Home is where the heart is. It is everyone’s dream to own a home, but the burden of EMIs also plays on the mind. Read more to know how the tax benefit on Home Loan can ease your outflow.
A Home Loan Interest Deduction permits taxpayers who own their homes to reduce their taxable income by the quantity of interest paid on the loan which is secured by their principal residence. In other words, the outflow of EMIs itself gives you a tax benefit. In fact, from financial year 2014-15, the limit on the amount that you can claim as interest on your home loan deduction has been increased to INR 2 lakh.
Let’s understand the steps you need to take to claim this deduction.
Step 1: GET HOLD OF IMPORTANT DOCUMENTS
Ownership details of the property – You need to be an owner or a co-owner of the property to claim this deduction. 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 for interest can be claimed to start the year in which the construction of the property is completed. You can also claim pre-construction interest, which is allowed in 5 equal installments starting from the year in which the house is purchased or the construction is completed.
Borrower Details – You should be the primary or a co-borrower of the Home Loan.
A certificate from the bank which displays your interest and principal details.
Municipal taxes paid during the year
Step 2: SUBMIT THESE DOCUMENTS TO YOUR EMPLOYER
- If you claim interest on Home Loan Deduction, your employer will adjust your TDS deductions accordingly. Do make it a point to inform your employer.
- You are not required to submit these documents to the Income Tax Department.
Step 3: CALCULATION OF INCOME FROM HOUSE PROPERTY
In a case of a self-occupied house property, the amount of deduction is limited to INR 2 lakh. However, for a let out house property, there is no limit on the amount of interest you can claim as a deduction. But 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 INR 2 lakh.
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)
- Municipal Taxes actually paid
- Standard Deduction (30% of Net Annual Value)
- Deduction for interest on home loan
= Income from House Property
You can also use the Income Tax Calculator
Step 4: CLAIM INTEREST ON HOME LOAN DEDUCTION AND PRINCIPAL REPAYMENT
In case there is Principal Repayment by you during the year (check your loan installment 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 80(C) is capped at INR 1.5 lakh.
To know more on how to save tax, visit YES Tax Solutions.
*The full version of this article by our knowledge partner Cleartax can be accessed at Cleartax.in