Can you claim tax deduction for your under-constructed house? Can you claim tax for the home loan taken from your friend and not from Bank ? These are some of the questions which are not generally discussed over and lot of investors have no idea about actual rules. In the video below I will talk about four not so known rules of home loans . Keep reading ! . Readers on email can watch the video on this article.
1. Tax deductions for House under-construction
Can you claim tax benefits for home loan taken for under-construction house ? A lot of investors assume that they can claim tax deductions and without doing much research, they go ahead with the loan. However they should know the fact that claiming tax in case of under-construction house is different. You cannot claim the tax deductions for the principal amount for under-construction house. You need to have possession and certificate of ownership to claim tax under 80C. However Interest part is little different. You can not claim the interest amount, unless you get the possession of house . However you can always claim the deductions later in 5 equal installments for next 5 yrs from the end of financial year of possession.
Example : Suppose Ajay bought a house on loan on 5th June 2010 and he pays total 4 lacs as interest in next 2.5 yrs and gets possession on 7th Nov 2012 . He will be able to claim this 4 lacs Rs in equity installments in the next 5 yrs period , which is 80,000 per year in 2013 – 2017 . However the total limit for exemption will still be 1.5 lacs per year.
2. Selling the House before 5 yrs reverses the tax saved earlier
We think of saving tax, but once the tax is saved for a particular year, it does not mean the story ends here. The tax benefit under sec 80C is allowed for home loans considering the condition that it wont be sold before 5 yrs from the date of purchase. Read some nice tips for house buying from real buyers
If you sell your house before the expiry of 5 yrs, all the money you saved under sec 80C in earlier years will be deemed to be your income in the year of sale and added to your salary. For example, if you bought the flat in Oct 2010 and in next 4 yrs you saved 1 lac in tax under sec 80C, then this 1 lac will become your income in the year of sale and will be taxed . However interest component once saved is saved and it wont be reversed.
The tax benefit under section 80c is allowed subject to the condition that house property should not be sold before a period of 5 years. If you sell the house before the expiry of five years from the end of the financial year in which you obtained the possession, the deduction will be discontinued and the entire tax deduction claimed in earlier years under section 80c – for repayment of principal component of the home loan – will be deemed to be your income (in addition to capital gains) in the year in which you sell the property. However, the housing loan interest deduction claimed under section 24(b) won’t be reversed.
3. Loan taken from Friends and Family is eligible for Deductions (Interest)
Incase you want to take loan from your friends , parents or any other person , you can still claim the interest on the loan under sec 24 , which is upto 1.5 lacs per year . However you can not claim the principal amount under sec 80C, that’s applicable only if you take up the loan from some Bank or financial institution . So you don’t always need to take the loan from Bank. if you can take it from a friend or Family , you can still claim tax deductions on Interest part .
4. 80C is not allowed for loans taken for Extension or Renovation of House
If you take a loan for extension or renovation of your existing house, in that case you can not claim the principal part under sec 80C, but you will be able to claim interest amount under sec 24, but the limit in this case is only upto Rs 30,000 for self-occupied properties. However for houses which are let-out (rented or second home which is not occupied) , there is not limit for tax deduction.
Comments ? Which one of above 4 facts you didnt knew about ?
{ 276 comments… read them below or add one }
I think I didn’t know any of the points. Good one Manish.
I have a query:
Ex : Ramesh buys a ready house at X amt and pays the EMI to a bank . Now instead of living there he rent it out and continue living at his parents house.
Now what are the tax implications? He will claim tax saving under 80c and 24. And the rent will be added to his source of income. Can he claim HRA as he used to do before he bought the house?
Basically my question is what is the best strategy in this scenario? How to minimize the tax.
allthecrap
Yes , he should be able to claim 80C and interest under 24 , and his rent will be added to his income .
regarding HRA , he might not recieve it only if the house is in the city limits, but if its a different city , he can claim it.
So he has to do comparitive analysis on which option will give him best tax saving , He can pay the rent to his father and claim HRA
Manish
Dear Friend, for your given example of Ramesh, if the home loan interest is higher than 1.5L Rs. then only it’s beneficial to claim both benefits of \hra as well as home loan.
As Ramesh is declaring rental income from the house, he can very much enjoy the hra benefit also even if both houses are in same cities.
