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Decoding Home Loans: Your Guide to Claim Home Loan Tax Benefits

As the dawn of a new year is already on the horizon filling you with a new energy and zest for more, with it also comes the painful task of filing all your documents disclosing loans and other savings investments on your income tax. If you are a master of these tricks, you might have no problem at all. But if you are someone who is an amateur tax payer and investor, then we bring you this insightful article explaining you the various tax benefits you can avail on your home loan.

Yes! Buying a property, though leaving a dent on your finances, can also come to your rescue by cutting down your tax bills to a significant extent. Your first home loan can actually be called a blessing in disguise as the first home loan comes with several tax benefits attached. To avail these benefits, you should know about all these deductions for tax reduction as well proper management of cash flow.

So read below the various deductions that you are entitled to on your tax from your first home loan.

tax benefits on first home loans

On Registration Fee & Stamp Duty

Yes, you heard it right! According to the provisions of the Income Tax Act under Section 80C you can get tax deductions on the stamp duty or registration charges that you may have paid on purchasing a new house. You can avail this deduction in the same year that you have paid the registration fee and stamp duty.

On Repayment of the Principal Amount

The EMI that you have to pay on your home loans consists of two main elements- the principal amount and the interest that is charged on it. What you should know is that Section 80C of the Income Tax Act allows you to make a claim of up to Rs. 1.5 lakh of the total principal constituent in your EMI.

However, this clause can vary according to certain factors. For instance, if your outgoing principal amount is less than 1.5 lakh, you can invest the remaining amount of this limit in one or another tax saving device to dissipate this limit. But, what needs to be kept in mind is that you can only avail this benefit if the construction of your house has been completed.

Another point to be noted is that if you decide to sell your house within five years of possession, the tax deductions made during the past years will be considered as an income in the year of sale of that house and this would have a reverse impact and you would end up with a considerable loss.

Tax deductions on home loans

On Payment of Interest

Section 24 of the Income Tax Act holds you eligible for claiming tax deductions with a maximum limit of Rs. 2 lakh on a property that is occupied by you. This limit of Rs. 2 lakh is given only when either your family members are occupying the property or it has been left vacant. But, this deduction can be availed only if the house has completed construction. If your property is under construction, then you are not eligible for this benefit.

But there is a catch here. You can only avail this tax deduction if the construction of your property is completed within a period of three years of taking the home loan. If due to some reason or unforeseen circumstance the construction gets delayed, you are only entitled to a tax deduction of Rs. 30,000 a year.

Now you may be wondering that if you invest in a pre-launch, you lose out on this benefit? Well, in the case of pre-construction, your interest amount keeps getting accumulated on which you can easily claim deduction as and when you take possession of the house. This is then deducted in equal instalments spread over a period of five years.

Another condition that you have to fulfil to be eligible for this tax deduction is to be both the owner and the co-borrower of the loan. If the property that you have taken a loan for is leased out instead being occupied by your own self, there is no maximum limit for tax deduction. In fact, you can claim the deduction for the entire interest amount that you have paid. Nonetheless, you will have to represent the rent from the concerned property as an income when you file your annual tax returns.

If in case you are new to this whole taxation business, below is a concise guide that will tell you how to calculate your rental value in three simple steps.

  1. Make a calculation of your total rental in a year.
  2. Now, subtract your total municipal taxes from your annual rent.
  3. From this remaining amount, further deduct 30 per cent as maintenance charges.

The amount that is left after all these deductions will be your taxable money.

Tax benefits that can be availed on home loans

On A Vacant Second Home

You probably didn’t know this but if you leave your second home vacant, it will still be considered a rented property. This being the case, your rental income will be premeditated on the basis of the on-going market rate after making the required 30 per cent deductions owing to maintenance. In a circumstance, where you buy a house in one city but have to move to another for reasons such as job, you will still have an entitlement to a tax deduction of Rs. 2 lakh.

In addition, Section 80GG of the Income Tax Act prescribes you to a tax deduction of up to Rs. 24,000 if your salary is exclusive of House Rent Allowance or HRA.

On Ownership Basis

In order to claim tax deduction benefits on your home loan, it is absolutely mandatory for you to be the owner or co-owner of that property. I have already explained the deductions that can be availed in case you are the sole owner in the aforementioned points. But in case of joint ownership, your deduction on tax will be calculated based on your share in the property. Also, co-owners can avail deduction of Rs. 2 lakh each separately if the property is self-occupied. Do ensure to produce a copy of a bank certificate that will clearly mention your outgoing principle and interest amount.

How to Claim Tax Deductions on Home Loans?

To claim the various tax deductions that accompany your first home loan you have to submit your home loan statement. This statement can be obtained either by logging on to the bank’s website or the lender’s website where you will be required to fill in your details after which you can download your home loan statement. A physical copy of the home loan statement can also be obtained directly from the bank.

After acquiring the home loan statement, you will need to submit it to your employer who will then do the needful. If you forget to inform your employer, you also have the option of filing for a direct claim when filing for your tax returns.

Tax savings on home loans

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