Its that time of the year! Come July 31st we all have to file our income tax returns. As a homeowner paying monthly EMIs for a home loan, knowing few things will bring in significant tax savings. Read on to find our what they are!
Section 24 of the Income Tax Act lets homeowners claim a deduction Rs.2,00,000 on their home loan interest if the owner or his family reside in the house property. The entire housing loan interest is waived off as a deduction when the house is on rent.
Under Section 80c limit, the amount that goes into repaying the principal on a home loan is eligible for deduction under Section 80C. To claim this tax benefit, construction of the property should be complete. If you transfer the property before the end of 5 years from the year you had taken its possession, no tax benefits will be awarded. Additionally, the amount claimed as deduction in the earlier years shall become taxable in the year that the property is transferred.
There are four steps to claim interest on your home loan deduction. Let’s understand what they are
Step 1: Documents you will need –
- Ownership details of the property –It goes without saying that you must be an owner of the property to claim this deduction. In case, if you are a co-owner of the property, figure out your share. The amount of deduction you can claim is based on your share in the property.
- Completion of construction or date of purchase of the property – The deduction on interest can be claimed from the year in which the construction of the property is completed. You can also claim pre-construction interest. Pre-construction interest can be claimed in 5 equal instalments starting from the year of house purchase or the year of construction completion.
- Borrower Details – Just like ownership, the home loan must be in your name to claim the deduction. You can also be a co-borrower in the loan.
- A certificate from the bank which has your interest and principal details.
- Municipal taxes paid: Note that municipal taxes can be deducted from house property income only when they have been paid during the year.
Step 2: Submit these Documents to Your Employer
- If you claim interest on home loan deduction you must inform your employer so they can adjust your TDS accordingly. Therefore, you won’t have to wait until the end of the year to find out your tax liability and adjust your tax. Do make it a point to inform your employer.
- If you are a freelancer or you are self-employed – you don’t need to submit these documents anywhere, however, you will need these documents to estimate your Advance Tax liability for each quarter.
- You are not required to submit these documents to the Income Tax Department.
Step 3 Calculation of Income from House Property
In case of a self-occupied house property, the amount of the tax deduction on home loan is limited to Rs.2,00,000. However, for let-out house property, there is no limit on the amount of interest you can claim as a deduction. From FY 2017-18 onwards, the deduction for home loan interest on let-out property is also limited to the extent to which loss of such house property does not exceed Rs.2 lakhs.
Here are the steps to calculate your income from House Property.
Gross Value of the property (nil in case of Self Occupied Property and Rental Value if rented)
Less: Municipal Taxes actually paid
Less: Standard Deduction (30% of Net Annual Value= Gross Value less municipal taxes)
Less: Deduction for interest on home loan
= Income from House Property.
Step 4: Claim Interest on Home Loan Deduction and Principal Repayment Under Section 80C-
In case there is Principal Repayment by you during the year (check your loan instalment details) – principal repayments are allowed to claim interest on home loan deduction under section 80 C. However, the total amount allowed to be claimed under section 80C is capped at Rs 1,50,000.
If you have any other questions regarding your tax deduction on home loan do give us a call. Our experts at RR Housing will help answer all your queries.