Home Loan Tax Incentives

By Author: Padam Chhabra
Total Articles: 1
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This year government has given more tax benefits on the home loans. The prices of the property have been stagnant at low rates. The rate of interest has decreased from previous years. Getting a home at the right price would be good. The rate of interest is less so taking a loan will be cheaper too. This means a lot of saving. One should be aware of all the tax benefits which come with a home loan. Here are the tax benefits of taking a home loan.
Claim tax benefit on the interest of a missed EMI.
A person can get the tax benefits on the payment of a home loan. Section 24 of Income Tax Act mentions that “the Income from House Property shall be reduced by the amount of Interest paid on Home Loan where the loan has been taken for the purpose of Purchase/ Construction/ Repair/ Renewal/ Reconstruction of a Residential House Property.” And the tax deduction is applicable even if the person missed an EMI during a financial year. The tax deduction can be claimed for the whole year. The tax deduction under Section 80Cis only available on the actual payments in the financial year.
Fee-related to a loan is tax deductible
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... Whenever anyone takes a loan there are many types of charges applicable while getting the loan. These charges include processing fee etc. The charges in relation to the loan are tax deductible. These charges are considered as interest in relation to a loan and thus qualify for a tax deduction.
A co-borrower is not eligible for a tax benefit
A person cannot claim a tax break on a home loan even if he is paying an EMI for a property if the property is not in his name. To claim a tax benefit a person has to be an owner and a borrower to claim benefits. Even if a person owns a property with the spouse, he won’t be able to claim the deductions if the person is not a co-borrower on the loan amount.
Loose tax benefit if selling the home before 5 years.
One can lose the tax benefits taken on a home loan. And by losing we mean that if a person took tax benefits then he might have to pay it back to the Income Tax Department. This can happen in two conditions:
• Selling a house within five years from the date of purchase, or,
• Selling a house within five years from the date of taking the home loan.
A person will lose deduction claimed under Section 80C and not under Section 24. This means that a person will lose the benefits gained on the principal amount and not on the interest. The interest would get added to your annual taxable income in the year in which the property is sold and will be taxed at the current rates.
Loans from relatives and friends are eligible for tax deduction
People borrow money from friends or relatives all the time. This is a common practice that people follow. But people usually know nothing about the tax benefits related to the money borrowed in such cases.
A person can claim a deduction under Section 24 for interest repayment on loans taken from anyone. The only condition for the tax deduction is that the money taken should be for the purpose of purchase or construction of a property. The money can be borrowed from for reconstruction and repairs of a property too. The other condition is that the completion of construction was within five years for which the money was taken.
For the tax deduction, the lender must also file an income tax return reporting the interest income and paying tax on it. The only exception to the tax benefit is on the interest and not on the principal amount. The additional benefit of Rs 50,000 under Section 80EE is also not available if a person goes for borrowing money from an individual.
Claim pre-construction period interest
A person can claim benefits on a home loan even after the construction is complete and possession is taken. A person cannot claim a deduction on principal repayment. But the deduction can be claimed on the interest paid through the installments made during the construction or before taking the keys. The law provides a deferred deduction on the interest during the pre-construction period. The deduction is available on the amount of interest over a period of 5 years starting from the year of possession.