Claiming home loan benefits in IT return

Buying a home is India’s favourite dream. Buying property also involves making the most of tax benefits. Increasingly, homes are being bought by the young with home loans.

If you’re unsure about how to maximise your tax benefits, especially if you’re a first-time homebuyer in FY2015-16, here’s a quick guide.

When can I start claiming tax benefits?

If the construction of your property is not complete, you cannot claim any tax benefits. All tax benefits for a home loan can be claimed starting the financial year in which the construction is complete. So if the construction of your property was completed in August 2015, you can claim interest paid for the entire FY15-16 in your tax return for that year.

What are the tax benefits?

Tax benefit on interest on home loan: For a house property that is self-occupied, deduction for interest paid can be claimed up to a maximum of Rs 2 lakh in one financial year. A self-occupied property means a property in which you live or your family lives, or it may be lying vacant. Essentially, a property which is not rented is self-occupied.

If your property is rented, the entire interest paid by you can be claimed as a deduction. There is no monetary ceiling.

Tax benefit on principal repayment: Any repayment towards principal is eligible for deduction under section 80C. Allowed within the Rs 1.5 lakh limit of Section 80C. You can also claim stamp duty and registration charges in the year these were paid under section 80C.

Tax benefit on pre-construction interest: If you have paid EMIs before construction was complete, those can be claimed too. One-fifth of the total pre-construction interest can be claimed each year, starting the first year. However, maximum interest, including any pre-construction interest, that can be claimed in case of a self-occupied property is limited to Rs 2 lakh in one financial year.

Tax benefits under section 80EE: Section 80EE was introduced to allow additional tax benefits to new home buyers. However, this deduction is not applicable for FY 2015-16.

How to claim tax benefits in income tax return form?

If you are salaried and want to claim interest deduction, you can file ITR-1. The interest claimed has to be reported as a ‘loss’ under the head income from house property. This ‘loss’ can be knocked off against any income, salary income or interest income, or the like. Tax has to be paid on the remaining net income.

Do note that in case you have foreign income or capital gains, or any carry forward losses, you cannot file ITR-1, you may have to file ITR-2 or ITR-2A.

Those claiming interest from a rented property have to report their rental income first. A standard deduction of 30 per cent is allowed from rental income towards maintenance and repairs, irrespective of the actual cost of these. The entire interest can be claimed from this rental income net of this standard deduction. Loss can be adjusted against other incomes.

What are the documents that I need?

Interest deduction is allowed from any loan that is used for purchasing or constructing a house property. Loan may have been taken from a financial institution or an individual. However, the construction of the property must be completed within three years, or else the total deduction for interest shall be limited to Rs 30,000. Section 80C tax benefits on principal repayment, though, can only be claimed if loan has been taken from a financial institution.

Your lender must provide you an interest certificate, which has details of EMI and its break up between interest and principal. You must also have the date of completion of construction.

This article was published on The Financial Chronicle on 20 June 2016.

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3 Responses to Claiming home loan benefits in IT return

  1. AM June 27, 2016 at 3:38 pm #

    Dear Sir,

    There is a new section called “Assets and Liability” in the ITR this year. If we have our own independent/apartment which is used for living, does that have to be declared in this section, or is it only applicable for house/plot that is bought for investment purpose? If we have home loan for our own house, does that have to be entered in the “liability” section?


    • cleartax-team July 3, 2016 at 9:50 pm #

      If your total income after deductions exceeds Rs 50lakhs, this schedule AL is applicable to you. Yes, an apartment, a flat, a house or any house property owned by you, are all covered, whether self-occupied/vacant/rented or held only for investment purposes Include all types of house property owned by you. If you have an outstanding loan, please include its value under liabilities – it may be a home loan or a personal loan.

      • AM July 4, 2016 at 1:27 pm #

        Thanks a lot for the response.
        One more question: In the AL section, it asks for cash in hand. I hope this applies to only the physical cash in hand, and not the balance in bank accounts, mutual fund investments, etc. Right? Can you please confirm?