Procedure: How to Claim Tax Benefits on Home Loans
February 06 , 2013
February 06 , 2013
- If you have taken loan for buying a house you automatically become eligible for saving some of the money to be payable every year as income tax.
- Money that is paid as principal and interest of home loan are treated under separate sections of the Income Tax Act.
- Your taxable income can be reduced by the amount going out as principal component of home loan EMI up to Rs 1 lakh every year under section 80 C. Remember that this Rs 1 lakh is inclusive of all other deductions permitted under section 80 C. You cannot claim this deduction if the house is lent out on rent except if you work in another city.
- Every year your taxable income can be reduced by a maximum of Rs 1.5 lakhs for interest paid on home loans, under section 24 of Income Tax. This is irrespective of whether you live in the house or it is rented out. You can claim it on more than one house that you are paying home loan EMIs for, subject to the cap. If the house is lent out on rent there is no cap on the amount of deduction as interest on home loan.
- Choose the relevant tax forms. If you are a salaried employee and own a house in which you live you must fill ITR-1 Sahaj. If you are a salaried employee and earn income as rent or capital gains from your house/s, ITR-2 is the form for you.
- Your bank statement will contain the break-up of principal and interest components. Request your bank to issue it if you have not received it by the time of filing returns. Principal component paid in a financial year should be put in the cell for 80 C deductions under Chapter VI A in the relevant ITR form.
- Interest is considered as an expense and is entered as negative income in the cell for Income from House Property. If the house earns rent you can deduct the entire amount of interest paid in that year (no cap of Rs 1.5 lakhs in this case) from the rent income.
- It is possible that you have taken the home loan before construction of your house. Banks disburse amounts at different stages of construction to the builder. Tax treatment is different in this case. Principal component of EMI cannot be claimed in this case as it is applicable only on a house that is self-occupied at the time of claiming deduction.
- Interest paid in pre-EMIs or before getting possession of the house cannot be claimed until the construction ends and you get possession of the house. Once you get possession you can start deducting it along with the regular interest component of the EMIs in five equal installments.