I have taken a composite loan of
₹ 25,00,000 for buying a plot and house construction. About 50% of that amount is for buying the plot and the remaining amount is for house construction. What is the tax exemption that I will get on the said amount?
—Manoj Gulati Any loan that is used for constructing a house property is eligible for tax deduction benefit. A composite loan that helps you buy a plot and construct a house on it can jus- tifiably be said to have been used to “construct” the house property and hence you will be eligible for tax benefits in respect of the entire loan. However, since the property is under construction, you will get tax benefits only from the financial year in which the construction is completed.
If the property is going to be self-occupied, you need to ensure that the construction is completed within three years from the end of the financial year in which the first loan disbursement has been made. This will ensure that you get the maximum tax benefits for interest payable on such a loan which is
₹ 2,00,000. If the construction gets completed beyond three years, you will still be able to claim ₹ 30,000 as maximum deduction. This monetary limit applies in case of selfoccupied house property only. However, if you intend to let out this property, you will be able to claim the tax benefits in respect of the entire interest on the loan of ₹ 25 lakh irrespective of when the property is completed.
In respect of the interest paid before completion of construction, you will get the deduction for aggregate interest paid during the construction period in five equal installments beginning from the year in which the construction is completed within the overall limit of ₹ 2 lakh if the property is self-occupied.
In addition to the interest benefits, you will be able to claim tax benefit under Section 80 C up to ₹ 1,50,000 along with other qualifying items for repayment of principal portion of the loan from the year in which construction of the property is completed.
I took a home loan of ₹ 28 lakh and it was disbursed in December, 2011, at a fixed rate of 10.7% for three years. When would it be better to shift my loan and to whom?
—Gautam Kapoor The current interest rate on home loans for customers with a good track record is 10.15% to 10.25%. It is advisable to transfer your existing loan to any other bank where you will get around 10.15% to 10.25%. Since your loan is under fixed rate of interest, you will have to consider two major charges while transferring the loan. The first one is prepayment charges, which you will have to pay to your current lender for closing your loan account.
Ideally you should wait till December 2014, when your dual rate loan will get converted to floating rate of interest. Once this is done, you won’t have to pay any prepayment charges to your current lender for transferring your loan to another lender.
The second charge is processing fees which you may have to pay to the new lender where you will transfer your loan, which will be in the range of 0 to 0.50% of the loan amount. You must have a good track record of payment of EMIs to be able to get an offer from another lender.
Harsh Roongta is CEO, Apna Paisa. He can be reached at firstname.lastname@example.org