Pre-EMIs are tax deductible
Q I am an engineer and I need your guidance on home loan. If I take `15 lakh house loan and suppose the house will be under my possession after one year and I start paying interest, will I get an income-tax rebate? What is the better scheme for `15 lakh loan for 10 years? What precaution should I take at the time of applying for the loan? GOPI KRISHNA
Via email
According to explanation provided under Section 24(b), interest — also called pre-EMI — payable by an assessee for a loan taken for the acquisition or construction of house property — before the buyer got the possession of the property — will be deducted in five equal annual installments. The deduction of preEMIs would begin from the previous year in which he gets the possession of the house and would end in four immediately succeeding years.
Therefore, if the house comes under your possession on or after April 1, 2018, you will be eligible to claim interest for FY 2018-19 and also 1/5th of the interest paid before the start of the financial year i.e. any interest paid up to March 31, 2018. The balance amount of interest unclaimed pertaining up to the preceding financial year i.e. March 31, 2018, can be set off in subsequent four years i.e. FY 2018-19 to FY202223.
It is suggested that you may carefully examine the rate of interest applicable for the loan that you propose to take and also the duration of repayment. You also need to carefully assess the processing charges and other hidden costs charged by the various banks.
Q
I am a small trader and I have no income from salary. I depend only on profit from equity trading for my livelihood. I made a short-term capital gain of `2 lakh during financial year 2016-17. On the basis of my accountant’s advice I paid 15 per cent tax on the short-term gain, though it is below the income-tax threshold. Due to this, I have stopped further trading to avoid higher income-tax. My question is whether the basic income-tax exemption is available only for salary earners but not from income from short-term capital gains? SHYAM YADAV Via email
According to Section 111A, in the case of an individual or a HUF, being a resident, where the total income as reduced by such short term capital gains is below the basic exemption limit, then the short term capital gain will be reduced by the amount of basic exemption limit not exhausted by any other income and only the balance short term capital gain will be chargeable to tax at the rate of 15 per cent. Therefore, you will not be liable to pay income tax on the income earned from short term capital gains as your total income including the short term capital gains is below the basic exemption limit. You are suggested to file your income tax return for FY 2016-17 and claim the refund.