Tuesday 7 June 2016

Home loans: A guide to claiming tax benefits

To alleviate the burden of a home loan, the government offers several tax concessions to borrowers. While most people may be broadly aware of home loan tax benefits, there are several other nuances that need to be highlighted.
Principal repaid on home loan
The principal amount repaid on the home loan taken can be deducted from your income up to Rs 1.5 lakhs under Section 80C. This deduction, however, comes with a couple of caveats. You can only avail of this deduction after construction of your house is complete and possession is received, and not while construction is underway. “When your developer delays the possession of your apartment, this is one more way in which he hurts your interests,” points out Rajendra Kumar Chauhan, a Delhi-based chartered accountant.   

Secondly, speculators should know that you can’t avail of this deduction on principal repayment, if you sell the house within five years of taking possession. If you do, you will have to reverse the deduction. This means that all the deduction you have availed of so far, will be treated as income in the year of sale and taxed entirely.

 Interest repaid
Tax saving is also available on interest repaid on a Home Loans in India. However, the deduction is different for a self-occupied property than for a house that you intend to rent out.

Self-occupied: If you have taken a home loan to buy a house that you intend to live in, the interest paid on this loan is eligible for a deduction up to Rs 2 lakhs under Section 24 of the Income Tax Act. This deduction is also available only after you have received possession of the house. Construction must be completed within three years from the end of the financial year in which the loan was taken. The interest paid while the house is under construction, will continue to accumulate. You can claim deduction on this amount for five years after possession. So, if you paid a total interest of Rs 6 lakhs while the house was under construction, you can avail of a deduction of Rs 1.2 lakhs for the next five years after possession.

In case you don’t receive possession within three years of taking the loan, you can only claim a deduction of Rs 30,000 each year. “If your job is in another city and you don’t live in the house that you bought for self-use, then the house will be treated as self-occupied and you may avail of deduction on interest repaid up to Rs 2 lakhs,” explains Arvind Poddar, a Delhi-based chartered accountant. 

Second property: If you buy a second property from which you intend to earn rental income, the deduction on interest repaid, is even more generous. Here, the entire interest repaid can be claimed as a deduction. In other words, the ceiling of Rs 2 lakh doesn’t apply in this case.

You will however have to show the rent that you earn from this property, as ‘income from housing’. This will be added to your total income. However, you are entitled to deductions on rental income. First, you may deduct all the taxes (such as property tax) that you pay on the house. You can also avail a deduction of another 30% for repairs and maintenance.

There is a catch here which to some may appear illogical. Even if the second house remains vacant, it will be treated as being on rent. You will have to show a notional rental income from it based on market rates, which will be taxable after factoring in the two deductions mentioned above.

Deduction on home loan insurance: If you bought a home loan insurance cover (a single-premium policy) along with the loan, you can avail of deduction on the premium paid under Section 80C.


[Source: https://housing.com/news/home-loans-guide-claiming-tax-benefits/]

No comments:

Post a Comment