In India, people associate homeownership with stability and financial success. Most people take the home loan route to fulfil this aspiration. The government of India offers home loan tax benefits to make buying a home easier. Home loan EMIs are divided into two parts to cover the principal and interest components of the loan and tax benefits on home loans cover both the principal and the interest component.
This guide provides a deeper look into the housing loan interest deduction available to homebuyers in India. We also discuss how these tax benefits can be claimed by home loan borrowers.
Housing Loan Interest Deduction: Everything You Need to Know
The Income Tax Act, 1961, provides clarity regarding how home loan borrowers can claim home loan interest deduction on home finance. Section 24(b) of the Income Tax Act says that home loan borrowers can claim home loan interest deduction up to Rs.2 Lakh on the interest paid for self-occupied homes. In the case of rented-out properties, home loan tax benefits can be claimed on the entire amount paid towards interest repayment.
Under Section 24(b), for properties under construction, the borrower can claim a tax deduction on the interest paid, spread across five equal installments, over five years, after the construction on the property is complete. However, borrowers must bear in mind that pre-construction and post-construction interest cannot exceed Rs.2 Lakh in any given year.
Section 24(b) of the Income Tax Act also talks about home loan tax interest deductions available to first-time homebuyers. Section 80EEA of the section states that first-time home loan borrowers can claim an additional tax benefit on the interest portion of their home finance up to Rs.1.5 Lakh. However, borrowers must keep in mind that they are eligible to claim tax benefits under this section if they did not own any other property at the time they applied for the loan. Section 80EE offers home loan interest deductions up to Rs.50,000 to first-time homebuyers.
However, there are specific eligibility criteria that must be met. Additionally, borrowers cannot claim home loan tax benefits under both Section 80EE and Section 80EEA simultaneously.
How to Claim Home Loan Interest Deduction
Follow these simple steps to claim a tax benefit on home finance.
- Gather all the documents that you will need to submit to claim a home loan interest deduction. Typically, home loan borrowers are asked to submit the home loan interest agreement, the home loan interest certificate that is issued by the lender, the rent agreement for properties rented out by the owner, the loan statement, and the possession certificate.
- Submit all the documents required for claiming home loan interest deduction to your employer. If you are a salaried individual, your employer will adjust your TDS to include your home loan tax benefits, making it possible for you to enjoy these benefits in real time.
- If you are unable to submit the required documents to your lender or are self-employed, you can claim tax benefits on your home finance while filing your income tax return at the end of the year. Do remember to claim home loan tax benefits on the principal portion of your loan under Section 80C.
Summary
The government of India offers home loan tax benefits on both the principal and interest components of the home loan. Section 24(b) of the Income Tax Act allows home loan tax benefits up to Rs.2 Lakh for self-occupied homes. For rented properties, deductions can be claimed on the entire interest paid.
For under-construction properties, borrowers can claim a home loan interest deduction in five equal installments in five equal installments once the construction on the property is complete. Section 80EEA offers additional deductions up to Rs.1.5 Lakh and Section 80EE offers an extra Rs.50,000 deduction to first-time home buyers. Claiming these home loan tax benefits is straightforward and easy if you have all the required documents.
So, if you have availed of a home loan, make sure to claim the benefits available to you and invest the funds saved for better returns. On the other hand, if you are planning to apply for home finance, make every effort to secure low home loan rates in India to make home loan repayment easier.
