Home loans are an essential financial tool for individuals aiming to purchase a house without immediately burdening their finances. Beyond the obvious benefit of homeownership, home loans offer several tax advantages that can significantly reduce your taxable income. To maximize these benefits, it is crucial to understand how to declare home loan in income tax correctly and make the most of the available deductions. In this article, we will explore the best practices to declare your home loan in income tax while learning to save on deductions effectively.
Understanding Tax Benefits on Home Loans
When it comes to home loans, the Income Tax Act provides various types of deductions that can lower your tax liability. These deductions are primarily applicable under two heads: Section 24(b) and Section 80C
1. Deduction on Interest Payment (Section 24(b)
Under Section 24(b), you can claim a tax deduction of up to ₹2,00,000 per year for interest payments made on your home loan if the house is self-occupied. If the property is rented or deemed rented, there is no limit on the interest deduction; however, the resulting loss under the 'Income from House Property' head is capped at ₹2,00,000. This deduction applies to both ongoing interest payments and pre-construction interest, which can be claimed in five equal installments over five years after the construction is completed.
2. Deduction on Principal Repayment (Section 80C)
Section 80C allows you to claim a tax deduction on the principal repayment you make toward your home loan, up to ₹1,50,000 per year. This benefit is available for residential properties purchased for personal use and cannot be claimed for commercial properties. It’s important to note that the property must not be sold within five years of possession to avail this deduction, or the deduction will be reversed.
3. Deduction on Stamp Duty and Registration Charges (Section 80C)
In addition to the principal repayment under Section 80C, the expenses incurred for stamp duty and registration charges when purchasing the property can also be claimed for tax deduction. This deduction can only be claimed for the financial year in which these expenses were incurred.
How to Declare Home Loan in Income Tax in Simple Steps
Declaring your home loan in income tax effectively ensures that you avail all possible deductions and minimize your tax liability. Here’s a step-by-step guide to help you through the process:
1. Understand the Documentation Required
Before filing your income tax returns, ensure you have all the documents related to your home loan. These may include:
Home loan sanction letter from your lender
EMI statements
Interest certificate (provides a breakup of principal and interest payments during the financial year)
Agreement of sale and possession papers (for the year of registration or purchase)
2. Calculate Eligible Deductions
Carefully calculate the deductions applicable for both interest and principal repayment. For Section 24(b), divide the interest paid into pre-construction interest (if applicable) and ongoing interest eligible during the current financial year. For Section 80C, confirm the total amount of principal repayment during the year. Include stamp duty and registration charges only for the year of purchase.
3. Choose the Right ITR Form
The type of ITR (Income Tax Return) form you select depends on your income sources. Generally, salaried individuals with home loans should file ITR-1 (if they have an income up to ₹50 lakhs without significant income from property), or ITR-2 (if additional property-related income exists). Self-employed or business owners may need to file ITR-3 instead.
4. Declare Property Under ‘Income from House Property’
When declaring your home loan in income tax, the property must be listed under the category Income from House Property. For self-occupied homes, you can show the property without generating rental income, allowing you to claim deductions on interest payments under Section 24(b). For rented properties, include actual rental income and deductions for interest and applicable expenses.
5. Provide Details of Loan and Deductions
Use the interest certificate provided by your lender to input details of the total interest paid during the financial year in Section 24(b). Similarly, mention the principal repayment amount in Section 80C. Digitally filing your income tax return on the official website makes it easier to ensure accuracy while claiming deductions.
6. Keep Supporting Documentation Handy
Even though filing returns doesn’t always require attaching proof, you should keep all supporting documents accessible in case of scrutiny from the tax authority. This includes your loan sanction letter, EMI statements, and interest certificates.
Tips to Save More on Deductions
In addition to knowing how to declare home loan in income tax, smart tax planning can help save even more on deductions. Consider the following tips:
1. Co-Borrowing Can Double Benefits
If you jointly own the house and are co-borrowers of the home loan, both individuals can claim deductions on interest payments (up to ₹2,00,000 under Section 24(b)) and principal repayment (up to ₹1,50,000 under Section 80C) separately. This enables double tax benefits while sharing the repayment burden.
2. Pre-Construction Period Interest
If your house is under construction and you are paying interest, do not overlook the benefit of pre-construction interest. You can claim it in equal installments over five years once the construction is completed, maximizing your deductions in the initial years of homeownership.
3. Keep Rental Income in Mind
If you have rented out your property, remember that rental income is taxable under ‘Income from House Property.’ Deduct expenses like municipal taxes before calculating net income and then claim interest deductions to lower the taxable amount.
4. Plan Additional Financial Investments Under Section 80C
The overall limit under Section 80C is ₹1,50,000 per year, which includes principal repayment on home loans as well as investments like Provident Fund, National Savings Certificate, and ELSS mutual funds. Plan carefully to maximize utilization of this section without missing out on other opportunities.
5. Claim for Multiple Properties
The income tax laws allow you to claim deductions for more than one property if owned. However, only one property can be marked as ‘self-occupied,’ and the rest are deemed rented, even if not generating rental income. Strategize based on the limits under Section 24(b) to reduce tax liability across multiple properties.
Also Read :- Complete Overview of Home Loan Interest Rate in 2025 for Smart Borrowers
Conclusion
Understanding how to declare home loan in income tax properly can unlock significant tax-saving opportunities. By declaring all required details accurately under the applicable sections of the Income Tax Act, you can lower your financial burden while enjoying the benefits of homeownership. Remember to stay organized with documentation, understand which deductions apply to your situation, and consider co-borrowing or rental income to maximize tax savings. With these steps, you can make the most of your home loan while minimizing your taxable income effectively.
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