Income Tax Return: Make Early Home Loan EMI Payments Before March 31 To Save Taxes

As the financial year draws to a close on March 31, taxpayers are busy strategising ways to maximise tax savings. Common methods include investing in tax-saving instruments under Section 80C of the Income Tax Act, 1961, or contributing to retirement funds. However, one often-overlooked strategy is making early payments on home loan EMIs before the financial year closes. Doing so can provide tax benefits under the Income Tax Act.

Home loan borrowers can claim tax benefits on both the principal and interest components of their EMIs under different sections of the Income Tax Act.

Home loan EMIs consist of two components: principal repayment and interest payment. Both these elements qualify for tax deductions under different sections of the Income Tax Act.

•  Principal repayment (Section 80C): The principal component of the EMI is eligible for a deduction of up to Rs 1.5 lakh per financial year under Section 80C.

• Interest payment (Section 24(b)): The interest portion qualifies for a deduction of up to Rs 2 lakh per financial year if the property is self-occupied. For rented properties, the entire interest paid can be claimed as deduction without any upper limit.

• Maximise Your Section 80C Limit: If you haven’t yet used the full Rs 1.5 lakh limit under Section 80C, making an additional principal payment before March 31 can help you maximise tax benefits.

• Reduce Interest Burden: By paying an extra EMI or prepaying a portion of your loan before March 31, you reduce the outstanding principal, leading to lower interest payments in the long run.

• Claim Maximum Interest Deduction: If your total home loan interest payment hasn’t reached the Rs 2 lakh cap, making an early EMI payment can help you reach this number and maximise tax savings.

•  Avoid Missing Out On Deductions: If you delay payments into the next financial year, you might lose out on tax deductions that could be claimed for the current year.

Check Your Loan Statement: Identify how much principal and interest you have already paid in the financial year.

Use Internet Banking or UPI: Most banks allow additional EMI payments or part prepayments via their online portals.

Confirm With Your Lender: Ensure that the extra payment is adjusted against the outstanding principal to reduce future interest.

Update your tax records: Keep a record of the payment for easy tax filing.

Making an early EMI payment before March 31 is a smart move to maximise your tax benefits. In addition, it also reduces the home loan burden. If you have extra money, consider making this additional payment. Having said that, do consult a tax professional before you make any payment to ensure you are making the best financial decision for yourself.