Tips to File ITR, How You Can Save Income Tax on Home Loan

Come July-end and we find ourselves rushing to get our financial documents in order, booking an appointment with our CA, or logging on to self-help portals/apps to file our income tax returns (ITR).

A clean history of timely ITR filing establishes you as a responsible citizen with sound financial ethics. 

There are other benefits too:

• ITR filing is a legal proof of income.
• It can help you get loans easily.
• A good track record can help you get credit cards.
• ITR document is important for VISA applications.

Here are some tips to bring down your income tax burden

Proper tax planning can help you reduce the burden of income tax that you would be required to pay otherwise. According to the Income Tax Act, certain deductions and exemptions can be claimed, which can help lower your overall taxable income.

List of common deductions and exemptions that you can avail:

• Under 80C, you can claim deduction up to Rs. 1.5 lakh. To benefit from this, invest in tax saving options such as ELSS, LIC, special mutual funds, etc. Deductions on the tuition fee of children as well as on the principal amount of home loans also fall under this section.
• Contribution towards the National Pension Scheme of the Central government will fetch you an additional deduction of Rs. 50,000 (above Rs. 1.5 lakh) in 80 CCC(1B).
• You can also claim deduction under section 80D if you are paying medical insurance premiums for yourself or your spouse, dependent children and/or dependent parents.
• Section 80G permits deductions pertaining to donations made to recognised institutions and bodies (with defined limits as to the amounts that can be exempted).
• You can also claim exemption on your house rent allowance (HRA). The HRA amount may be partially or fully exempted under Section 10 (13A).
• If you are repaying an education loan, a deduction can be claimed under Section 80E.
• The Government also provides several tax benefits on home loans. Keep reading to know more about these!

What are home loan tax benefits? Tips to save income tax on home loan

A Home Loan is taken to buy or construct a house - for oneself or to rent out the property. If you are taking it to construct your house, be mindful that the construction must be completed within five years from the end of the financial year in which you took the loan.

The Government has been encouraging Indian citizens to invest in housing. For this reason, home loans are eligible for tax deduction under Section 80C. Not just that – once you buy a house / the house construction is complete, there are multiple tax benefits that you can avail of, which will appreciably reduce your tax outgo.

Home loan interest rates and associated tax benefits

Repayment on home loan consists of the principal part of the EMI and the interest payment. Tax deductions are available in both these categories under the provisions of Section 80C and Section 24(b) of the Income Tax Act, respectively.

Deduction on principal repayment: The principal part of your home loan EMI can be claimed as a deduction under Section 80C. The maximum limit for this is Rs. 1.5 lakh. However, this deduction is only applicable against house properties that haven’t been sold within five years of possession. E.g., if you claim this deduction for 2 years and then sell the property, the deduction claimed will be treated as your income in the year of sale (and hence be taxable).

Deduction against stamp duty & registration fee: You can also claim a deduction against the stamp duty and registration fee paid under Section 80C. However, the overall limit of the amount that can be claimed under this section is Rs. 1.5 lakh (as mentioned above). Also, the stamp duty and registration charges can be claimed only in the year you pay them.

A quick look at home loan tax benefits:

* Deduction on the interest you paid as part of your home loan EMIs during the pre-construction period can also be claimed under the IT Act – once the house construction is complete / when you acquire the property.

* From the time the house construction is complete / you acquire the property, you can claim the pre-construction home loan interest amount in five equal instalments – beginning from the year of house acquisition.

* This deduction can be claimed over and above the deductions you are claiming against your home loan repayment.

* Point to note: The maximum interest deduction allowed under Section 24(b) is Rs. 2 lakh (including current year interest + pre-construction interest).

Tax advantages of a joint home loan

In case of joint home loans, each co-borrower can claim a deduction against the loan interest up to Rs. 2 lakh, and principal repayment under Section 80C up to Rs. 1.5 lakh in their individual tax returns.

This means that if there are 2 co-borrowers, double tax benefits can be claimed for the same amount of home loan! Thus, taking a home loan jointly with your family can help you claim much larger tax benefits together as a unit.

Point to note: The co-borrowers should be co-owners of the property being acquired on loan.

Claiming HRA benefit and home loan tax benefit together

Under some special situations, home owners who are paying their home loan EMIs and also getting HRA allowance from their companies can avail tax benefits under both heads. Here’s how a taxpayer can concurrently claim tax benefits under HRA as well as home loan:

• If the taxpayer owns a house property but lives in another rented accommodation in another city due to his/her work-related requirements.
• If the taxpayer owns a house property but lives in another rented accommodation in the same city due to any other eligible reason, e.g., their own house is under construction.
• If the taxpayer has rented out his/her own house and is residing elsewhere on rent (In this case, the rental amount received will be treated as part of the taxpayer’s taxable income)

Additional home loan tax benefits - Section 80EE & Section 80EEA

Section 80EE

Home buyers can avail an additional deduction under Section 80EE up to a maximum of Rs. 50,000. However, there are some conditions:

• The loan amount should be less than or up to Rs. 35 lakh.
• The value of the property should be under or equal to Rs. 50 lakh.
• The loan must have been sanctioned from April 1, 2016 to March 31, 2017.
• At the time the loan was sanctioned, the buyer should not have owned any other house in his/her name.

Section 80EEA

In 2019, an additional deduction was introduced for home buyers under Section 80EEA. The limit for this is Rs. 1,50,000. Again, to make a claim under this section, certain conditions must be met:

• The property’s stamp duty should not exceed Rs. 45 lakh.
• The loan must have been sanctioned from April 1, 2019 to March 31, 2022.
• At the time the loan was sanctioned, the buyer should not have owned any other house in his/her name.
• The buyer should not be eligible to claim deduction under Section 80EE.