Thanks
Ashal
Thanks Manish and Ashal.
@Ashal ” if the home loan interest is higher than 1.5L Rs. then only it’s beneficial to claim both benefits of \hra as well as home loan.” Can you explain that.
Regarding the within city or out of city. Who is correct Manish or Ashal?
Ashal
As far as I knew , there is some rule that the house you own should not be within the permissible city limits to claim if you want to claim HRA incase you are living in some rented place ? Is that incorrect ?
Manish
Dear Allthecrap, As you are already aware that the self occupied property interest deduction is limited for 1.5L Rs. whereas for rented one, there is no limit. So for Ramesh, if the interest is more than the 1.5L Rs. self occupied limit, then only the rental income ‘ll be beneficial for adjustment.
Dear Manish, In case of house & rented accommodation in same city, home loan & HRA both benefits are possible if the house is declared as self occupied but the condition here is – there should be a reason to live on rent, say work place is far away from the purchased house or the locality is still developing & all the civic facilities are not available. On the other hand for ramesh, as he is declaring rental income from the house & not claiming self occupied, he is free to claim HRA benefit also as the person can not live in his own house which is already rented to else one. Hope this ‘ll clear your doubt.
Thanks
Ashal
Thank Ashal and Manish.
This is regarding the interest portion of under construction house.
It is said that interest can be claimed later in 5 years; but what if interest of the home loan in the next 5 years already exceeds 1.5 lakhs?
Then where to accommodate the interest during under-construction phase?
Anand
Thats the limitation actually . No matter what your total limit for interest is only 1.5 lacs .
Manish
Can you elaborate on loan from Family/Friends. I mean what are the paper works and documents needed to show to claim deduction on the interest amount. I took some loan from my dad for my home and I did not know about this option. Now that this is possible I want to see if I can avail this benefit.
i have also same problem? how can we show this intrest payment to goverment and componey where i am working now???
Kaushik/Bapu
It should be almost same documents required , and even the right of the lender should be same as the bank , but this is more deeper in legality so better to hire a lawyer for this .
Manish
I think for an under construction house, we CAN claim the tax rebate on the principle amount upto Rs 1 Lakh under 80 C. For claiming tax rebate on the interest part we have to show possession. Correct me if I am wrong.
Abhishek
We need to show the possession certificate to get tax benefits , how do you get possession of a under-construction house ? Explain ?
manish
I know about point 1 only all other 3 are new to me. Even point 1 is partially new to me, which claiming interest part in next 5yrs.
Another point I want to add. You get home loan as a co-borrower with your parents or wife and house is not owned by you. You will pay the EMI completely, but you cannot avail tax benefits here.
One of my friend in the same state, his father owns house and he is retired so bank allowed him as co-borrower and gave home loan and my friend is paying all the EMI. He cannot get tax benefits here neither under section 80C or 24.
But this is india, if you are paying home loan and bank gives you loan certificate then you can show it for income tax, no one will ask you to show the documents of the property.
Jayaprakash Kanreddy
One will be allowed to avail tax benefits for the part of house which he is owner for and paying the EMI , so if a person is co-owner and co-borrower for 50% part and also he is paying 50% EMI , he will be eligible to claim the tax deducations ..
In your friend case , he is co-borrower , but is he also co-owner ? If not , then he cant claim tax deductions .
The first rule for claiming tax is , you should own the house , you should borrow the loan and also you should pay the EMI from your pocket .
Let me know your friends case ?
Manish
He is not co-owner, but he is paying the entire EMI from his pocket, hence he is claiming it. Though it is not legally correct, but who will check this when he gets the certificate from bank that he is paying home loan.
hmm.. yea if he has the right documents , thats the only thing he requires to claim the deductions
Manish
Can we claim rebate on the principal amount of home loan for under construction house which is being built on my own residential plot?
Bharti
Thats really a tough one , I will find out and come back .
Manish
Dear Bharti, For under const. house on your own residential plot, you can claim principal benefit only after getting the occupancy certificate (also known as Building Use permission) from the civic authorities. Bcoz in your case, there is no builder which ‘ll hand over the possession.
Thanks
Ashal
Ashal
Nice . That makes sense . It has to come from govt authrity .
