Claiming Tax Benefits on Your Home Loan is Easy Now

Updated on: 18 Jan 2024 // 4 min read // Home Loans
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One of the biggest advantages of Applying for a Home Loan is the possibility of claiming great rebate s on income tax. The EMI that is paid towards the loan is considered a sizeable investment that is eligible for deductions on your income tax return.

The fact that Home Loans are eligible for tax deductions is known to most people. However, some underlying conditions that need to be fulfilled and certain procedures are needed to be followed in order to get these rebates.

This article provides all information that is required to make claiming tax benefits on Home Loans easier.

What Are the Available Tax Benefits For Home Loans?

When an individual opts for a Home Loan, it is an added burden on the monthly expenditure. To ease this added financial commitment, the Government of India provides its nationals with tax rebates on Home Loans. These deductions and rebates are available on the interest component and the repayment of the principal amount made in the form of Equated Monthly Instalments. The tax benefits offered on Home Loans are as follows:

Section 80C:

This section of the Income Tax Act of 1961 allows deductions up to Rs.300000 for senior citizens and Rs.200000 for others upon the repayment made towards the principal. This section also provides rebates on up to Rs.1.5 Lakhs spent on registration and the stamp duty paid towards the property.

Section 24:

According to this section of the Income Tax Act of 1961, deductions of up to Rs.300000 for senior citizens and Rs.200000 for others upon the interest component of the EMI is available. You can also claim rebates against processing fees, prepayment charges and service fees charged for the year when you apply for the loan.

Who is Eligible?

Besides having a Home Loan, an individual should also fulfil other requirements to be eligible for tax benefits. The conditions that need to be fulfilled are as follows:

To claim tax benefits on the Home Loan, the borrower should also be the owner of the property. In case it is a joint loan account then the tax benefits can be claimed by both individuals who have applied for the loan provided they are co-owners of the property. For properties that have been purchased when they are under construction, tax benefits can only be claimed when the individual gets the possession certificate of possession.

When possession certificate of an under construction property is received, an aggregate is taken of the pre-EMI. Following this, 5 equal deductions are allowed from the financial year in which the property was completed.

The rebates offered on the stamp duty and the registration fees are valid only for the financial year in which these fees were paid towards the property. It is not possible to claim deductions on the processing fees paid towards the loan under Section 80C. However, one can claim these fees as a part of the interest component once the property is fully completed.

For most individuals, the purpose of buying a property is to use it as an investment that they can make returns in the future. However, it is unknown to most of these homeowners that if the property is sold within 5 years of buying it, no tax rebates are offered. Any benefit that has been claimed towards the principal amount will be reversed and those claimed on the interest component of the EMI will stay intact.

For Home Loans taken from friends and relatives, the repayment made on the principal amount of the loan is not eligible for tax rebates. However, tax benefits can be claimed on the interest paid each month up to Rs 1.5 Lakhs a year.

If any loan is taken to renovate a house, the repayment made on the principal amount is not eligible for tax rebates. However, it is possible to claim deductions of up to Rs.30000 on the interest paid towards a property that is owned by the borrower. However, these limitations or caps do not apply for properties that are not occupied by the borrower.

Prepayment charges can be claimed under income from home property. This amount can be set against the salary or income of the individual.

How to Claim these Benefits?

In case the individual is eligible for tax rebates and benefits offered on the Home Loan, the application process is simple and quite straight forward. It is advised that the employer is informed about Home Loans in advanced. If not, the deductions and benefits can be claimed when the individual is filing his or her IT returns. The ITR form contains a section called deductions.

In this section, the following details should be provided:

All deductions to be claimed under section 80C. Along with Home Loan EMIs, this also includes LIC Premiums, EPFs and PPFs.

  • Add deductions that need to be claimed under section 24 of the Income Tax Act.

Other deductions that must be mentioned are the interest that is earned on the SB Account and any donations made towards charitable organizations.

Along with the ITR Form, it is mandatory for the individual to provide the following documents in order to enjoy the tax benefits provided on the Home Loan:

  • Complete ownership details of the property in question.
  • A loan document certificate that provides details of the interest component and the principal amount component of the EMI paid each month.
  • Any document that can prove the date that the property was completed on or the date when the borrower made the purchase.
  • Proof to show that the loan is sanctioned in the name of the property owner.
  • Proof of all the municipal taxes that have been paid by the borrower in that year.

Once these details have been furnished, the Income Tax Return can be filed as per the norms each year.

Also Read: How to Claim Tax Benefits Available on Home Loans in India

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