For most Indians, owning a house isn’t just an
investment but pride. ‘Home- Sweet-Home’ is tailored by your tastes and
relationships. It is the space of your absolute freedom. Everyone dreams of
owning a house but certainly have misconceptions about it. The real-estate boom
in India is attracting foreign investors too in this sector. Choosing a
flat/property to your tastes is easy because you decide. But, one requires a
little financial know-how before planning for it.
With the rise of housing finance institutions, owning
a house is now pocket-friendly with a home loan. With the advent of selling
flat/property online, the segment has become more competitive but to the
convenience of the consumer. Though buying a house is an expensive proposition,
growing real estate prices made almost impossible to own a house without a home
loan. The home loan is such a credit facility where interest rates are cheaper
and tenure is longer. Not only that, it comes with exciting tax benefits too
while income tax filing.
The amount that a bank can lend is up to 80% of the
property value. This depends up on various factors to check the eligibility.
Banks are strict with these checks and otherwise bad loans can become burden
for them. Every lender tries to ensure the borrower’s capacity to repay the
equated monthly installments (EMIs) in time and repay the principal amount. To
do this, they would look up to your credit history, current assets, liabilities
and other financial details.
Tax
Planning:
The biggest benefit in availing home loan is that one
can plan their tax savings after considering all deduction benefits while
filing I.T.Return. All home financing companies including banks usually give a
provisional certificate at the start of the year which is based on EMIs and
break up of principal and interest. This certificate will give you a fair
indication of how much principal has to be repaid and how much interest has to
be paid for that year. Based on this, you can plan for other investments. At the
end of the year, you will get an original certificate based on the actual EMIs
paid for that year. This certificate has to be submitted along with the income
tax returns to claim the deduction.
Let
us now dwell upon various tax benefits on availing home loan:
Any home loan will have two components in it namely,
principal and interest. While income tax efiling one can get tax benefits
through home loan under two different Sections of Income Tax Act.
Under
Section 24– Deduction on interest on home loan for
self-occupied property up to Rs 2 lakh.
Under
Section 80C– Deduction on repayment of principal
amount on home loan up to Rs 1.5 lakh.
Deductions in both components of a home loan are
therefore governed by two different sections of the same Income Tax Act. If the above sections are expanded in detail:
Tax
benefit on Principal Amount:
The amount paid as repayment of Principal Amount of
home loan by an Individual/HUF (Hindu Undivided Family) is allowed as tax
deduction under section 80Cof Income Tax Act while filing I.T.Return. The maximum tax deduction allowed under Section
80C is Rs. 1, 50,000. (Increased from 1 Lakh to Rs. 1.5 Lakh in Budget
2014). The Amount paid as stamp duty & registration fee is also allowed as
tax deduction under Section 80C even if the loan is not taken. However it is
important to note that tax benefit of home loan under this section for the
repayment of principal part of it is allowed only after the construction is
complete and the completion certificate has been awarded. No deduction would be
allowed for under construction properties.
Tax
benefit on Interest Amount:
Tax Benefit on Home Loan for payment of Interest is
allowed as a deduction while filing income tax return under section 24 of
Income Tax Act. As per Section 24, 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.
The maximum tax deduction allowed under Section 24 of
a self-occupied property is subject to a maximum limit of Rs. 2 Lakhs
(increased from 1.5 Lakhs to Rs. 2 Lakhs in the 2014 Budget). In case the
property for which the Home Loan has been taken is not self-occupied, no
maximum limit has been prescribed in this case and the taxpayer can take tax
deduction of the whole interest amount under this section. This is the best part of it because you can
avail the same benefit upon all interest paid if you rented your house without
you (owner) residing in it.
Using the above sections to the most of our benefit,
the following opportunities can be explored:
Taking
a joint loan- One can avail home loan with
co-borrower as spouse, if working. All benefits under sections 80C and 24 of
Income Tax Act can be enjoyed for each borrower. If you take home loan under
50:50 ratio, the overall tax savings of the household can be increased. The
spouse earning more should have more portion of the loan to avail maximum
benefits.
HRA
(House Rent Allowance) Benefit- If you stay in a
rented house and paying rent and at the same time availed a home loan for your
own home, you can avail benefits of both HRA and home loan. This is subject to
your home receiving rental income which is taxable.
Interest
Rates on your home loans:
RBI has maintained status quo in the first policy of
this financial year and the governor insisted upon monetary transmission of benefits
of previous repo cuts.
Many banks have reduce their loan rates by almost 25
basis points as a result of which an interest rate war has triggered which will
soon be followed by other lenders too. Most lenders at present can offer home
loans at 9-10 percent. This competition would benefit home loan consumers, who
have been struggling under high EMIs for years. As inflation is under control,
one may expect more rate cuts in near future.
One
can apply for a home loan online with all end to end assistance in
documentation and consultation process. To avail home loans hassle free and get
best quotes, calculate your EMI’s visit: home loan emi calculator
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