If you have a home loan, you can save more by taking deductions under the Income Tax Act. One of these is the home loan interest deduction scection, i.e., Section 24B, which can help reduce your tax liability significantly. Because of this, homeowners have more opportunities to save money while paying off their home loan, making it affordable and stress-free.
Understanding Home Loan Tax Benefits
A home loan consists of two elements, one being principal and the other being interest.
As per the new regime of the Income Tax Act, which is also the default regime, you can avail relief for interest payments under Section 24B. But this is only if it is a let-out property.
In the old regime, you may deduct interest and principal repayment but under different sections:
- Section 80C: Deduction for repayment of your principal. Up to 1.5 lakhs annually. You can also check out Section 80EE benefits for additional tax relief if applicable.
- Section 24B: Deduction on the interest repayment. Up to 2 lakhs annually in case of self-occupied property.
By combining them, you might save up to 3.5 lakhs in taxable income. It is advantages such as these that make home ownership much more affordable and worthwhile. Just make sure you know the terms and conditions of these sections. For instance, the limit of Section 80C is for multiple payments, such as investments. This will help maximise your savings and reduce repayment burden.
What If You and Your Spouse Co-Own the property?
You can double the deductions if the co-borrowers are co-owners of the property and both of them contribute to the EMI. So, if they file under the old regime, they can:
- Each claim up to 1.5 lakhs under Section 80C
- Both can also claim 2 lakhs under Section 24B.
- Together, they can reduce their taxable income by up to 7 lakhs.
With the help of this strategy, you can reduce your EMI burden while simultaneously saving on tax money.
How to Claim These Deductions?
An important part of being able to claim these deductions is knowing the tax regime you are working under. This is due to the fact that it will decide on the applicability of the home loan interest deduction provision. If you are declaring yourself under the new regime, the deduction in 80C is disallowed, and that in 24B is available only if it is a let-out house, not self-occupied. After deciding upon what regime you wish to declare yourself under, here’s a general procedure that you can adopt:
- Verify eligibility: Make sure you borrow your loan from a well-established institution.
- Paperwork: Have your papers in hand such as your interest certificate, proof of repayment, and loan statement.
- Notify: Alert your employer in advance following these details to make them modify the TDS deductions accordingly.
- File ITR: You need to file your ITR accurately so that you can home loan interest and other deductions while filing.
By claiming these deductions, you are easing the burden on your repayment and by doing so, you can achieve financial independence faster. Use online tools to streamline your repayment and maximise the benefits. This is also where choosing good financial institutions like PNB Housing Finance can help as they offer good guidance throughout the application and repayment process.