It is the owner of the property who is eligible to claim tax benefits on home loans. If the spouses are co-borrowers then too they can file for tax deductions. Further, in the cases of a joint loan, then both the parties can claim a tax deduction with respect to their share of the loan. Claiming tax benefits on a home loan is a simple process.

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What are the steps for claiming tax benefits?

One must follow the below-mentioned steps in order to claim a tax deduction.

  1. Calculate the tax deduction that is to be claimed.
  2. Ensure that the house is in your name, or that you are a co-borrower of the loan.
  3. Submit your home loan interest certificate to your employer to adjust the tax-deductible at the source.
  4. If the above-mentioned three steps are not performed then you would have to file the tax return by yourself.
  5. With respect to a self-employed person, you are not required to submit the above-mentioned documents anywhere. However, keep them handy in case the IT department raises queries in the future.

A tax benefit of Rs. 1.5 Lakh can be claimed on the principal amount as has been mentioned by the legislators under Sec. 80C of the Income Tax Act. With regard to senior citizens, the claim amount can go up to Rs. 2 lakhs. A homeowner can claim a tax deduction of Rs. 2 Lakh on the interest amount provided that the construction of the property has been completed within five years from the home loan’s disbursement date.

Further, senior citizens can claim a tax deduction of up to Rs.3 lakh under this category. However, for a property that is still under construction, no such deduction can be claimed on the principal amount. It is important to note that the interest amount can be claimed in equivalent parts of 5 financial years after the completion of the construction of the concerned property.

The annual limit of the claim stands at a maximum of Rs.2 lakh. For a second home or an additional property, no such tax deduction is available on the principal amount. Exemption of the interest is capped at Rs.2 lakh or the actual interest amount paid for all the properties that are owned by the taxpayer, whichever is lower.

I purchased a property under construction. Can I claim tax benefits?

Price rates of ready to move in properties are usually and relatively higher as compared to under-construction property. Therefore, in order to save money, potential buyers would rather opt and invest in under-construction properties. A buyer not only gains monetary benefits on the cost of production but also gets tax benefits on the home loan.

Yes, a person can claim tax deductions even if the property is under construction. However, this is possible only when the buyer has obtained a home loan for an under-construction property. This is in accordance to Section 80C of the Income Tax Act which provides for tax deductions up to Rs 2 lakhs on the interests made in a year and up to Rs 1.5 lakhs towards the principal amount.

However, it is to be kept in mind that the benefits awarded for an under-construction property cannot be claimed if the home loan payments are made during the pre-construction phase of the property. All tax deductions made under Section 80C of the Act are possible only if the payment is made irrespective of which year it is made. Further, any amount paid as registration fees or stamp duty is also applicable for tax deductions, even if the property owner has not obtained a loan. For this very purpose, it is essential to present a house construction completion certificate.

Another such benefit of a home loan for under-construction properties is that the loan is structured in such a manner that the time of disbursement of each loan installment by the lender will coincide with the time of completion of another level of the project by the developer.

The interest amount paid before the year of completion is accumulated, and 1/5th of this amount is allowed as a deduction each year for five years from the year of completion. If the property has been occupied before the completion of these five years, then the deduction is limited to INR 2 lakh. This is one of the major tax benefits for under-construction property.

What is the difference between Section 80EE and Section 24?

Tax deduction under Section 80EE of the Income Tax Act, 1961, can be claimed by first-time homebuyers for the amount they pay as interest on the home loans. The maximum deduction that can be claimed under this section is Rs.50,000 during a financial year. The amount can be claimed over and beyond the deduction of Section 24 and Section 80C, which are Rs. 2,00,000 and Rs. 1,50,000, respectively.

It is to be noted that individual taxpayers only can claim the deductions under this section on properties purchased either singly or jointly. It is not applicable for Hindu Undivided Families (HUF), Association of Persons (AOP), companies, trusts, etc. Further, the property over which the owner can seek deductions can be either self-occupied or non-self-occupied, i.e., the property is rented out.

A tax deduction can also be claimed for interest on a home loan under Section 24 of the Income Tax Act, 1961. The limit according to this section is Rs. 2,00,000. However, such a deduction can only be claimed if the owner or their family members reside in the house property.

If one meets the conditions of both Sec. i.e., Section 24 and Section 80EE, then the individual can benefit under both of them. In order to do so, the person will first need to exhaust the limit under Section 24 and then claim the additional benefit under Section 80EE. Therefore, the deduction under Section 80EE is in addition to the limit of Rs. 2,00,000 as under Section 24.