Home Loan Tax Deduction: How to Claim It?

Being a home owner is a great accomplishment unlocked that many people look forward to in their lifetime. However, the financial implications, mainly the housing loan tax benefit, can be overwhelming. This article focuses on tax deduction on home loan, new home loan tax deductions, and how to claim an income tax deduction on a home loan in an effort to simplify the process of filing a home loan tax deduction.

A home loan , or mortgage, is a loan from a bank or financial institution used to purchase a house. The property is typically used as collateral until the loan is fully repaid. Home loans have fixed or adjustable interest rates and are repaid over a predetermined period.Home loans allow individuals to finance a home purchase without paying the total property value upfront. They can cover up to 80-90% of the property's cost, with the remaining amount, known as the down payment, paid upfront by the borrower.When a borrower applies for a loan, the lender evaluates his or her credibility and reliability before approving the loan and disbursing the money. Home loans have a number of advantages, including the ability to buy a house without making an initial full payment and a sizable tax benefit from housing loans. However, they entail financial costs and the need for a lengthy commitment. Understanding a home loan's procedure, terms, and conditions is significant because it is a necessary step towards home ownership.

The Income Tax Act of 1961 provides provisions for housing loan tax benefit, which can be a significant relief for homeowners. These deductions are available on both the principal and the interest amount of the home loan. Individuals can claim housing loan tax benefit on housing loans through different sections of the Income Tax Act, such as Section 80C, Section 24(b), Section 80EE, and Section 80EEA.

Section 80C

Under Section 80C , homeowners can claim a deduction of up to INR 1.5 lakh on the principal amount of the home loan. However, the house property should not be sold within five years of possession to claim this deduction. If you sell the property during this time frame, the deduction you previously claimed will be included in your income for the year of the sale.

Section 24(b)

Section 24(b) allows homeowners to claim a deduction of up to INR 2 lakh on the interest paid on the home loan for a self-occupied property. For let-out properties, there is no upper limit for claiming housing loan tax benefit or tax exemptions on interest, meaning you can claim a deduction on the entire interest paid on your home loan.

Section 80EE

Section 80EE provides an additional deduction of up to INR 50,000 for first-time homeowners. The loan amount should be INR 35 lakh or less to claim this deduction under the housing loan tax benefit, and the property's value should not exceed INR 50 lakh. The loan needs to have been approved between April 1, 2016, and March 31, 2017.

Section 80EEA

In the 2019 Budget, a new provision called Section 80EEA was introduced to provide a deduction of up to INR 1.5 lakh for first-time homebuyers. To avail of this deduction, the stamp value of the property should not exceed INR 45 lakh, and the loan should have been sanctioned between April 1, 2019, and March 31, 2022.

If multiple people take out a home loan together, each person can claim deductions for the interest on the loan up to INR 2 lakh each and for the principal repayment of up to INR 1.5 lakh each under Section 80C when filing their tax returns. However, to be eligible for these deductions, all loan holders must also be co-owners of the property that the loan was taken out for.

If you take out a second home loan to purchase another property, you may be eligible for the housing loan tax benefit mentioned above. However, the total deductions are limited to the respective caps mentioned earlier. In 2019, the Union Budget introduced additional incentives for investing in real estate. Previously, only one property could be considered self-occupied, and any additional properties were deemed to be rented out, resulting in notional rent being taxed as income. However, even a second property can now be treated as self-occupied.

It is simple to claim the housing loan tax benefit on a home loan. The steps for claiming your tax deduction are outlined below.

• Determine the tax deduction that will be claimed.
• Confirm that the property is in your name or that you are a co-borrower on the loan.
• Provide your employer with your home loan interest certificate to adjust the tax deductible at the source.
• If you do not complete the preceding step, you must file your tax return on your own.
• If you work for yourself, you are not required to submit these documents anywhere. Keep them on hand in case the IT department has any questions in the future.

Using an online calculator to calculate your housing loan tax benefits on a home loan is the simplest way. Simply enter your home loan information and click calculate to see a detailed tabulation. The following information is typically required:

• Loan Amount
• Loan Tenure
• Interest Rate
• Commencement Date
• Gross Annual Income
• Existing Deduction Under 80C/D

Remember to keep track of any changes in tax laws and consult a tax advisor to ensure accurate and up-to-date information regarding tax deductions on home loans.Also read: Want To Enjoy Loan Tax Benefits? Explore these 3 Loans

For homeowners, the tax benefit from housing loans is a huge comfort.These advantages not only lower the cost of paying taxes but also make the dream of home ownership more attainable. Understanding the many sections under which you can make these deductions, as well as the requirements for each, is crucial. Always keep a record of your home loan repayments and consult with a tax advisor if necessary to ensure you are maximising your home loan tax benefits.Do not forget that the home loan tax deduction is a financial benefit and a step towards realising your dream of home ownership. So, take full use of these options and turn your ideal home-owning dream become a reality.Also read: Plot Loan Tax Benefits You Should Know