Bharti can claim the interest part of tax deducation in the same way , right ? thats 20% in each of 5 consecutive years.
Manish
My friend is in similar situation where he is planing to start construction on his site in April 2011 and will finish it by Dec 2011. And will get the occupancy certificate (also known as Building Use permission) from the civic authorities in Dec 2011.
So, will he be able to avail 80C and Interest benifits in Financial year Apr-11 to Mar-12?
Yes
Hi Manish,
I think we can claim the principle also for the under construction house provided our house will be handed over to us within the financial year(before march 31st.).
TS Ashok
Yes , if you can get the possession in a particular financial year you can claim the deductions for that particular year .
Manish
Point 2 & 3 was not known to me, thanks Manish
Are you planning to compile these info in some categories as would be really great reference material whenever required.
thanks
Rajeev
Rajeev
Thanks , Is the info not in compiled manner already ? What do you mean by “compilation” here ? explain ?
manish
Nice article…. as usual…
I was aware about point 1 but not rest of the 3 points.
I have 1 query on point number 3, What proofs do I need to submit to get tax benefit if I borrow money from family member for purchasing house?
Ajay
Its the questions already asked by some person above , I will find out and come back
manish
I know 1,3 and 4 and partly 2.
Used point 3 to my advantage.
I have a doubt on the capital gains on house property issue. My friend has two properties(Banglows). He wanted to dispose one of them and reinvest the capital gains in a new property. Will he be able to avail capital gain reinvestment benifit if he has another house.
There are various openions put forward by various sources. Would like any expert to throw some light on this.
regards
My dilemma is also similar. If i sell my house less than 5 years of purchase and immediately reinvest in another property, am i still liable for cancellation of tax benefits under 80 c.
Nagarajan
Yes , even in that case your tax benefits on 80C is revered , reinvesting in another property will only help you save the tax on the capital gains .
Manish
How do you define family? Is spouse also included in ‘family’?
Also, though it is obvious but would the interest payout get added to the income of the lender?
@ Srinivas,
Sorry, did not give context. You mentioned that you had used point 3 to your advantage. Hence…
How do you define family? Is spouse also included in ‘family’?
Also, though it is obvious but would the interest payout get added to the income of the lender?
I took lon from my father and getting exemption for the interest i pay.
regards
Vikas
I dont think “wife” will be considered as someone from whom you can take loan from . Father and Son , Mother and son , friends etc can live seperately , but how do you explain that you and your spouse are not same (2 jism 1 jaan) I mean to say
.
You can claim deductions from the loan taken from brother or father who is living with you , but not the spouse , it does not make sense
.
I hope you agree with me , note that my comment is based on logic and not any proof , we need to still find it out !
Manish
Dear Vikas, In case of obtaining full or a part of home loan from a private source like friend or relative (family member, even spouse), the interest paid to these pvt. source ‘ll be available for dedection under section 24 for the borrower. On the other hand, the interest ‘ll be added in the income of the lender & ‘ll be taxed as per his/her marginal income tax rate.
Thanks
Ashal
Ashal
Thanks for the answer
manish
Srinivas
Yes , he will get that benefit , The usability of capital gains to buy another house and save tax on that has nothing to do with the number of properties you have , where did the confusion arise out of , give me the link
Manish
I researched on net. There is no clear explanation for it(May be this case is not encountered very often). One FP who my friend approached also told me the same(That my friend will not be able to use CG on sale of second house).
Srinivas
Yes , dont get confused on this . Its a well known rule that selling the house before 3 yrs will mean that you have to pay tax on profits , no other alternative . Better to sell it after 3 yrs .
Manish
good ones Manish. never knew about them. guess, people who are salaried & are mobile or not settled in 1 city, has a lot to take home from this, esp. people who start their careers & plan to take home loans too early in their careers w/o thinking the impact on their cash flows.
Santosh
Yes , thats true .. Knowing these rules will obviously help some one plan their finances and optimise it , as I read above , someone had taken the loan from his father , but didnt knew that he can claim deductions , its a 45k loss incase his interest was 1.5 lacs and he belongs to 30% bracket .
Just imagine, 45k loss just because you didnt educate enough ! Big price to pay for ignorance !
Manish
Dear manish,
Nice article in simple language. I have one query. pl. look in to it.
