Tax benefit on principal amount paid for repayment of home loan – Section 80C

The total amount paid towards repayment of principal amount of home loan is allowed as tax deduction under section 80C of income tax act, 1961.

Section 80C is applicable to an individual and HUF.

As per this section, maximum deduction that can be claimed by investing in any or all specified investments in addition to certain allowed expense is Rs 1,50,000.

Here is a list of certain investments specified in section 80C in addition to repayment of principal amount of home loan:

  • Public provident fund
  • Fixed deposit
  • National saving certificates
  • Senior citizens saving scheme
  • Life insurance premium

Repayment of principal amount of home loan is allowed on payment basis irrespective of the year for which payment has been made.

For instance, if you are paying the principal amount of home loan in the financial year 2018-19, for the amount due in the year 2017-18 & 2018-19, then the whole amount will be eligible for section 80C deduction in the year 2018-19.

For the year 2017-18, your tax deduction for payment of principal amount of home loan is nil as you have not paid any amount towards repayment even though it was due.

Tax benefits for repayment of principal part of the home loan is allowed only after the construction is complete and completion certificate is awarded.

No deduction under section 80C will be allowed for the repayment of principal amount on home loan for those years during which the property was under construction.

When deduction will be taxable and not allowed

In case assessee has transferred the house property on which he has claimed section 80C tax deduction, before the expiry of 5 years from the ends of the financial year in which the possession has been obtained by him then deduction under this section will not be allowed.

In such case, the aggregate amount of tax already claimed by the assessee shall be deemed to be income of such year in which the property has been sold. This means the assessee has to include it in his tax return as his income and pay tax on it.

How to claim tax deduction on Principal amount paid for repayment of home loan

If you are a salaried individual and eligible for tax deduction under Section 80C for the principal amount paid for repayment of home loan, then you can submit a loan statement or certificate from the bank with break up of the principal and interest payment on home loan.

After getting the certificate towards payment of principal amount on home loan, your employer will allow tax deduction under section 80C in addition to other eligible deductions such as PPF, EPF, life insurance etc to calculate TDS amount to be deducted from your salary income. In this way, TDS on salary can be reduced.

Non salaried individuals can claim tax deduction while filing return of income with the government. If you are a self employed person then we suggest you to file your income tax return on or before the due date of filing to avoid late fee.

For the financial year 2018-19, due date of filing is 30th July 2019.

While filing, you are not required to submit any proof to claim deduction. However, if it’s asked for by the assessing officer, then you have to produce it before him.

Please remember, salaried individuals are also required to file their return of income in order to claim section 80C deduction.

Submitting tax saving proofs to employer will only reduce your TDS amount to be deducted from salary income. To claim tax deduction under section 80C, you have to compulsorily file your tax return with the government.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.