How to claim tax exemption on housing loan?

One of the significant advantages of taking a housing loan is the opportunity to claim tax exemption on the interest paid. The government provides this benefit to encourage individuals to invest in real estate and promote home ownership. However, understanding the process and requirements to claim this exemption can be quite complex. In this article, we will guide you through the steps and provide answers to some frequently asked questions regarding claiming tax exemption on housing loans.

How to claim tax exemption on housing loan?

To claim tax exemption on your housing loan, you need to follow these steps:

1. Calculate the maximum exemption amount: The maximum tax exemption available for housing loans is ₹2 lakh (for self-occupied properties) or the actual interest paid, whichever is lower.

2. Obtain the interest certificate: Contact your lender and request an interest certificate for the financial year, stating the amount of interest paid on the loan.

3. Calculate the total interest paid: Calculate the total amount of interest you have paid on the housing loan during the financial year.

4. Find the eligibility criteria: Ensure your property satisfies the criteria laid down by the Income Tax Act, 1961, to claim the tax exemption.

5. Declare the interest amount: Declare the interest amount paid on your housing loan while filing your income tax return.

6. Submit Form 16: Submit Form 16, which is provided by your employer, to declare the interest paid if your employer is providing a tax benefit through salary income.

7. File your income tax return: File your income tax return online, accurately mentioning the interest paid, and claim the exemption under Section 24(b) of the Income Tax Act.

8. Keep supporting documents: Maintain a record of all loan-related documents, such as the loan sanction letter, repayment schedule, interest certificates, and completion certificate of the property. These documents may be required for verification if requested by the Income Tax Department.

9. Be aware of the rental income: If you have rented out the property, the tax exemption on the interest paid changes, and you need to calculate it accordingly.

10. Keep yourself informed: Stay updated with the latest amendments and changes in tax laws to ensure you can claim the maximum possible exemption on your housing loan.

Frequently Asked Questions (FAQs)

1. Can I claim tax exemption on the principal amount of the housing loan?

No, tax exemption on a housing loan is only applicable to the interest paid and not the principal amount.

2. Can both spouses claim tax exemption on the same housing loan?

Yes, if both spouses are co-owners of the property and are also co-borrowers of the loan, each can claim tax exemption in proportion to their share in the loan.

3. Can I claim tax exemption on a second housing loan?

Yes, you can claim tax exemption on multiple housing loans, provided you meet the eligibility criteria for each loan.

4. Is there any limit on the loan amount to claim tax exemption?

No, there is no upper limit on the loan amount to claim tax exemption on the interest paid.

5. Can I claim tax exemption on the interest paid during the construction period?

Yes, you can claim tax exemption on the interest paid during the construction period. However, the exemption can be availed in five equal installments, starting from the year in which the construction is completed.

6. Can I claim tax exemption if I have used the loan to renovate my house?

Yes, tax exemption on a housing loan can be claimed if the loan has been used for the purpose of renovation, repair, or reconstruction of the property.

7. Can I still claim tax exemption on my housing loan if I miss the deadline for filing income tax returns?

You can still claim tax exemption on your housing loan by filing a belated income tax return within the stipulated time frame. However, there may be penalties and interest applicable for filing the return after the deadline.

8. What happens if I sell the property on which I claimed tax exemption?

If you sell the property on which you have claimed tax exemption within five years from the end of the financial year in which you took possession of the property, then the tax benefit will be reversed, and the exemption claimed earlier will be added to your taxable income of the year in which the property is sold.

9. What is the maximum amount I can claim as tax exemption on interest if I have rented out the property?

If you have rented out the property, there is no maximum limit on the tax exemption on interest paid. You can claim the entire interest amount paid as a deduction from the rental income received.

10. Can I claim tax exemption on the interest paid if I have taken a joint loan with other family members?

Yes, all co-borrowers of the joint loan can claim tax exemption on the interest paid, subject to the condition that they are also co-owners of the property.

11. What documents should I keep for tax exemption on my housing loan?

You should maintain documents such as the loan sanction letter, repayment schedule, interest certificates, and completion certificate of the property to support your claim for tax exemption on a housing loan.

12. How long should I keep the housing loan-related documents?

It is recommended to keep the housing loan-related documents for at least six years, as the Income Tax Department may ask for verification or audit during this period.

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