Purchasing a home is a significant financial decision and most people undertake with the help of a home loan. While repaying a home loan can be a burden, the good news is that the government offers several tax benefits. Additionally, it reduce a cost of borrowing. We will discuss how you can claim tax benefits on your home loan and how a rent agreement for HRA can benefit you getting extra exemption on tax and make the most of these incentives.
Eligibility for tax benefits on home loans
To claim tax benefits on your home loan, you need to meet the eligibility criteria and have all relevant documents ready. To claim these deductions, you need to file your income tax return and fill out the necessary forms.
- The home loan must be taken for the purpose of buying, constructing, repairing, or renovating a residential property.
- The residential property must be in your name or the name of your spouse or dependent children.
- If you are paying rent and receiving HRA (House Rent Allowance) from your employer, you can also claim a tax deduction by submitting a rent agreement for HRA.
- You must be the owner of the property and must have a valid ownership document.
- It is forbidden to use the property for commercial purposes.
Types of tax benefits available
There are two main types of tax benefits available on home loans:
- Deduction of interest paid: To claim a deduction on the interest paid on your home loan under section 24 of the Income Tax Act. The maximum deduction allowed is Rs 2 lakh per financial year for a self-occupied property. If the property is let out, there is no upper limit on the deduction of interest paid.
- Deduction of principal repaid: You can claim a deduction on the principal repaid on your home loan under section 80C of the Income Tax Act. The maximum deduction allowed is Rs 1.5 lakh per financial year.
How to claim tax benefits on a Home loan?
If you are one of those people whose rent agreement is expired. But you are confused about how to claim tax benefits on your home loan, so don’t worry. you need to follow these steps:
- Keep all relevant documents ready: To claim tax benefits, you need to have the following documents handy:
- Copy of the home loan agreement
- Proof of payment of interest and principal, such as bank statements or passbook
- Proof of ownership of the property, such as a registered sale deed
- Proof of possession of the property, such as a possession letter or occupancy certificate
- File your income tax return: To claim tax benefits on your home loan, you need to file your income tax return. You can do this online using the Income Tax Department’s e-filing portal or by submitting a physical copy of the return to your nearest income tax office.
- Claim the deduction: To claim the deduction on the interest paid on your home loan, you just need to fill out Form 26AS while filing your income tax return. For the deduction on the principal repaid, you need to fill out Form 80C.
Tips to maximize your tax benefits
- Prepay your home loan: Prepaying your home loan can help you reduce a interest burden and maximize your tax benefits. You can prepay your home loan either through a lump sum payment or by making a payments with your regular EMIs.
- Choose a longer repayment tenure: A longer repayment tenure can help you reduce the EMIs and increase the tax benefits. However, do keep in mind that a longer repayment tenure also means paying more interest in the long run.
- Consider a joint home loan: If you are married, you can take a joint home loan with your spouse. It will maximize the tax benefits because both are eligible to claim the tax deduction.
- Claim deduction on a self-occupied property: If you have a self-occupied property, you can claim a tax deduction on the interest paid on your home loan up to a maximum of Rs 2 lakh per financial year. This can help reduce the overall cost of borrowing and make repaying your home loan more affordable. To claim the deduction, you need to fill out Form 26AS while filing your income tax return. Make sure to keep all relevant documents handy and ensure that the eligibility criteria for tax benefits on home loans.
Conclusion
Claiming tax benefits on your home loan can significantly reduce the cost of borrowing and make repaying your home loan more affordable. To claim these benefits, you need to meet the eligibility criteria and have all relevant documents ready such as submitting rent agreement for HRA exemption. You can claim a tax deduction on the interest paid on your home loan under section 24 and on the principal repaid under section 80C of the Income Tax Act. To consider prepaying your home loan, choosing a longer repayment tenure, and taking a joint home loan with your spouse. Remember to file your income tax return and fill out the necessary forms to claim these deductions.
Author: Jenni Kaur
Jenni Kaur, a third-year law student of Law. J Kaur has a passion for all things legal and is always eager to dive into the latest legal issues and debates.
