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Income Tax calculation - deductions

karthik (Software) (52 Points)

08 April 2010

Hi all,

I have taken a home loan for 21 lakhs for 20 years. As the property is under construction the bank has released 13 lakhs according to stage wise. I am paying the Pre EMI, the property will get over by end of this year. The rate of interest is 8.9% fixed for 3 years. I want to know how much maximum amount I can show as a tax exemptions in home loans. I heard like we can show both interest as well as principal. Please explain in detail.

Currently I have taken a loan from LIC and they are taking Pre EMI from my current salary account thru ECS, I am switching to another company next month, the salary account will be with another bank. I need to know the procedure behind this. What are all the things needs to be informed to LIC regd shifing to another company.

Please clarify.

Thanks

Karthik

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4 Replies

Kaushik Vankadkar (Service) (350 Points)
Replied 08 April 2010

Follow the example first:

Total Amount of Interest paid before completion is called as "Pre Construction Interest"
Total Amount of Interest paid after completion is called as "Interest"

			Before Completion	After Completion
Rule	Interest		Allowed (1/5th for 5 years)	Allowed	Maximum 150000 in year
	Principle		NOT Allowed	Allowed	Maximum 100000 in year

Taking this rule, take an example

Scenario			Before Completion	After Completion
	Interest Paid		500,000	70,000
	Principle		800,000	300,000


As per rule			Before Completion	After Completion
	Interest Paid		100,000	70,000
			(1/5th of 500000)
	Principle		NA	100,000
				(Maximum of 100000)


	Deductions available:

Interest	Preconstruction Interest		1/5th of the amount paid before completion

	Interest		from completion till 31st March

	Total	(A)	x

	Maximum limit	(B)	150000

	A or B whichever is lower


Principle	Before Completion		Not allowed
	After Completion	(C )	x

	Maximum limit	(D)	100000

	( C) or (D) whichever is lower

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karthik (Software) (52 Points)
Replied 09 April 2010

Thanks Kaushik & Uday.

Could you please explain in detail. I am still not clear on this.

RANBIR (A) (153 Points)
Replied 09 April 2010

under section 80C , U WILL GET DEDUCTION FOR THE PRINCIPAL AMOUNT OF LOAN REPAID FROM THE YEAR IN WHICH THE PROPERTY IS COMPLETLY CONSTRUCTED.THE PRINCIPAL AMOUNT OF LOAN REPAID PRIOR TO COMPLETION OF THE PROPERTY WILL NOT BE ALLOWED AS A DEDUCTION U/S 80C NOR UNDER ANY OTHER SECTION OF INCOME TAX ACT.

FOR INTEREST,MAXIMIUM DEDUCTION POSSIBLE IS 150000/- .BUT THIS ALSO U WILL GET AFTER UR PROPERTY IS CONSTRUCTED.THIS INTEREST WILL BE UNDER SECTION 24 UNDER THE HEAD "INCOME FROM HOUSE PROPERTY.BUT HERE U CAN CLAIM PRE COMMENCEMENT INTEREST I.E. INTEREST PAID FOR ALL THE YEARS UPTO THE DATE OF CONSTRUCTION .

EG TOTAL INTEREST PAID UPTO DATE OF CONSTRUCTION IS RS.700000/-

THEN 1/5 th of 700000 is rs.140000/- AND SAY THAT YEARS INTEREST PAID BY YOU IS Rs.15000/- then u can claim maximium RS 150000/- only U/S 24

THEN IN THE NEXT YEAR,AGAIN RS 140000(700000*1/5) PLUS CURENT YEARS INTEREST AND SO ON

paharino1 (AVP) (21 Points)
Replied 22 September 2010

I have got possesion of my house in Jan 2009 - Since I had paid PRE EMI Interest before getting possession - I have claimed 1/5 of the PreEMI Interest twice now for FY 2008-09 & 2009-10 & am planning to do the same for the next 3 years

However - Since Jan 2010 I have given the house on rent & am declaring the Rent in my Tax Returns as Income.

Can I claim the entire remaining PRE EMI interest amount of Rs 2.61 lacs as deduction entirely in this FY rather than over the remaining 3 yrs period, since I am declaring the Income from Rent ?

( Total PRE EMI Interest Amount : Rs 4.87 lacs,

Tax deduction obtained for 2 FY = Rs 87000 *2 = Rs 1.74 lacs

Balance PRE EMI Interest Amount left = Rs 2.61 lacs ( Rs 4.87 - Rs 1.74) - Can I declare this in my Tax Returns as Loss of Income ?

I was told this can be done for any amount for Interest payment if the property is on rent . Not sure for the same logic for pre EMI interest .