There is a valid reason for the immense popularity of home loans today- the loans facilitate you to not only fulfil your basic requirement of getting a home but additionally also avail of tax rebates on it. Taking a home loan automatically makes a person eligible for tax deductions under Section 80C and Section 24 of the Income tax regulations, so it’s a good saving whichever way you look at it. A dual advantage of sorts.
Here’s a look at some of the ways you can squeeze the most out of your home loan-
Rebates from the home loan
Purchasing a home is a momentous decision, however, it is fraught with niggling nuances and heavy down payments. Once you have crossed the initial hurdle of putting together the down payment, you will need to consider many other factors such as the lender, floating rate versus fixed rate, tenure and so on.
It is better to take guidance from trusted acquaintances or seek legal assistance regarding these matters. Those who have previously taken a home loan can be trusted to suggest a good lender and the recommended repayment tenure. Once these initial details are sorted out, you must ensure that the home you have planned to purchase comes from a reputed builder who delivers timely projects (deviation from this basic rule and you can stand to lose out considerably). Interest deductions are liable to be claimed starting from the year in which construction completes. So it’s best to choose your builder with utmost care.
There have been many instances of projects getting delayed and the brunt of this delay is borne by the end user; thankfully there are provisions to somewhat protect customers from this kind of a situation. You qualify for tax deductions for under construction properties, besides claiming deductions on interest for the financial years before completion of construction. You can sum up the entire pre-construction interest and claim it in five equal installments. However, there are ceiling limits on the deductions you can claim.
Another caveat here is that if you sell the house within five years of having taken possession, the deductions that you may have claimed on the principal amounts are reversed. The amount is treated as income in the year of sale and taxed according to the income accrued.
Existing home loan borrowers can claim deduction on the loan’s interest in every financial year up to a maximum amount of Rs. 2, 00,000. So, if the annual interest repayment is lesser than this amount, the deductions are limited to your annual interest.
At this juncture, it is important to understand that the monthly repayment installments comprises of two elements – the principal amount and the interest amount. Principal amount repayment in the EMI qualifies for deduction under Section 80C and the amounts paid towards stamp duty, registration and other expenses which are required for transfer of the house to the owner also qualify for tax exemption. The preconditions being that you must be a home owner on the said property and a borrower in the loan. There are ceiling limits to the amount of deductions you can claim on the collective amount of these payments.
Claiming deductions from the home loan in joint names
Many working couples find this to be a convenient option when applying for a joint home loan. However, the prerequisite clearly states that the house has to be purchased jointly and the house should be in their joint names. Secondly, the share of each applicant and owner must be clearly mentioned without any discrepancies in the percentage ownerships of the co-owners.
There are other benefits in a joint home loan, namely, the division takes place in the same proportion in which the asset is owned by each co-applicant, besides the tax benefits get divided among the co-applicants. The individual co-applicant is eligible for a maximum tax rebate of approximately Rs.1, 50, 000 in case of principal repayments. Even in case of the interest element the deductions are approximately Rs. 2 lakh.
Thrifty planning on the part of the joint owners will ensure that the applicants
enjoy maximum tax benefits and nothing in the repayment amounts is unduly lost. Additionally, do remember that applying for a home loan jointly also means that you are eligible for a higher loan amount. Besides, in some cases, registration fees are reduced if the property is owned by women either individually or jointly.
As a wise home buyer you should gauge the pros and cons and ensure due diligence before taking any financial decision.