Query : I have taken home loan in 2005 and i am showing it as investment proof every year to save tax. I have taken 1 lac rupees personal loan in 2008 for home renovation. Can i claim this for tax savings? (My annual EMI for this Personal loan is = 3500 X 12 =42000. including interest.)
Bharat
Personal Loan = NO TAX DEDUCTION
Manish
Hey Manish,
If I am not mistaken, isn’t the interest deduction for loan taken for repair/reconstruction of the existing house restricted to 30k and not 150k as you put in point 4?
Ashwin
Thanks for raising this point ,you are correct . The limit for interest deducations for loans taken for repairs etc is 30k , but only for self-occupied house . For let-out properties , there is no limit
Manish
Also I would like to add:
The total limit for the interest deduction for the self occupied house is 150k, that includes pre EMI/5 + interest paid during the financial year for loan taken for construction + interest paid for repair/reconstruction during the year (subject to 30K limit).
So if a person is having a existing loan if he takes a further loan for repair the interest although restricted to 30k should come within the overall 150k limit and not outside it.
Thanks for the article.
Ashwin
Thanks for adding this point
.
Manish
Good article Manish. I was not aware of Point 2 that is a new learning.
Vijay
I am glad you know more now
. please spread the word !
Hi Manish,
Thanks a good article as always. Was not aware of 2 & 3.
Regards
Shobha
Thats good to hear . Keep reading
Manish
Hi Manish – eye opener there!
I had taken a home loan in july 2009 for 12 lacs – for a house which is being constructed and will be ready for possession in 2011-12
I have been paying EMIs since Aug’09
My question is: will I not get tax rebate on both principal & interest for this financial yr 10-11
Thanks in Advance
Dear Brijesh, As the possession of house ‘ll not be there with you till 31st march 2011 in the current FY 2010-2011, you can’t claim any benefit be it on principal or interest.
In next FY i.e. 2011-2012 as you ‘ll get the possession, you may claim full principal of FY 2011-2012 & full interest of of 2011-2012 coupled with 20% of the total interest paid till 31st march 2011, within the over all ceiling of 1.5L Rs. for the self occupied house.
Thanks
Ashal
Ashal
Thanks for answering, I had a talk with brijesh on phone today itself ,and answered his doubt
Manish
does the PEMI/5 +Current year Interest rule apply for rebate on second homes too? ofcourse adjusting for rental incomes and taxes paid?
thanks
Pravin
Pravin
yes it should be, anyone can answer this ? I got confused
Dear Pravin, Yes you may claim pre EMI interest @ 20% rate + normal interest of running FY for the rented 2nd house adjusted with rental income. I’m producing an example for you.
A. Pre EMI Interest = 200000 Rs. (adjusted 20% = 40000)
B. Current FY Interest = 250000
C. Annual Rent received or deemed = 120000
D. Property Tax paid to civic authorities = 20000
E. Annual Net Rent = C – D = 100000
F. Standard deduction = 30% of D = 30000
G. Net Taxable income from house property = E – (B + 20% A + F) = 100000 – 320000 = -220000
As the G above is a loss, it ‘ll be available for set off against salary income.
I hope the above example ‘ll solve your query.
Thanks
Ashal
Hi Manish,
Thanks for the valuable information.
According to you pre-EMI Interest only can be claimed once property is registered and occupied. For example, house will be occupied when full loan disbursement is done . That means full EMI starts. Can one claim both Pre_EMI and regular EMI Interest at the same time.
BTW I know lot of cases in Bangalore where people get the property registered midway and use that document to claim full Interest and Principal payment exemption.
Regards
Atul
Atul
I am not sure why you are using the word “pre-EMI” , are you reffereing to EMI paid only for the interest part ?
Manish
Dear Atul, Yes pre EMI interest coupled with normal interest upto 1.5L Rs. for self occupied house & unlimited for rented house ‘ll be available for set off. Please check my reply to Dear Pravin.
Thanks
Ashal
Hi Manish,
Very nice article. I am a regular follower of your articles. I have query regarding this section 24. I am currently construction house and I have taken a loan of 25 lacs from SBI and my father is giving another 7 lacs to complete that. Since there will not be any agreement between a father and son , can I make it an agreement and claim by proving interest to him to claim the deduction under section 24. Can I claim both SBI and loan I take from my father for tax exemptions.
