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TDS Limits on Home Loan Payments Made for Self-occupied and Let Out Property

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Highlights

  • Want to know how much tax you can save on your home loan?
  • Read here the tax exemption limits on different elements of a home loan

The number of people who want to buy their own homes is high in a country like India. But to buy their own home, not everyone has sufficient funds, that’s why they need a Home Loan facility. The Indian Government has been constantly encouraging individuals to own their houses by opting for an affordable home loan. To support them even more, a home loan comes under numerous tax deductions under the Income Tax Act 1961. Through this, an individual having a home loan can get several tax exemptions upto INR 3.5 lakhs (upto 1.5 lakh on the principal and 2 lakh on interest payments) in a financial year.

Buying a property via a home loan can make you enjoy so many tax benefits and also help you in minimizing your total tax outgo. Tax Deduction at Source (TDS) on a home loan can be pretty confusing at times for the individuals who want to understand the overall procedure while having a home loan. To make it easier for you, we will tell you about everything related to the TDS on home loans – the effect of TDS on self-occupied and let out properties, and many other important aspects of it. So, if you are someone who wants to know about, this article could be a suitable read for you. Keep reading to gain some more information about it!

What are Different Kinds of TDS on Home Loans?

When an individual opts for a home loan, the repayment is usually done by the Equated Monthly Installments (EMI). This EMI amount consists of a portion of both principal and interest amount. According to the Income Tax Act, an individual can enjoy tax benefits on both of these portions in a financial year. You can look at the deductions on both these parts in a home loan below.

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TDS On Interest Payments of a Home Loan

The purpose of a home loan taken by an individual will most likely be to buy or construct a house. There is one important thing an individual has to remember that the construction of the house must be completed within 5 years from the end of the financial year on which the home loan is taken. Else, you could not claim tax deductions.

You can claim a maximum tax deduction of INR 2 lakh on interest repayment in a financial year. This deduction comes under Section 24 of the Income Tax Act. This is applicable for self-occupied property too. However, for a let-out property, there is no maximum limit on the claimed interest portion. This means that suppose you bought a property and let it our for rent, then, in this case, there is no limit to the tax deductions on interest repayments.

If you are someone who is buying your first ever home with the home loan, you can claim an additional amount of INR 50,000 on the interest amount paid in a year. This exemption comes under Section 80EE and is over and above 2 lakh that you get under Section 24 of the Income Tax Act. The only condition that you need to fulfill is that your home loan amount must not be more than INR 35 lakh and the property’s value must be less than INR 50 lakh.

TDS On the Principal Payment of a Home Loan

Now coming to the principal portion in the EMI paid during one financial year. Regarding the principal amount repayment, the maximum deductions that you can claim for tax exemption can go upto a maximum of INR 1.5 lakh from your total taxable income. This exemption comes under Section 80C of the IT Act. This may include the stamp duty and other registration charges paid in the process too but you can claim these only once in the year it occurred.

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However, there is one thing that an individual must remember to claim this deduction. If you decide to sell off the property within 5 years of the possession, all the benefits claimed by you will be reversed and added back to your total income. Suppose you claim a total of INR 5 lakh as the principal repayment of your home loan as the tax exemption, and sell off the property within 5 years, this exempted amount will be added to your gross income for the financial year in which you sell it.

To understand all these deductions in a much simpler way, you can have a look at the below table.

Nature of DeductionsSection under IT ActMaximum Deductions
Principal Amount PaidSection 80CINR 1.5 lakh
Interest Amount PaidSection 24INR 2 lakh for Self-Occupied
No Limit on Let Out Properties
Interest Paid for First-time BorrowersSection 80EEINR 50,000
Interest Paid for First-time BorrowersSection 80EEAINR 1.5 lakh

TDS On Joint Home Loan

Some people opt for a Joint home loan with their family members, spouse, parents, etc, as the co-borrower. In such cases, both applicants can enjoy the same benefits related to tax exemption. Each individual can claim a deduction on the interest portion upto INR 2 lakh and upto 1.5 lakh on the principal amount from their gross income.

It is important that the co-applicant must be a co-owner of the property. Otherwise, he or she can not enjoy the tax benefits on the home loan facility. So, you can understand how applying jointly for a home loan can give you huge tax benefits.

TDS on Loans Taken on Home Renovation

Apart from getting the tax exemptions on home loans, you can also enjoy the tax benefits on the loan facility taken for home renovation or improvement. But it will only apply to the interest portion that you will pay in a financial year. If you are taking a Home Renovation or Improvement Loan for the self-occupied home, you are eligible to get the deduction upto INR 30,000 paid towards the interest part of the loan in a financial year. However, there is no maximum limit if the property is rented. You can even enjoy the deduction of the full interest portion from your annual income.

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There is one thing you need to remember that you must keep all the bills and invoices of the home renovation as the proof of renovation cost to declare the TDS on loans taken for Home Renovation or improvement.

How Do These Tax Deductions Save Your Money?

The eligible tax deductions on home loans will be subtracted from your annual income. The resultant amount will be the one on which the tax will apply. Needless to say, the overall tax will reduce with such deductions in place.

How to Claim Tax Benefits on Home Loans?

After knowing the tax deductions on home loans, it’s time you know how to claim those. There are a few steps that you need to follow to claim tax deductions on the home loan. We are mentioning these steps below. Take a look!

  1. Ask for the Investment Declaration Form from your employer and mention all the home loan details in the same
  2. You will need to provide this form to your employer along with the home loan statement bearing signature and seal of the competent banking official.
  3. The employer will send it to tax authorities who will check the details thoroughly and approve the exemption only upon successful verification
  4. By chance, if you fail to do so, you don’t need to worry. You can always file your Income Tax Return (ITR) through which you can get the tax exemptions back.

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