Various tax benefits are available on payment of interest and principal portion of home loan. Principal amount paid during the financial year can be added to section 80C tax deduction limit and the interest component is available as a deduction under section 24 of IT act.
In this article we will be discussing how to claim income tax deduction on interest on home loan or housing loan.
If you are employed somewhere then to claim tax deduction on interest on home loan you have to collect following documents which need to be submitted as supporting documents for your claim.
- Ownership details – If your home is jointly held then percentage of shares need to be disclosed.
- Home Construction Completion date
- Bank statement of interest and principal repayment for the financial year
- Details of Municipal taxes paid during the financial year
At the beginning of the year employee has to give a self declaration specifying the interest on home loan and principal amount that he or she about to claim as tax deduction during the financial year.
At the end of the year, employee needs to submit above documents along with a final tax declaration form. After submitting these documents and declaration form, employer will consider and give tax deduction benefits while deducting TDS from salary income.
A self employed person is not required to submit these documents to anyone. He or she can claim tax deduction benefits at the time of filling income tax return. If asked by IT department then above documents are required to be submitted before them.
If you want to know quantum of tax deduction on home loan then read our article tax deduction under section 24 for income from house property.
Important points for tax deduction on interest on home loan
- Tax deduction on interest on home loan will not be available for under construction of property. However, after completion of house property construction, tax payer can claim interest on home loan as tax deduction in 5 equal annual installments starting from the year in which the construction of the house property is completed.
- After completion of house property, if your home is self occupied then tax deduction for post construction period interest will be restricted up to Rs. 150000 per financial year. Budget 2014 has proposed to increase the deduction limit of Rs. 150000 to Rs. 20000. If its passed then then new deduction limit will be Rs. 200000. However, if you have more than one self occupied house property and one or more of them are considered to be deemed to be let out then entire interest on home loan will be allowed as tax deduction from rental income of the house property.
- In case the property is jointly owned and loan for house is jointly borrowed then interest amount has to be apportioned in proportion to the number of shares owned and then tax deduction amount has to be derived based on tax provisions.
Please remember tax deduction for principal portion has to be claimed under section 80C of IT act.