The average price of properties in India grew by 8.4% between 2011 and 2018. The prices are expected to rise continuously for the next few years. The repayment of a home loan can create a significant financial burden on an individual.
As per the Income Tax Act, borrowers can claim income tax benefits on home loan under different sections. Borrowers can save a significant amount of money by availing these tax benefits.
Process to Avail Tax Saving on Home Loan
- Keep Required Documents Ready
Borrowers need to submit some necessary documents while claiming the income tax benefits. The required documents are –
- Income Proof
Borrowers need to provide proof of income while claiming the tax benefits, so they need to keep it ready beforehand.
- Ownership Details
A borrower needs to provide ownership details of the property while claiming tax benefits on home loans. Co-applicants can benefit from such exemptions in full separately.
- Details Regarding the Completion or Purchase of the Property
Borrowers can only claim tax benefits from the year when the construction of the property is completed or purchased. They need to provide supporting documents to claim tax exemptions.
- Borrower Details
Borrowers must submit the loan documents of the property to claim tax benefits. Co-borrowers can also claim the tax benefits on a joint home loan.
- Certificate of the Loan
Borrowers need to provide a certificate from the lender mentioning the interest and principal details. This certificate is very critical in calculating the tax benefits under various sections.
- Calculate the Amount of Tax Deduction
Borrowers must calculate the total amount they can claim as a tax deduction before filing an IT return. They can use an online home loan tax benefit calculator to determine the amount they can claim.
The sections under which a borrower can claim tax benefits are –
- Section 80(C)
Borrowers can claim home loan tax deduction of maximum Rs. 1.5 Lakh from taxable income every year. It is only valid on the principal repayment. Also, it can include the stamp duty and registration charges, but it can be claimed only one.
- Section 24(b)
Borrowers can enjoy income tax deductions of up to Rs. 2 Lakh every year under this section. However, this deduction can only be applicable on properties whose time for construction is less than 5 years.
- Section 80(EE)
Under this section, first time home buyers can claim an additional income tax benefit of Rs. 50,000 on the housing loan interest amount payable every year. However, to claim deductions under this section, the loan amount must not be more than Rs. 35 Lakh and the value of the property must be within Rs. 50 Lakh.
Along with the sections mentioned above, borrowers need to make sure that they are availing the credit on favourable terms to make the most of their home loan.
There are several NBFCs that offers home loans with affordable interest rates and favourable terms. Some of the other benefits they provide include –
- Zero charges on part pre-payment or foreclosure
- Easy balance transfer facility
- Top-up loan facility
- Claim Tax Benefits While Filing IT Returns
Borrowers need to submit their IT returns duly and mention all the required details. They also need to make sure that there are no errors in the documents they provide.
The above mentioned points will provide a clear idea about everything you need to know about saving tax when you take a home loan. You can generate more savings every year by claiming your income tax benefit on home loan properly.
