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4 Steps to Claim Interest on Home Loan Deduction

Updated on: Feb 21st, 2023


6 min read

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There are four steps to claim interest on your home loan deduction. A deduction for interest payments up to Rs 1,50,000 is available under Section 80EEA. This deduction is over and above the deduction of Rs 2 lakh for interest payments available under Section 24(b) of the Income Tax Act. Therefore, taxpayers can claim a total deduction of Rs 3.5 lakh for interest on a home loan, if they meet the conditions of section 80EEA.

As we have seen here, this can bring significant tax savings. Let’s understand what steps you need to take to claim this deduction

Step 1: Documents you will need

  • Ownership details of the property –It goes without saying that you must be an owner of the property to claim this deduction. In case, if you are a co-owner of the property, figure out your share. The amount of deduction you can claim is based on your share in the property.
  • Completion of construction or date of purchase of the property – The deduction on interest can be claimed from the year in which the construction of the property is completed. You can also claim pre-construction interest. Pre-construction interest can be claimed in 5 equal instalments starting from the year of house purchase or the year of construction completion.
  • Borrower Details – Just like ownership, the home loan must be in your name to claim the deduction. You can also be a co-borrower in the loan.
  • A certificate from the bank which has your interest and principal details.
  • Municipal taxes paid: Note that municipal taxes can be deducted from house property income only when they have been paid during the year.

Step 2: Submit These Documents to Your Employer

  • If you claim interest on a home loan deduction you must inform your employer so they can adjust your TDS accordingly. Therefore, you won’t have to wait until the end of the year to find out your tax liability and adjust your tax. Do make it a point to inform your employer.
  • If you are a freelancer or you are self-employed – you don’t need to submit these documents anywhere, however, you will need these documents to estimate your Advance Tax liability for each quarter.
  • You are not required to submit these documents to the Income Tax Department.

Step 3: Calculation of Income from House Property

In the case of a self-occupied house property, the amount of the deduction is limited to Rs.2 lakh. However, for let-out house property, there is no limit on the amount of interest you can claim as a deduction. From FY 2017-18 onwards, the deduction for home loan interest on the let-out property is also limited to the extent to which the loss of such house property does not exceed Rs.2 lakhs.

Here are the steps to calculate your income from House Property.

Gross Value of the property (nil in case of self-occupied property and rental value if rented) Less: Municipal Taxes actually paid Less: Standard Deduction (30% of Net Annual Value= Gross Value less municipal taxes) Less: Deduction for interest on home loan = Income from House Property.

Do note that when you file your return with ClearTax, you DON’T have to do any of these calculations. You only need to enter your details and we will automatically calculate the amount which will be your Income from House Property.

Step 4: Claim Interest on Home Loan Deduction and Principal Repayment Under Section 80C

In case there is Principal Repayment by you during the year (check your loan instalment details) – principal repayments are allowed to claim interest on home loan deduction under section 80 C. However, the total amount allowed to be claimed under section 80C is capped at Rs 1,50,000.  

Frequently Asked Questions

How much home loan interest is deductible?

Interest paid on a home loan is eligible for a deduction of Rs.2 lakh if the house property is self-occupied. In the case of rented property, the full amount of interest paid is allowed as a deduction. Also, Section 80C allows claiming Rs.1.5 lakh of the principal amount of the home loan.

How do I claim an interest deduction under section 80EEA?

Tax deduction under section 80EEA is allowed for first-time home buyers for the amount of interest paid towards the home loan under the affordable housing scheme. The deduction allowed is Rs.1,50,000 during a financial year over and above the deduction of Section 24.

Is home loan tax deductible in 2020-21?

Yes, interest on a home loan can be claimed under sections 24 and 80EEA. Interest paid on a home loan is eligible for a deduction of Rs.2 lakh if the house property is self-occupied. In the case of rented property, the full amount of interest paid is allowed as a deduction. 
The principal amount is allowed as a deduction under Section 80C within the limit of Rs.1.5 lakh.

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