Claim Tax Deduction Up To Rs. 2 Lakhs on Home Loan in India
Buying a dream home is not a cakewalk these days. From escalating property cost to expanding population, to shrinking supply, there are too many hassles for a home buyer. For many of us, the money we saved for years is not going to suffice. So, what are the options left– wait for the property prices to crash down or let go of the dream of buying an own house?
Well, there is no need to think about such radical steps, as you can apply for a Home Loan and conveniently manage your funds to buy an abode of your choice; that too, without putting a hole in your pocket. Indeed you can claim up to 2 Lakhs annually on tax deduction. Let’s find out how.
Home Loan: How to Apply for One?
Home loan or Housing Loan is a secured loan that is offered by banks and NBFCs (Non-Banking Financial Companies) for buying a home. The property that you acquire needs to be pledged with the lender as security. The repayment tenure for a home loan extends up to 30 years, and the rate of interest starts from 8.35% p.a. (as of now). The property stays under your possession, and you are free to use it for residential purpose as long as you repay the EMIs (Equated Monthly Instalments) on time. The maximum amount that banks sanction as Home Loan is about 90% of the total value of the property.
With rising demand for Home Loans, most lenders are now offering online option to Apply for a Housing Loan in India. Herein, you just need to fill the online application form, upload essential documents and submit the application form. If you are found eligible by any of the lenders that you have applied with, their representatives will get in touch with you for completion of the rest of the formalities and your application would be processed in a few working days after you submit the application and documents.
Tax Deduction Available on Housing Loan in India and How to Claim It
As per the Income Tax Laws, you are eligible for a tax deduction on Home Loan. This is one of the most important benefits of availing a Home Loan in India. Your EMI is made up of principal component and interest component. Income tax laws have different guidelines for permissible deduction limit on respective components. You can claim deductions on your Home Loan repayments as per the following rules:
On Interest Component
Under Section 24 of the Income Tax Act, 1961, you can claim up to 2 Lakhs (or actual interest paid, whichever is minimum) on the interest paid against the home loan to the recognised financial institution. This limit is applicable on purchase of residential property.
If the property has been purchased for renting out, then the entire interest paid during the assessment year can be claimed as a deduction. But in this scenario, the entire rent received from leasing out shall be added to your total income in the year for the purpose of tax calculation. There is also a catch here. Even if you are not actually receiving any rent from the second property, it would be deemed that you are receiving rent from that property as per market rates and you will have to pay tax on the same.
On Principal Component
Under Section 80C of the Income Tax Act, you can claim a deduction of up to 1.5 Lakhs (or actual, whichever is the lowest) on the payment of principal component of the Home Loan. This limit of 1.5 Lakhs is the maximum permissible limit u/s 80C across various investment avenues. There are two conditions here that you must take note of:
- This deduction is available only if the construction of the house is complete and the possession is handed over to you, e., the house is not under construction.
- You are not allowed to sell the house on which you have claimed the deduction within 5 years. Otherwise, the deduction claimed will have to be reversed.
How to Claim the Deduction?
It is a straightforward process to claim a tax deduction on housing loan under the above-mentioned sections:
- You must obtain the loan account statement from your lender with separate calculation for interest component and principal component.
- Now, you can contact a Chartered Accountant or Income Tax practitioner to help you prepare your Income Tax return, according to the above-specified
- You can also file your tax return using official income tax e-filing portal. By entering relevant details about your gross income, taxable amount and corresponding deduction you can submit the return conveniently.
- After submitting the return, do not forget to e-verify it. If your details are found correct and if there is any refund applicable, the same would be credited to your bank account within a few days.
Housing Loans offer numerous benefits for home buyers. The various tax benefits available against Home Loans make it a profitable proposition for you to buy your next residential property through a housing loan.
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