Avail tax benefits on home loans

One can claim deduction to the tune of Rs 2 lakh on home loan interest

For Indians, buying a house brings a sense of pride. If you had to take a loan, don’t let the burden of EMIs dampen your happiness. Owning a house through a home loan brings tax benefits too.

Interest paid by you towards a home loan is deductible from your total income. If you own one house and have purchased it on loan, you can claim a maximum of Rs 2,00,000 deduction for interest. Interest deduction is also allowed when home loan has been taken for construction. Construction must be completed within three years. You can start claiming the interest from the year in which construction of the property is complete. Any pre-construction interest can also be claimed in five equal instalments along with the yearly interest within the overall Rs 2,00,000 cap. The interest shall be shown as a loss under the head ‘income from house property’ in your tax return. This loss can be adjusted against your remaining income from salary and other sources.

You can submit interest certificate from the lender to your employer. This lets your employer adjust TDS while paying you salary or you may have to claim a refund later. Where loan has been taken for repair of an existing home, the deduction for interest is limited to Rs 30,000.

Principal repayments
Besides interest, any repayment of principal can also be claimed under section 80C. However, this is within the Rs 1,50,000 limit for section 80C. You can get the details of principal repayment from your lender.

Besides principal, payment made for stamp duty and registration charges of the property can also be claimed under section 80C. However, these are allowed in the same year in which they are paid.

Having a joint owner helps you enhance your loan limit and also share the EMI burden. Joint ownership also increases your overall tax benefits. Assuming you have a 50:50 ownership, both the owners can claim a maximum of Rs 2,00,000 each in their tax return towards interest cost. Besides interest, both can claim principal repayments under section 80C up to their maximum limit of Rs 1,50,000. Do remember though, that there must be ownership as well as the owners must be co-borrowers.

Interest paid for rented property
If you have bought or constructed a house property on a loan which has been let out, you are allowed to claim the entire interest on the loan without any limit. Rental income is taxable under the head ‘income from house property’ in your return. From this rental income, property taxes which have been paid can be deducted. A standard deduction of 30 per cent is allowed towards repairs, maintenance, etc. This is a fixed deduction and is allowed whether or not you have incurred more or less expenses. From this net amount you can deduct the entire interest payment. It may even result in a loss. This loss can then be adjusted against your remaining income from salary and other sources.

Things to keep in mind
You need to keep a few things in mind before claiming these benefits.

Ownership: These tax benefits are only available if you are an owner in the property. You may have funded the purchase of the house or agreed to repay the loan, but if the property documents do not enlist you as an owner, you may not be able to claim any tax benefits.

Co-borrower: The one who claims the interest deduction must be an owner as well as a borrower. While you may be an owner, its likely a family member with a higher salary, has decided to take the loan. In this situation you may not be able to claim any interest deduction.

Completion of construction: All the tax benefits listed above are only available once the construction of the property is complete. They cannot be claimed for a property which is still under construction.

Certificate of interest: Your employer shall not allow you to claim these tax benefits, without submission of your interest certificate from the lender. While all of these benefits can be claimed directly in your return, you must safely keep a copy of the interest certificate in your records as the assessing officer might raise any questions at a later date.

HRA and interest deduction: Our place of work may not be the same as our residence. Or it may be too far to allow daily commute. In such cases you may own a house via a loan as well as be paying rent for where you live. Therefore, under certain circumstances it may be possible to claim both HRA and interest deduction.

(The author is a Chartered Accountant and Chief Editor at www.cleartax.in, a tax efiling website for individuals and businesses.)