In the era of high interest rate regime that has created lighter pockets among home loan borrowers, one ‘silver lining’ is the attractive benefits that are available under the Income Tax Act. Although many borrowers are aware of the benefits available, many doubts and apprehensions prevail. Here is an effort to clarify them. Under Section 24 of the IT Act, 1961, interest paid on home loan up to Rs. 1,50,000 is set off as loss from salary/business income, for self-occupied property (if property is acquired earlier to April 1, 1999, then interest up to Rs. 30,000 pa is allowed). For rented out properties, entire interest paid is deductible from taxable income after computing the rental income. If loan is availed for house renovation, then the interest up to Rs. 30,000 pa is allowed as deduction. Under Section 80C of IT Act 1961, home loan borrowers can claim deduction up to Rs. 1,00,000 from taxable income on the loan repaid during the year (along with specified saving instruments). The entire PEMI interest amount (the interest amount paid during construction period) is allowed as a deduction under Sec 24 of IT Act, equally over five years (20 per cent of total interest paid), starting from the year in which the construction is completed. Under Section 80C, along with other specified savings and home loan repaid, the amount spent for stamp paper and registration cost on registering house property up to Rs. 100,000, is deductible from total income. No. If you avail loan only for land purchase, you are not eligible for any IT benefits. If you take a composite loan (land + construction) and complete the house construction within three years, only after completion of the construction will you be eligible for tax benefits. What are the home loan products for which IT benefits are available? Loan availed for construction of a residential property, purchase of residential property, extension of existing house property, major repairs and renovation of a house property are eligible for IT benefits. Can I continue to get IT benefit after shifting my loan account to another bank? Yes. You continue to get tax benefit on the previous outstanding loan. If you have availed top-up loan on the existing loan, while transferring your account to another bank, you will not be eligible for IT benefits for top-up amount. Can both co-owners claim IT benefits separately? Yes. Both co-owners can claim IT benefits separately, as per the share holding in the property (like 50:50 or 60:40 etc). If share holding is not mentioned in the purchase deed, they can execute an agreement on requisite stamp paper mentioning the share in the property and claim IT benefits separately. Both can claim deduction up to Rs. 150,000 pa separately, towards interest paid (for self-occupied house and entire interest paid on rented-out house, after computing rental income received) and also up to Rs. 100,000 pa, towards principal loan repaid. Can I claim HRA benefits and can my wife claim IT benefits on home loan? No. If you are staying with your wife in the property for which your wife is claiming IT benefits, you cannot claim HRA benefits. If the property is owned by wife who has no income, then as a co-applicant can a husband claim IT benefits? No. Income tax benefits are available to only property owners. If you are a co-owner, then you can claim IT benefits. Can one get IT benefits for the interest paid during construction period? Yes. Normally home loan is disbursed in 3-4 instalments as per construction progress and during construction period, you pay PEMI interest (interest on the disbursed loan amount) on monthly basis. The entire PEMI interest amount is allowed as a deduction (Sec 24 of IT Act) equally over five years starting from the year in which the construction is completed. However for self-occupied house property, total deduction allowed towards interest on home loan is Rs. 150,000 pa. Can one claim tax benefits for acquiring second house? Yes. While for the first home (self-occupied), you can claim deduction up to Rs. 1,50,000 pa, there is no limit for claiming deduction for interest paid on the second home loan, but you need to add rental income, called annual value of your second house, to your income. The annual value will be the higher value of the following: Actual rent received pa Municipal Value Fair rent fixed by IT Dept. Out of total annual value, there is standard deduction of 30 per cent available on rental income towards rent collection and maintenance charges and municipal taxes, as well as insurance premiums paid on the property can be deducted. If you have not rented out the second house, you need to consider notional rent for income tax calculations. However deduction in respect of principal loan repaid is restricted to Rs. 100,000 from both the home loans (Under Sec 80C). Are there IT benefits on personal loans? Yes. If you have taken a personal loan from a bank, HFC, LIC of India, employer (State/Central Govt., local body or public limited company) and utilised the money for purchase or construction of a house, you can claim IT benefits for both principal and interest paid. If you have availed loan from a friend/relative, you can claim IT benefits on interest paid only. If you have availed loan for renovation of your house, you can claim deduction up to Rs. 30,000 pa on interest paid. Can one claim IT benefits on a lease-hold property? Yes. While granting home loan on leased property, banks and HFCs will insist that lease deed be registered and lease period sufficiently longer than loan repayment period. Will one lose the IT benefits availed if the property is sold? Yes. If you sell the property within five years from the year in which you have started claiming IT benefits, you stand to lose the IT benefits availed under Sec 80C (principal loan amount) and such amounts will be clubbed to the income, in which year you have sold the property. However for the deductions claimed for interest paid (under Sec 24), you don’t lose the benefits availed. If you sell the property after five years, then you would not lose IT benefits availed. Can one claim IT benefits on home loan availed for village property? Yes. For all residential properties situated anywhere in India including rural, urban and metro cities, you can avail IT benefits. https://www.hindu.com/pp/2008/10/18/stories/2008101850660200.htm
Home loans and IT benefits
BALASUBRAMANYA B N
(CCI STUDENT....)
(44679 Points)
CAclubindia
