Loans
In India, there are two main sections under the Income Tax Act, 1961 that allow deductions for the interest paid on home loans. These are:
Section 24(b)
Under this section, you can claim a deduction of up to Rs. 2 lakhs on the interest paid on a home loan for a self-occupied property. However, you need to satisfy certain conditions to claim this deduction. This deduction is available for both completed and under-construction properties.
Section 80EEA
Introduced to provide further relief to first-time homebuyers, this section allows an additional deduction of up to Rs. 1.5 lakh on interest paid for a home loan. However, certain conditions and limitations apply in this case as well.
How to Claim Interest on Home Loan Deduction in India?
If you are willing to claim a interest on home loan deduction, you need to satisfy the following conditions:
Gather All the Documents
You need to collect all the necessary documents related to your home loan, such as the loan agreement, interest certificate and possession certificate from the builder. This will help claim the deduction and furnish a response in case any query arises from the income tax department.
Submit The Documents to the Employer
If you're a salaried individual, you should provide these documents to your employer. Your employer will then adjust your TDS (Tax Deducted at Source) accordingly factoring in the interest deduction. This will prevent your salary from being blocked in the form of TDS and then claiming it as a refund from the government.
Calculate Income from House Property
If you have let out your house property, you'll have to calculate your income from the house property as well. This involves subtracting the standard deduction of 30% from the annual rent received and then subtracting the interest paid on the home loan. If the property is self-occupied, then the annual value is considered zero and the interest deduction is applied.
This will lead to a negative income from house property since the interest is considered an expense, and there is no actual income being received. This loss (negative income) can be set off against your other income like salary, business income, other income, etc.
Claim Deduction (Including 80C)
When filing your income tax return, claim the deduction for interest paid on your home loan under Sections 24(b) and 80EEA. You should also consider claiming deductions under Section 80C for the principal repayment component of your home loan. This deduction is available and is subject to a maximum home loan deduction limit in India of Rs. 1.5 lakh for each financial year. Before claiming, you should check the home loan interest deduction eligibility in India to avoid any legal repercussions in the future.
Documents Required for Claiming Tax Deductions
To successfully claim tax deductions for interest on a home loan, you'll need the following home loan interest deduction documentation in India:
Home Loan Agreement
This document contains details about the loan amount, interest rate for home loan and repayment terms. Even the sanction letter would suffice as it contains all the details regarding the home loan.
Interest Certificate
The interest certificate is a key home loan interest deduction documentation in India for claiming tax deductions on home loans. It outlines the interest paid and principal repaid during the financial year. You can get the interest certificate from the website or mobile application of your lender. In case you find it difficult to obtain an interest certificate, you can even request your lender to provide one.
Possession Certificate
If your property is under construction, a possession certificate from the builder is necessary to claim deductions.
Rent Agreement (if Applicable)
If you've let out your property, the rent agreement helps calculate income from the house property.
Loan Statement
In case you don’t have the interest certificate, a loan statement would be pivotal in proving that you have paid home loan EMIs and thus are willing to claim a deduction for the same. However, your home loan statement might not bifurcate the EMI amount into principal and interest components. For that, you might need to revisit your repayment schedule.
Summing Up
Claiming interest on home loan deductions is a beneficial way to reduce your tax liability while promoting homeownership. It was a masterstroke by the government and was pivotal for helping many individuals achieve their dream of owning their dream home. By following the steps outlined above and ensuring you have the necessary documents, you can successfully claim the deductions you're entitled to. However, when going for a home loan, you must select the right lender.
TATA Capital has remained the borrower’s choice for providing affordable home loan with flexible terms and conditions. With a high loan-to-value ratio and quick processing and disbursal, it ensures a hassle-free borrowing experience.
Frequently Asked Questions
Q1. What is interest on a home loan deduction?
Interest on home loan deduction is a beneficial provision under the Income Tax Act, 1961 that allows individuals to claim home loan interest deduction. It helps them directly reduce their taxable income and save significant amounts in taxes.
Q2. Who is eligible for interest on a home loan deduction?
Any individual who has taken a home loan is eligible for interest on home loan deduction. The property can be self-occupied, let out or under construction. However, before claiming the deduction, you need to ensure that you satisfy all the terms and conditions for claiming the interest on the home loan deduction.
Q3. How do I calculate my interest on the home loan deduction?
The interest paid on the home loan is deductible up to a maximum limit of Rs. 2 lakhs under Section 24(b). You need to do interest on home loan calculation in India to determine the actual interest paid during the financial year and claim the deduction accordingly.
Q4. What are the limits on interest on home loan deductions?
The maximum deduction available under Section 24(b) is Rs. 2 lakhs for a self-occupied property. For the let-out property, there is no upper limit as to claiming the deduction for interest paid on the home loan. Additionally, a deduction of up to Rs. 1.5 lakh is available under Section 80EEA for first-time homebuyers meeting certain conditions.
18 March 2024
6 mins read
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