How To Declare A Home Loan In Income Tax?

by Mahindra Finance

July 10, 2024

5 mins read

Owning a house is a dream come true for many people in India. It provides security, stability, and a sense of accomplishment. Buying a house often requires taking a home loan. However, there are also housing loan tax benefits when you repay your home loan.

In this comprehensive guide, we will explore the various sections of the Income Tax Act that offer home loan tax benefits and also understand how the home loan income tax system functions in India.

Section 24: Deduction on interest

Section 24 of the Income Tax Act allows you to claim a deduction on the interest paid towards your home loan. You can claim up to Rs.2 lakh per year as a deduction under this section if the property is self-occupied. If you have let-out the property, there is no cap on the deduction for interest payment.To avail of this home loan interest exemption, you must ensure that you have possession of the house. The interest payment can be a significant amount, so make sure you keep track of it and claim the maximum deduction allowed.

Section 80C: Deduction on principal amount

Moving on to Section 80C, you can claim a home loan interest exemption on the principal amount repaid towards your home loan. The maximum deduction allowed under this section is Rs.1.5 lakh per year. This deduction is applicable within five years of possession, and the house property cannot be sold within this period.

It's important to note that stamp duty charges and registration charges are also eligible for deductions under Section 80C.

Repaying home loan under EMI

If you are repaying your home loan under an Equated Monthly Installment (EMI) plan, you can claim both the interest and principal components as a home loan tax deduction. The interest paid up to Rs.2 lakh or the actual amount repaid can be claimed under Section 24. The principal amount can be claimed up to Rs.1.5 lakh under Section 80C.Additionally, expenses such as stamp duty charges, registration charges, processing fees, prepayment charges, and service fees are also eligible for deductions under Section 24. You can also use an online home loan EMI calculator to quickly determine your monthly payments based on the loan amount, interest rate, and tenure.

Letting out your property

If you rent out your property instead of living in it, the treatment for the principal amount remains unchanged, but there's no limit on interest deductions.

You can deduct the entire interest paid from your rental income. There's no time limit for this deduction on rented properties. You can also claim a House Rent Allowance (HRA) if you stay in a rented place while letting out your property.

Multiple home loans

If you have multiple home loans, you can still avail of housing loan tax benefits. However, keep in mind that the home loan tax deduction available towards principal repayment is limited to Rs.1.5 lakh under Section 80C. The interest paid on each loan is eligible for deduction up to Rs.2 lakh under Section 24.

Borrowing from friends or family members

If you have taken a loan from a friend or family member, you can still claim a housing loan tax benefit for interest payment under Section 24. However, you won't be eligible for any deductions under Section 80C for the principal amount repaid.

To claim this home loan tax benefit, you must provide a certificate from your friend or family member stating the interest paid during the financial year.

First-time homebuyer deduction

As a first-time homebuyer, you can claim an additional home loan tax deduction of up to Rs.1.5 lakh under Section 80EE. This deduction is available for the interest paid on the home loan for a residential property. The value of the house should not exceed Rs. 40 lakh, and the loan amount should be within Rs. 25 lakh.

Conclusion

Maximising your housing loan tax benefits requires a clear understanding of the various sections under the Income Tax Act. By properly declaring your home loan income tax, you can reduce your taxable income and save significant amounts of money.Mahindra Finance offers a range of home loan options that can help you achieve your dream of owning a house while taking advantage of these home loan tax benefits. Explore Mahindra Finance's offerings and take steps towards secure homeownership today!

FAQs

Q: Can I claim a home loan tax benefit on a second house?

A: Yes, you can claim a home loan tax benefit on a second house if the first one is self-occupied.

Q: Who is eligible to claim home loan income tax deductions?

A: The property owner and their spouse (if a co-borrower) are eligible to claim tax deductions on home loans based on their share of the loan payments.