Real kudos your great articles.
Thanks,
Ramesh
Ramesh
Yes , you can claim upto 1.5 lac in total from various sources of loan
Dear Ramesh, As you are already taking 25L Rs. loan from SBI & another 7L Rs. from your father, the total interest outgo ‘ll be higher than 1.5L Rs., the limit for self occupied house.
In my view, to maximize your income tax benefit, you should consider the deemed rent option if you want to live in this same house. In case you are going to put this house on actual rent, show the actual rent received in place of deemed rent & get the maximum possible income tax benefit.
Thanks
Ashal
Manish and Ashal,
How and what you think would be the senario once the DTC is implemented? Will there be no HRA exemption ? Will there be no exemption on principal repayment?
For me it appears with DTC, it would be big loss to salaried people who are staying in metro or semi metro and paying huge rent.
Amit
Yes HRA will go away with DTC coming in . I have to look again regarding Principle payment .
Yes it would be a blow to salaried class , but the compensation is low slabs .
manish
Dear Amit, no need to panic yet for DTC. It’s merely proposal as on date. Let the parliament pass it as an Act. there are many slips between cup & your lips. As rightly pointed by dear Manish, the redrafting of tax slab is the benefit in exchange of some other benefits like HRA, Home Loan Pr. etc.
Thanks
Ashal
Thanks Manish and Ashal….
Hi,
I have taken loan for a house which is under construction. Construction is expected to complete by September 2012. I am paying only the interest part as of now since last may 2010.
Now, to claim the interest exemption (after possession of the house) for the interest paid before possession, what all documents i need. Does bank issue some certificate for the interest paid on under construction property?
Tarun
Tarun
Yes , Bank should be giving you the statement or the reciept of the payment you are making , kindly ask them
Manish
Dear Manish,
I have 2 queries:
1. At present, yo can have 2 houses in the same town and you can get tax benifits on both the houses on the loans taken. Now is it true that as per DTC, you will get the tax exemption only if you have second home in another town and if your second home is in the same town you will not get any tax exemption?
2. Suppose I have a house on my name and I buy a second house in the same town with my wife ( who has much less income than me ) as first owner and myself as co-owner. Can I claim 100% tax deduction on my income ( my wife ia anyway out of tax bracket so she does not need it. )on the loan token with myslf as co-borrower?
Dear Milind, Here are answers for your query.
1. There is no such limitations in DTC. One may have any no. of houses 2-3-4-5-……. in the same city & may claim home loan interest benefit all houses. Just like present situation, after declaring one house self occupied, all other houses’ interest can be adjusted against the rental income from such houses.
2. Tax benefit on the 2nd house ‘ll depend upon the ratio of ownership between 2 of you. Interestingly as you are already claiming your first house as self occupied, the 2nd house can be claimed only after showing rental income from it. If you may prove that your wife’s name is for merely ease of ownership for later years (she may sell easily if you are not alive) & all the money paid as down payment as well as EMI pmt. is from your own sources, you may claim full interest (with out any limit of 1.5L Rs. for self occupied house) benefit adjusted for rental income from the 2nd house.
Thanks
Ashal
Thanks for the answer Ashal , Even i learned from it
Manish
Thanks a lot Ashal. That wsa very informative reply.
Dear Milind, It’s nice to know that my post was helpful to you. Please fell free to post your queries.
Thanks
Ashal
@ mANIsh and others
Temme wat if the buyer take loan and go for buying a flat .
So until he occupies the flat ,is it so that he wont be able to get tax benefit under 80C and 24?
Suman
Yes , its clearly mentioned in the video . He wont be able to claim 80C , but interest part will be available later in 5 parts after possession
Manish
Dear Suman, Please check the following link –
http://law.incometaxindia.gov.in/DIT/File_opener.aspx?page=ITAC&schT=&csId=de2e44de-d3f9-4153-9b35-f47bd711340e&rdb=sec&yr=75996b99-a798-4098-bca8-e66ee23fe426&sec=&sch=&title=Taxmann+-+Direct+Tax+Laws
For Sec. 80C benefit of home loan repayment, possession of house is not compulsory but for interest benefit under section 24 yes possession is a prerequisite.
