Decoding tax benefits on a home loan

Buy­ing prop­erty is a great way to save tax and en­joy long-term benefits

HT Estates - - HTESTATES - Bri­jesh Parnami

Tax pay­ments in­vari­ably end up de­plet­ing your hard- earned fi­nan­cial re­serves. How­ever, there is no es­cap­ing this prob­lem.

To ease the tax bur­den, the gov­ern­ment pro­vides breathers at regular in­ter­vals in the form of re­bates. An ef­fec­tive tool for sav­ing tax is a home loan. By pur­chas­ing a house, you not only be­come el­i­gi­ble for tax de­duc­tions but also be­come the proud owner of a house.

The sole aim of the gov­ern­ment in pro­vid­ing lu­cra­tive tax breaks on home loan is to en­cour­age peo­ple to pur­chase prop­er­ties. By do­ing so, it keeps the hous­ing seg­ment boom­ing, the rip­ple ef­fect of which is seen on other sec­tors as well.

Home loans are a great way to save tax and en­joy long-term re­lief. The In­come Tax Act of 1961 states that loans can be used as tax-sav­ing in­stru­ments too. Af­ter procur­ing a home loan for pur­chas­ing a prop­erty, a per­son can claim tax de­duc­tions on the prin­ci­pal amount as well as on the in­ter­est that he would be pay­ing to­wards ser­vic­ing the loan.

Tax benefits on home loans are avail­able un­der the In­come Tax Act Sec­tions 24, 80C and 80EE. Only in­di­vid­u­als and HUFs (Hindu Un­di­vided Fam­i­lies) are el­i­gi­ble for the benefits. Th­ese tax benefits are avail­able only on home loans and not on non­home loans such as loan against

prop­erty (LAP) etc.

Tax benefits on loans

Pur­chas­ing a home is never easy. One has to give a fat chunk of money as down pay­ment and for the bal­ance amount, a loan can be availed. This loan en­tails rel­a­tively higher in­ter­est rates. How­ever, it has a dis­tinct ad­van­tage as your home loan helps you save taxes year af­ter year as it has a long ten­ure.

Tax benefits are avail­able on two com­po­nents of a home loan – the prin­ci­pal amount and the in­ter­est. While the ben­e­fit on prin­ci­pal re­pay­ment can be availed un­der Sec­tion 80C, the same can be claimed on the in­ter­est re­pay­ment un­der Sec­tion 24. The UPA gov­ern­ment had in­tro­duced Sec­tion 80EE in the bud­get 2013-14 of­fer­ing ad­di­tional tax benefits on in­ter­est re­pay­ment, with cer­tain con­di­tions. First­time buy­ers, who took a home loan in the fi­nan­cial year 2013-14, be­came el­i­gi­ble for ad­di­tional tax ben­e­fit on ₹ 1 lakh for in­ter­est pay­ment over and above the tax de­duc­tion avail­able un­der Sec­tion 24. For unutilised in­ter­est, the de­duc­tion was avail­able for the fi­nan­cial year 2014-15 as well. This ad­di­tional tax sav­ing meant that peo­ple had the band­width to save more money. But the gov­ern­ment did not ex­tend it in the fol­low­ing years and this year too there was no men­tion of Sec­tion 80EE.

For the fi­nan­cial year 2015-16, the benefits are avail­able just on Sec­tion 80C and Sec­tion 24.

Sec­tion 80C deals with re­pay­ment of prin­ci­pal amount and stamp duty/ reg­is­tra­tion charges. The amount that is re­paid by the bor­rower to­wards the prin­ci­pal com­po­nent of the home loan is al­lowed as tax de­duc­tion un­der Sec­tion 80C of the In­come Tax Act. One can avail max­i­mum tax de­duc­tion to the tune of ₹ 1.5 lakh un­der this sec­tion. This limit of ₹ 1.5 lakh is to­wards the to­tal amount paid col­lec­tively for PPF, tax sav­ing FDs, eq­uity ori­ented mu­tual funds, Na­tional Sav­ings Cer­tifi­cates, among oth­ers.

The sec­tion does not al­low the ben­e­fit dur­ing the years when the prop­erty is be­ing con­structed. One can avail the tax de­duc­tion only af­ter com­ple­tion cer­tifi­cate has been given. How­ever, it should be noted that a tax­payer can ag­gre­gate the in­ter­est that has been paid dur­ing con­struc­tion of the prop­erty and claim the de­duc­tion in five equal in­stall­ments in the five con­sec­u­tive fi­nan­cial years, be­gin­ning with the year dur­ing which the con­struc­tion is com­pleted.

How­ever, if the owner sells the prop­erty on which he has sought the tax ben­e­fit within the five years from the date of ob­tain­ing the pos­ses­sion, then no tax de­duc­tion is al­lowed. If the as­sessee has availed tax benefits dur­ing this pe­riod, then it is treated as in­come and is li­able for tax pay­ment. the coun­try, the re­main­ing fur­ni­ture was given to the In­dian Mil­i­tary Academy (IMA). Some was given to DDA staff at 25% of the cost as per the de­ci­sion of the author­ity. What’s been kept out­side is the fur­ni­ture taken out of the flats and found to be unser­vice­able. The cost of this fur­ni­ture is not more than ₹ 1 crore. An on­line no­tice for auc­tion­ing this will be sent out next week and hope­fully it will be cleared soon,” the of­fi­cial says.

But why the wastage? Why not put it to good use and give it to some­one who re­ally needs fur­ni­ture?

“A de­ci­sion was taken that the fur­ni­ture had been pur­chased only for the pur­pose of the Games and so was not durable to be used for high-end apart­ments such as those within the com­plex. Mean­while, a re­quest was re­ceived from SAI and IMA. De­spite sev­eral auc­tion no­tices, no kabadi­wal­las came for­ward to buy the pieces, so we will be send­ing out a fresh no­tice next week and see what hap­pens,” the of­fi­cial said.

A de­ci­sion has al­ready been taken to con­vert the patch into a park.

“This is a 5.5 hectare green patch that will be de­vel­oped into a park. This has al­ready been sent for fi­nanc­ing sanc­tion,” say of­fi­cials.


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