How To Claim Tax Deductions On Home Loan
Taxation is a necessary evil. Tax codes are often too complex, and too intrusive. Unfortunately, it is something we have to live with. But you can manage your cash flows and tax outgoings by financing your house through a home loan. Home loans allow you many substantial tax deductions. The upper limit on tax deductions on home loans was raised to Rs 2,00,000 from the Financial Year 2014-15 onward.
MakaanIQ tells you more about the steps you need to take to claim tax deductions on your home loan.
What are the documents/proofs you need to claim tax deductions?
- Borrowing Details: To claim tax deductions, you must be either the borrower, or the co-borrower.
- Interest Certificate: You need a certificate from the lender that specifies the Principal and Interest details.
- Ownership details of the property: You must be the owner or the co-owner of the property to claim tax deductions. The amount deducted will be directly proportional to your share in the property.
- Date of Purchase of the Property/ Construction Completion Certificate: You will be eligible for tax deductions only after the construction has been completed. You also need the completion You can also claim pre-construction interest. Banks allow pre-construction interest in five equal instalments, starting from the year in which the construction is completed.
Why do you need these documents/ proofs?
- Note that you need not submit these documents to the income tax department.
- You must submit these documents to your employer. Your employer will adjust the Tax Deducted at Source (TDS) deductions according to the documents you provide. This is a way to avoid waiting till the end of the year to know your tax liabilities and then adjusting your income according to this.
- If you wish to approach a chartered accountant to file your tax returns, you must present these documents.
How to calculate your income from the house
The tax deductions you are eligible if it is a self-occupied home, at most, Rs 2,00,000. There is no upper limit on the deductions you are eligible for, on the interest payment, if it is a let-out house.
When you file your income tax returns, you must consider these steps, though you do not have to make these calculations. The system will do the math for you.
- Gross Value of the property
- (Less) Municipal Taxes- if paid during the year
- (Less) Standard Deduction (30 per cent of Net Annual Value= Gross value minus Municipal Taxes)
- (Less) Deduction for Interest on Home Loan
- You will arrive at the “Income from House Property” figure
How to claim tax deductions on repayment of the principal amount
Repayment of the principal amount of a home loan is eligible for tax deductions under Section 80C. The upper limit on tax deductions on principal amount repayment is, at present, Rs 1,50,000. This includes the money invested in the Public Provident Fund (PPF) account, tax-saving fixed deposits, equity-oriented mutual funds, National Savings Certificate, and Senior Citizens' Saving Scheme. Tax deductions are allowed only after the construction is completed.
Tax deductions on interest payment on home loans, under this section, is allowed if you apply for a home loan for the extension and renovation of a house, but only after the construction is complete.
You may also read: Know Your Tax Benefits As A Home Buyer