Owning a home is a dream for many, and thanks to home loans, this dream can become a reality. Not only do home loans help you to purchase a house, but they also offer several tax benefits. However, it’s crucial to understand the tax benefits associated with home loans and how to claim them.
Here’s a guide on how to claim your tax benefits on home loans:
Understand the Tax Benefits Available on Home Loans
The tax benefits on home loans are primarily available on two components – interest paid on loan and the principal amount repaid.
Interest Paid on Home Loans
Under Section 24 of the Income Tax Act, the interest paid on a home loan is eligible for a deduction of up to Rs. 2 lakhs per annum for a self-occupied property.
The entire interest paid on loan is deductible without any limit for rented property.
If the loan is taken jointly, both co-borrowers can claim a deduction for the interest paid based on their share in the loan.
Principal Amount Repaid
Under Section 80C of the Income Tax Act, the principal amount repaid on a home loan is eligible for a deduction of up to Rs. 1.5 lakh per annum.
The deduction is available only for the principal component of the EMI paid towards the home loan.
The deduction is available for both self-occupied and rented properties.
Ensure Proper Documentation
You must have proper documentation to claim tax benefits on home loans. Here are some essential documents you need to keep handy:
- Home Loan Statement: This document shows the interest and principal amount paid on loan during the financial year. It is a crucial document required to claim tax benefits on home loans.
- Completion Certificate: This certificate is issued by the local authorities once the property is constructed. It is required to claim tax benefits on a self-occupied property.
- Possession Certificate: The builder issues this certificate when you take possession of the property. It is also required to claim tax benefits on a self-occupied property.
Claim Tax Benefits on Interest Paid on Home Loans
Here’s how you can claim tax benefits on interest paid on home loans:
- Add up the interest paid on the home loan during the financial year. This information can be found in the home loan statement provided by the lender.
- If you have more than one home loan, add the interest paid on all the loans.
- For a self-occupied property, the maximum deduction allowed on interest paid is Rs. 2 lakhs per annum. The excess amount cannot be deducted if the interest paid is higher than Rs. 2 lakhs.
- If the property is rented, there is no limit on the deduction allowed for interest paid. The entire interest paid during the financial year can be claimed as a deduction.
- If the home loan is taken jointly, both co-borrowers can claim a deduction based on their share in the loan. The interest paid by each co-borrower must be calculated separately and claimed accordingly.
Claim Tax Benefits on the Principal Amount Repaid
Here’s how you can claim tax benefits on the principal amount repaid on home loans:
Add up the principal amount repaid on the home loan during the financial year. This information can be found in the home loan statement provided by the lender.
- The maximum deduction allowed on the principal amount repaid is Rs. 1.5 lakh per annum under Section 80C of the Income Tax Act.
- The deduction is available only for the principal component of the EMI paid towards the home loan.
- The deduction is available for both self-occupied and rented properties.
- The deduction is available only for individuals and Hindu Undivided Families (HUFs).
Submit the Necessary Documents and File Your Tax Returns
Once you have calculated the tax benefits on your home loan, the next step is to submit the necessary documents and file your tax returns. Here are some crucial points to keep in mind:
- You must file your tax returns by the due date to claim tax benefits on home loans.
- You must submit the necessary documents, including the home loan statement, completion certificate, possession certificate, and tax returns.
- If you have more than one home loan, ensure that you have calculated the tax benefits for each loan separately and included them in your tax returns accordingly.
Consult a Tax Expert If Needed
While claiming tax benefits on home loans may seem simple, it can be a complex process. Ensuring that you have calculated the tax benefits accurately and filed your tax returns correctly is essential.
If you are unsure how to claim tax benefits on home loans, it’s advisable to consult a tax expert or home loan agent who may help you with this. A tax expert can help you understand the process and ensure that you maximize your tax benefits.
Owning a home is a significant achievement, and home loans make this dream a reality for many. However, it’s crucial to understand the tax benefits associated with home loans and how to claim them.
By following the steps mentioned above, you can ensure that you maximize your tax benefits and file your tax returns correctly. If you’re unsure about the process, consult a tax expert to ensure you don’t miss out on any tax benefits.
