Buying a home can be an expensive affair in this pandemic year. Thanks to home loans and the Indian Government, owning your own home has become a possible and affordable reality. The Indian Government always encourage citizens to invest in a house and own a home with schemes like Pradhan Mantri Jan Dhan Yojana, Pradhan Mantri Awas Yojana, etc. There is also an availability of various home loan tax benefits under section 80c of the Income Tax Act that can reduce your tax outgo and save you money. These benefits are available in the form of deductions. Are you wondering how you can claim these benefits on your home loan? Read on to find out.
Step 1: Documentation
To get the tax benefits, you will require a few documents that are necessary to smooth up the process.
- Ownership details: To claim this deduction, it is essential that you own the property. Therefore, you should have the correct documents proving your ownership.
- Date of purchase or completion of construction: The benefits can be claimed from the year in which the property was bought or in which the construction is completed.
- Borrower details: Similar to the ownership, the loan must be in your name to claim the deduction
- Certificate: This certificate will be issued by the bank and will contain your interest and principal details.
- Municipal taxes: You need to submit your records of the municipal taxes paid since these taxes can be deducted from house property income only when they have been paid during the year.
Step 2: Submission of these documents to your workplace
You must inform your employer and submit these documents while you claim the home loan deduction so that the TDS can be adjusted accordingly. Doing this will prevent you from waiting until the end of the year to track your tax liability and tax adjustment. In case you are a freelancer or self-employed, you don’t need to submit these documents anywhere but you will need the documents to estimate the advance tax liability for each quarter. There is no need to submit these documents to the Income Tax department.
Step 3: Calculation of income from the property
If you own a self-occupied property, the limit of the amount of the deduction is Rs.2, 00,000. In case the property is a let-out, there is no limit on the amount of home loan interest you can claim as a deduction. Income from your house property can be calculated by subtracting the municipal taxes paid, the standard deduction which is 30% of net annual value, and the deduction for interest on home loan from the gross value of the property (nil in case of self-occupied).
Step 4: Claim home loan interest deduction and principal repayment under section 80c
Check your loan instalment details to see if there is principal repayment by you during the year. Principal repayments can claim interest on home loan deduction under section 80c. The total amount allowed to be claimed under section 80c, however, is capped at Rs.1, 50, 000.