For most of the salaried class people, The home loan benefit (both 80C & 24) at source means a lot & most of the time, it’s the employer (account department people) which demands the possession certificate to provide any relief from TDS at source.
In my view, the moment you start repaying home loan in your EMI amount, the section 80C benefit is due to you.
Thanks
Ashal
Dear ashal if you get possession after 3 years due to builder’s delay , cant you claim benefit on the interest payments that will be making to the bank?
asim
hi Ashal/Manish,
“In my view, the moment you start repaying home loan in your EMI amount, the section 80C benefit is due to you.”
Please throw some more light on it. I am paying EMI’s for home loan taken in December 2009. The house is under construction on my ancestral land in my village. I know I can not claim interest related deduction right now, but can i claim principal related deduction under sec 80 C? my company accounts guys told me that i need possession certificate to claim both benefits. Secondly, as the house is in a village and does not fall under any municipality/town planning area, how am I supposed to produce the possession certificate? what will be termed as completion of house? I mean is it in terms of complition of construction work (even if some minor finishing work is pending) or is it related to the final installment of loan that one receives from the bank?
regards
Manish
Hi
I am new to finance management. I just have a question as can we delcare personal loans taken in any of the sections of income tax for saving tax deduction. Please help me out.
Maanasa
Maanasa
No , you dont get any tax benefit on personal loan
Manish
I have two properties in my name, one in my native place NP and other in my current work place WP. The NP home is occupied by my parents and I am not receiving any rent for that. The WP home is occupied by me and my family. I have availed loans for both the properties which are still running.
My questions are
1) Can I show both the properties for tax exemption on interest part (since both are self-coccupied)?
2) As I understand for one of the properties I need to consider notional rent as income and show it appropriately in income section. My query is can I show WP property under this scheme as it saves me more tax in this case.
3) How do I calculate notional rent, if at all I have to.
Amit
1. For the second house, you will be able to claim interest , but legally you will have to assume a rent which will be notional .
2. No , WP is occupied by you . You can show the notional rent for NP only
3. No idea on that .
If I sell an unoccupied investment property for which I have a loan, after 3 years, is the interest paid on home loan deductible from the capital gains.
I understand that CII is applicable but can the huge amount of interest paid be used to offset the gains?
Interest can be claimed only on per basis . I dont think it can be offset it the profit made out of sell . Why did you think like that ?
Manish
Hi,I would like to know if I borrow an amount from my relative and not from a bank , for purchasing a house , Can I avail the tax benifit on the same.In this case what are the documents required to be furnished during tax returns .Pl advice
Uday
Yes you can avail the tax benefit , but only on interst part , not on principal , which I feel is ok ! . Documents would be same as required in case of loan with bank
Manish
Dear Manish
All the points are new to me…I recently availed a home loan (which is under processing) for purchase of a new flat. My biggest motivation to buy a new flat was to get tax benifit on interest part which i thought i would get instantly . As tax benifit under 80C hardly matters because for initial years principal amount is extremely small. To add to this i do not plan to hold this flat for 5 yrs (its just an investment) which concludes i wont be able to get tax benefits on the interest part at all: this defeats the very purpose of me buying a new ….lets just hope the property prices atleast increase!!!
Thanx a lot manish for such great articles…I have just started reading them and will definitely be a follower.
If you get possession 3 years or more after the home loan disbursement date ,it appears that you will not get benefit of tax deduction on the interest paid. There seems to be ambiguity on this. why should customers be penalized for builders fault? On one hand ,there is delay from builder and then you lose out tax deduction benefit. is there any solution? is the interpretation right?
Asim
As far as I know , thats the rule , not sure about the updated rule on this . Can you put your question on our forum : http://www.jagoinvestor.com/forum/
Manish
Hi Manish,
I don’t understand what is meant by possession? I have got a share certificate from my builder. Since it is a small builder, he will be allotting the house via lucky draw later in the year once construction is complete. Can I claim tax deduction based on the share certificate I have?
Regards,
Sonia.
Dear Sonia, Possession means the building is now ready for use & after the possession certificate, you are now using (or may use) the building. Normally the possession certificate is provided only after getting clearance from local municipal body for sewer & gutter connection, water connection, Electrical connections etc.
