Understanding the Key Tax Deductions
Before you start gathering papers, it’s important to know what you can claim under the old tax regime. The Income Tax Act offers significant benefits for homeowners. The principal portion of your EMI is deductible under Section 80C, up to a limit of ₹1.5
lakh, which also includes other investments like PPF and life insurance. The interest portion of your EMI is deductible under Section 24(b), up to ₹2 lakh for a self-occupied property. If you are a first-time homebuyer, you might also be eligible for additional deductions under Section 80EEA for affordable housing loans sanctioned before March 31, 2022, which allows for an extra claim on interest paid. Understanding these sections helps you identify which documents are most important.
Essential Document 1: The Home Loan Statement
This is the most critical document, typically issued by your bank or lending institution at the end of the financial year. It provides a clear bifurcation of the total EMI paid into its principal and interest components. You will need the interest certificate to claim deductions under Section 24(b) and the principal details for Section 80C. Ensure this statement is for the correct financial year (FY 2025-26, for which you will file returns in Assessment Year 2026-27). Without this official certificate, your claim can be rejected during scrutiny.
Essential Document 2: Proof of Ownership
To claim home loan tax benefits, you must be the owner or a co-owner of the property. Keep your property's sale deed or possession letter handy. The date of possession is particularly important, as you can only start claiming tax benefits after the property's construction is complete and you have taken possession. For any claims related to pre-construction interest, the possession certificate is mandatory proof to legitimise those claims.
Essential Document 3: Municipal Tax Receipts
Any municipal taxes you have paid during the financial year can also be relevant, especially if your property is let out. These receipts serve as proof of expenses related to the property. When calculating income from a let-out property, you can deduct the municipal taxes paid from your gross rental income to arrive at the net annual value, which is the basis for further taxation and deductions.
Details for Joint Home Loan Holders
If you have a joint home loan, the tax benefits multiply, provided both applicants are co-owners. Each co-borrower can individually claim a deduction of up to ₹2 lakh for interest under Section 24(b) and up to ₹1.5 lakh for principal repayment under Section 80C. To facilitate this, each co-borrower will need their own home loan interest certificate from the lender. It's also crucial to have proof of your ownership share in the property, as deductions should ideally be claimed in proportion to that share.
Old vs. New Tax Regime: A Crucial Choice
It's vital to remember that the significant tax benefits on home loan principal and interest for a self-occupied property are only available under the old tax regime. The new tax regime, despite its lower slab rates, does not allow for deductions under Section 80C and Section 24(b). However, if you have a let-out property, you can still claim a deduction for the interest paid against the rental income under the new regime. Before filing, calculate your tax liability under both regimes to see which one offers you more savings.
