The Indian government extends tax benefits under Section 80C of the Indian Tax Act. Presently, a homeowner who is repaying a home loan can claim a tax deduction of Rs. 2 lakhs annually.
Do you already know this but want to know how exactly you can claim the tax benefit? The following three steps provide you with the answers.
Step 1 – Get your documents ready
You should invest some time to compile the following documents as they prove that you are eligible for a deduction.
Borrower details: The loan must be in your name if you wish to claim the tax deductions. You can also claim a tax benefit on your loan if you are a co-borrower.
Loan details: A certificate from your lender carrying your home loan interest rate and principal amount details.
Property Details: Documents with details of your property’s ownership are essential. If you are a co-borrower, search online or ask your lender how many deductions you are eligible for.
Property purchase or construction completion date: You cannot claim tax deductions on a property under construction. This is why you need to provide a document that proves your property’s construction is complete.
Step 2 – Estimate the income from your property (if any)
If you’re residing in the property you just bought, you can claim a tax deduction of up to Rs. 2 lakhs. However, if you rent out the very same property, there is no upper cap on how much tax deduction you can claim on the loan interest.
In case of a let-out property, you can use a home loan EMI calculator to keep track of your interest payouts and estimate the tax deduction accordingly.
Step 3 – After compiling documents, submit them to your employer
Your employer needs to adjust your TDS based on the tax deduction on your home loan EMI payments. So, make sure they know that you are repaying a loan and are seeking tax benefits for the same. Doing this will ensure they deduct less tax, and you don’t have to adjust your tax liability at the very end of the financial year.
If you’re self-employed or a freelance professional, you simply need to compile these documents to calculate your advance tax for every quarter.
Lastly, remember this: If you want to claim tax benefit on your home loan, eligibility for various tax deductions varies. So, it would be best if you did thorough research before filing taxes to make the most of the tax incentives.
The bottom line
This is it! Once you know how much tax deduction you are eligible for, let your employer know. If you are self-employed, let your Chartered Accountant know, and they will adjust your tax benefit accordingly.
If you file your taxes on your own, make sure to mention the amount of tax deduction you are eligible for when you file your tax online.