Owning a home is one of the greatest achievements in one’s life. To encourage the inhabitants of India to make purchases, there have been several efforts from the side of the Government. Over the last few years, several schemes have been introduced into the market. And claiming tax benefits on home loans is one such scheme.
Several sections of the Income Tax Act allow you to claim tax benefits on a home loan. Through section 80C of this act, a borrower can claim tax benefit of at least 1.5 lakhs on the home loan. Go through the guide to know more about this scheme.
What Does the Rule Say?
Let us first go through some of the sections that state how one can claim benefit on a home loan.
Section 80C: Section 80C deals with the deduction on payment of interest during one financial year. Rs. 1.5 lakh is the maximum amount that can be deducted. However, the limit is the creation of other investments and payments. Also, a point to be noted, one can’t sell the house within 5 years. In this situation, the deduction will be reversed.
Section 80EEA and Section 80EE: Both sections apply only to first-timers. For payment of interests over & above 2 lakhs, section 80EE provides an additional relaxation of 50,000. However, as per the last budget, for payment of interest over & above 2 lakhs, Section 80EEA provides an additional relaxation of 1.5 lakhs. Additionally, section 80EEA only applies for additional housing. However, if a person is eligible to avail section 80EE, he/she cannot qualify for 80EEA.
Section 24: Section 24 says one can claim relaxation over the payment of interest towards a home loan in one financial year. For a self-occupied house, the maximum permissible amount for deduction is 2 lakhs per financial year. However, for a let-out property, one can claim a deduction without any upper limit.
Section 80TTB: Under section 80TTb that has been announced in the year 2018, senior citizens (60 years or above) are allowed to claim a deduction of up to 50,000 per financial year. This includes interest that’s received from a fixed deposit, schemes of post offices such as SCSS Senior Citizens’ Savings Scheme, savings account, etc.
How Can One Claim Tax Benefits Under Different Circumstances?
Self-occupied house: As per section 80C, one can claim as high as 1.5 lakhs deduction in one financial year. Annually, one can claim up to 2 lakhs over the paid interest.
First timer: If you have no other property while you’re applying for a loan, use section 80EEA and section 80EE to claim tax benefits on a home loan. Also, there are some conditions you will have to fulfill.
Joint home loan: In this situation, claiming benefits becomes even more beneficial. One can take a joint loan only when he/she partners with another person, or we can say, a co-applicant/co-owner. As per section 80C, each applicant can claim a deduction of 1.5 lakhs for the repaid principal amount. Similarly, for interest repayment, each owner can claim up to 2 lakhs if it’s self-occupied. And if it’s let out, there’s no limit.
A let-out house: When it comes to a house that is let out, you are allowed to claim 1.5 lakhs from the principal amount. For the interest repaid, one can claim the entire amount without any limit.
With 2 home loans: It becomes slightly different when a person has 2 home loans. For both loans, claiming tax benefits on principal payments is confined to 1.5 lakhs. However, when it comes to payment of interest, various situations might arise. As you know, for self-occupied properties, you can claim a deduction up to Rs 2 lakhs. And for houses that are let out, there’s no limit for claiming a deduction.
So, when you have 2 home loans, it’s considered that the 2nd home is let out. Therefore, you can claim a deduction without a limit.
Incomplete construction: Even though your property is not yet constructed and still is in the process, you are allowed to claim a deduction over the interest. However, the deduction will be completed in 5 equivalent installments. The installments will begin at the completion of construction or after moving in.
Some documents are essential while you are planning to claim tax benefits for a home loan. First of all, you need to present the ownership details and loan certificate that reveals information about interest and principal. Secondly, documents that prove the construction needs to be displayed. Along with that, documents of payment of municipal taxes are required.
We hope this guide has been helpful to you. So, before submitting the report of annual tax return, homebuyers should consider these tax benefits on home loans. If you go through the above-mentioned points, it will lower the taxable income of a financial year.