Owning a home is a significant accomplishment for many individuals, but it often comes with financial responsibilities that can impact your taxes. In India, the government offers various tax benefits to encourage home ownership and make it more affordable. This guide aims to simplify the process of claiming interest on home loan deductions while ensuring you comprehend the process. So, buckle up your seatbelts because we are about to navigate the world of tax advantages like a pro!
What Are the Specific Conditions For Claiming Home Loan Interest And HRA Benefits?
People wonder if they can get tax deductions for the home loan interest and House Rent Allowance (HRA) when they Need Home Loan. Well, in certain situations, you can claim both deductions. To be eligible for an HRA deduction, you are required to live in a rented place. Remember that there are separate sections in the Income Tax Act for claiming home loan interest and HRA benefits. You can seek an exemption for HRA under Section 10 (13A) of the Act, while deductions for home loan interest and principal repayment fall under Section 24B and Section 80C, respectively.
Let us look at a few specific circumstances when people can get both HRA and home loan Interest benefits:
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Navigating Home Ownership Across Cities: If you are the owner of a house in one city, but work in another city, then we have a piece of good news for you! You get the opportunity to enjoy the benefits of both Home Loan Interest Deduction and HRA exemption. You can avail double advantage in this unique situation which will let you optimise your tax benefits and make the most of your financial choices.
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When the House is Being Constructed: Imagine you have taken a home loan and invested in a property that is under construction. You can claim HRA during the construction phase. Once the property is complete, you can claim tax benefits associated with the interest you have paid on the loan.
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When an Individual Buys a House but Cannot Stay There: Life is a journey that sometimes leads to job-related moves, and that new house you bought might have to wait. But here is the silver lining – if work takes you to another city and your house remains vacant, you can still enjoy the perks. You can claim the HRA and interest on home loan deductions which will become a smart tax-saving opportunity.
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If a Person Staying on Rent Lets Out Their House: You buy a property where you want to live but choose to rent it out while you stay on rent somewhere else. Guess what? You are still in for some exciting tax benefits! You can avail of both the HRA exemption and interest on home loan deduction. Remember, the tax benefits on the principal amount repayment of the loan, as provided under Section 80C, will not be applicable in such cases.
How to Claim Interest on Home Loan Deduction?
Now that you are familiar with the situations when people can get HRA and home loan interest benefits let us dive into the following process of claiming interest on your home loan deduction that will help you optimise your tax savings
STEP 1: GATHER ESSENTIAL DOCUMENTS
As you are about to claim your Home Loan Interest Deduction, make sure you have the following documents in order:
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Ownership details of the property: If you are a co-owner, determine your share.
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Completion of construction or purchase date: Calculating interest and claim deductions is crucial.
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Borrower details: The home loan must be in your name or include you as a co-borrower.
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Bank certificate with interest and principal details.
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Municipal tax payment receipts for the year.
STEP 2: CALCULATE YOUR HOME LOAN INTEREST:
Calculate the interest you have paid on your home loan during the financial year. This information is crucial for claiming deductions.
STEP 3: INFORM YOUR EMPLOYER
For those in employment, it is crucial to inform your employer about your plan to claim the Home Loan Interest Deduction. This step ensures your Tax Deducted at Source (TDS) aligns accurately, eliminating unexpected tax liability. On the other hand, freelancers and self-employed need not present these documents. Instead, they can utilise them to gauge their Advance Tax responsibility.
STEP 4: CALCULATE INCOME FROM HOUSE PROPERTY
Calculating your income from your property involves different rules for self-occupied and rented spaces. For self-occupied properties, the deduction is capped at Rs 2 lakh; for let-out properties, there is no limit on the interest amount you can claim. Our simple formula helps calculate your income from House Property:
● Property’s Gross Value (or rental value if it is rented);
● Subtract the amount paid on Municipal Taxes;
● Subtract the Standard Deduction (30% of Net Annual Value);
● Subtract the interest on the home loan deduction.
STEP 5: SECURE INTEREST ON HOME LOAN AND PRINCIPAL REPAYMENT BENEFITS UNDER SECTION 80C
Those who have repaid the principal amount during the year can also claim deductions under Section 80C of the Income Tax Act. Yet, keep in mind that the highest sum permitted under this section is Rs 1,50,000.
STEP 6: COMPLETE YOUR INCOME TAX RETURN FILING:
The final step in this tax-saving adventure is submitting your Income Tax Return (ITR). Make sure that you enter your home loan interest and HRA exemption details correctly. Filing your returns accurately ensures you make the most of your deductions and help you to avail most of the tax benefits.
WRAPPING UP:
Congratulations! You have successfully explored the complexities of claiming interest on your home loan deduction. By understanding the specific conditions, following the four simple steps, and keeping track of essential documents, you are on your way to achieving significant tax savings. Remember, just like building your dream home, it is crucial to master your tax benefits requirements with careful planning and attention to detail to manage your finances effectively and efficiently.
