The tax law that enables you to reduce your tax on meeting certain eligibility requirements is tax benefit. As a professional, you must be doing your tax planning every year. You must have made prudent investments when your income increased to reduce your tax burden. There are numerous tax-saving investments, and among them a home loan is a long-term purchase, which attracts tax deductions for the interest accrued on it.
The government in India encourages its citizens to buy a home by offering home loan tax benefits. You become eligible for it if you avail a home loan to purchase or construct a house, and in the case of construction, it should be completed within 5 years.
Deduction on the repayment of principal amount
There are two components on the EMI that you pay, and they are the principal amount and interest amount. For a self-occupied property, you can claim the amount you repaid on account of principal in the EMI as a deduction under section 80 C of the Income Tax Act 1961. In case you have a second home, where your parents are staying or it is empty, it will also be your self-occupied property.
You will be eligible for a tax deduction of up to 1.5 lakh on the principal amount you paid in the EMIs for both the houses, which are bought using home loans. If the second house is rented out, it is considered a let-out property, and you are still eligible for home loan tax benefit. You can also claim the registration and stamp duty charges incurred when buying your home.
Deduction on the payment of interest
The tax deduction on home loanalso includes the interest paid on the loan. Under section 24 of the Income Tax Act, you are eligible for home loan tax benefit of up to 2 lakhs for the self-occupied home. In case you have a second house, the total tax deduction on home loan for two homes should not exceed 2 lakhs in a financial year.
If it is a let-out property, you do not have any maximum limit for claiming interest. However, the loss you can claim under the Income from House Property is limited to Rs 2 lakhs only. The remaining loss can be carried forward for 8 years for the adjustment against the Income from House Property
Additional deduction under section 80EE
You can avail this home loan tax benefit if you have taken the loan in the financial year 2016-17. Under section 80EE, you are eligible for additional deduction of Rs. 50,000 in addition to the deduction of 2 lakhs on the interest paid, provided you satisfy the following conditions.
- The loan amount should not exceed Rs 35 lakhs, and the value of the property against which you have taken the loan should be Rs 50 lakhs.
- You should have received the sanction between 1st April 2016 and 31st March 2017.
- This deduction applies only to the residential property and the first-time house owner.
Deduction on joint home loans
The borrowers should be joint owners of the property and can claim deductions up to 2 lakhs each on the interest and 1.5 lakh each on the principal amount paid on the home loan.
How to claim home loan tax benefits?
To claim income tax benefits on home loan, you should ensure that:
- The residential property is registered in your name, and in the case of joint home loan, you should be one of the co-owners.
- The construction of the property is completed.
- You obtain a certificate from the bank showing the details of interest and principal amount paid.
- Your employer knows the home loan tax benefit you want to claim, and adjust the TDS accordingly.
- You have calculated the amount to claim as a tax deduction.
Your eligibility to claim interest on the home loan as a deduction begins only upon completion of construction or immediately if you buy a fully constructed property. If you have any doubt regarding this, you can contact company suggestion to clear your doubts.