A home loan is unique in many ways. Besides having the lowest interest rates in the market, home loans also provide incredible tax benefits. However, home loan tax benefits do not automatically appear on your tax returns; you must declare it to claim the deductions.
You can apply for a home loan to construct or purchase a house. But, if you want to claim tax deductions for property construction, you must be willing to finish the construction within five years. If you are unable to finish the construction five years from the loan approval date, the tax benefits will be reversed.
What Types Of Tax Deductions Are Available On Home Loan Online?
Broadly, a home loan provides three types of tax benefits – under Section 80C, Section 24, and Section 80EE. Let’s understand both sections briefly:
Section 80C of the Income Tax Act states that any home loan borrower can claim a tax deduction of up to Rs. 1.5 lakh. However, this deduction can be claimed only for the principal component of the home loan and not the interest component.
The tax benefits under Section 80C are available to both let-out and self-occupied properties. Moreover, once calculate the deductions, you can include the property registration charges and stamp duty. However, it is good to note that this deduction can be claimed only after the completion of your house construction or purchase.
Also, if you claim tax benefits under Section 80C, you cannot sell your house within five years of occupying it. If you sell your property before five years, the tax deductions will be reversed, and the income amount will be added to your net income for the sale year.
Besides the Rs. 1.5 lakh deduction under Section 80C, the government of India also allows a tax deduction of up to Rs. 2 lahks. But, unlike Section 80C, this deduction only applies to a home loan’s interest component if your property is self-occupied. However, if you or your family does not live on the property, there is no limit on the tax deduction.
While the deduction under Section 80C is pretty straightforward, the deduction under Section 24 requires slightly extra understanding.
Suppose you have purchased a house that is still under construction and hasn’t moved in yet. But your EMIs have started, and you are paying them every month. Can you claim tax deductions under Section 24? The answer is ‘No.’
Section 24 provides you tax benefits only when your property’s construction gets completed and not on under-construction properties. Alternatively, you may buy a fully constructed house to claim tax deductions under this section.
So, you can claim a tax deduction on the interest component of a home loan if your house construction is finished. The maximum limit for such a deduction is Rs. 2 lahks for a maximum period of five years.
How To Claim Home Loan Tax Deductions
You can claim tax deductions on your home loan by following the steps mentioned below:
Step-1: Use a home loan EMI calculator online to calculate your EMI and tax deduction amount.
Step-2: Make sure that the home loan online is in your name or that you are a co-borrower.
Step-3: Adjust the TDS (Tax Deducted at Source) with your employer by submitting the home loan interest certificate.
Step-4: Alternatively, you may submit the tax return on your own.
A home loan allows you to claim tax deductions for principal and interest repayments. However, you must possess some documents like the repayment schedule, interest certificate, and loan statement to facilitate smooth return filing.