How to claim tax benefits on home loans?

Taxes

oi-Sunil

By Sunil Fernandes

Updated: Thursday, February 14, 2013, 11:56 [IST]

If you are already paying substantial amounts by way of personal income tax and need to purchase a house, you would be better off taking a home loan, so as to claim tax benefits.

What are the tax benefits you are likely to get?

If you take a home loan then you can claim up to Rs 1.5 lakhs on the interest paid. However, to claim this you would need to have the house in your possession. Apart from this you can also claim tax benefit of Rs 1 lakh of the principal paid under section 80C of the Income Tax Act.

This means that if you have claimed Rs 1 lakh for the principal repayment of the home loan, you have reached the limit of section 80C, which means you cannot claim benefits for other investments under section 80C like LIC Premium paid, PPF, etc.

If you are a co-owner with your spouse and both have availed of home loans, then it is possible for both to claim tax benefits under section 80C and also for the interest amount paid. This would work out extremely advantageous for both a husband and wife. However, both would have to compute their amount of EMI and accordingly claim tax breaks.

In case you have two housing loans, you can claim tax benefits on both the housing loans. Here again the limit of claiming interest benefit of Rs 150,000 and principal amount for Rs 1 lakh will apply.

It's important to note that tax benefits cannot be claimed until the house/apartment is completed. For example, if you have been paying interest on the loan component during the period of construction, then you can claim tax benefits on the interest in five equal installments once the house is completed.

It's important that a certificate is issued by the housing/bank loan company, showing the split between principal and interest for the loan being paid to avail of tax benefits.

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