Thanks
Ashal
Hi
I have a home loan where-in my wife is a co-borrower and co-owner in the property. I have been paying 100% of EMIs and was allowed only 50% benefit last year because of part ownership.
This year, my wife will have higher taxable income, and needs to claim some tax benefit. Please advise which one of these is feasible and/or correct..
1) Pay 100% EMIs for 6 months from wife’s bank account and both of us get 50% benefit based on certificate issued by Bank.
2) Lump-sum Principal re-payment from wife’s bank account. She gets 100% benefit under 80C for the amount pre-paid.
3) No need for wife to pay any EMI / principal from her bank account. By virtue of being a co-owner and co-borrower, she can claim 50% benefit irrespective of whose bank account the repayment goes from.
Dear Anurag Jain, you can’t change the ownership every year based up on your own tax benefit level. This is the direct answer to your query.
Regarding prepaying again no matter who is going to prepay, the home loan principal amount repaid ‘ll be equally divided between you & your wife.
Thanks
Ashal
Hi Ashal
Thanks for your response.
I do not intend to change the ownership. What i meant was that both of us are co-borrowers and 50% co-owners. Last year, I got 50% benefit due to shared ownership; and becasue my wife did not have enough taxable income, she did not have to claim the benefit (which she could have claimed, if required).
This year, she will have a lot of taxable income, and hence we will want to avail the home loan tax benefit for her too. So, what I wanted to know is if it is a compulsion for her to actually pay the EMI/ Principal from her bank account ? Or, she is eligible to claim 50% benefit even if I make the payments from my bank account ? Thanks Again.
Dear Anurag, Let me clarify my prev. reply. As you have claimed 50% benefit last year, this year too the ratio ‘ll remain same. What I mean was – every year you can’t keep changing the benefit ratio say 40-60, 50-50, 60-40. Once you people opted for 50-50, It ‘ll remain so.
Thanks
Ashal
Dear Ashal
I may not have made myself clear enough. My question is not regarding the share / ratio. We will calim 50% – 50% benefit only, for sure.
I just want to know if the EMI payment / principal payment should go from my wife’s bank account, or it can go from my bank account ?
If I bear the complete EMI payment from my income, my wife will get the tax benefit, right ? As she is the co-borrower and co-owner…. (but not paying any EMI from her income)…
Dear Anurag, For the first house where your wife is claiming the tax benefit, it’s advisable to pay EMIs from her account or from a joint account. In case the ECs mandate is from your single account, make sure every month, your wife is paying her share of EMI to your bank account to be adjusted against the EMI amount.
To avoid any future hardships from the income tax department, it’s advisable to have her own income & repayment also in the loop.
As of now, for claiming Income Tax benefit, no proof is required to prove the authenticity of payment done for the claimed home loan from own account. But in case if your’s or your wife’s case is selected for scrutiny, you may be in trouble to prove the authenticity of your claims.
Thanks
Ashal
Hi everybody,
I’m Balakrishna. I recently got home loan of 21 lakh from Axis Bank all at once (single disbursement) to buy a completed house. Now bank is asking me to pay only pre EMI interest (about Rs. 18000) for first month. But i’m insisting to start EMI (about Rs. 32000) from first month itself so that i’m able to pay a part of my principal amount also for which bank is not agreeing.
Can any one please clarify me the following.
1. Is pre EMI interest also applicable to complete disbursement of loan in one go?
2. If bank insists for payment of pre EMI, where can i complain about it?
Dear Balakrishna Y. V., Please post details of your loans say interest rate, EMI date, Term of loan…. It seems bank is asking for payment of interest of part period. Please confirm.
Thanks
Ashal
Hi,
This was a very helpful post. I had a quick question on the registration charges and stamp duty paid for getting the house.
1) Can this cost be deducted from the taxable income?
If so how do we submit proof of the amounts paid and under which section do we get rebates.
2) I am getting a flat under construction registered , will this be sufficient to claim tax benefits in the current financial year itself or do I need to wait till I get a possession certificate?
Thanks for the answers in advance.
Karthik
1. Yes, but only in the year of purchase of house
2. You will have to get the possesion certification if you want to claim the deductions, else you cant
Manish
Hi!
I am a salaried person and borrowed a home loan of Rs 1500000 for a home and I am paying EMI. But the home get registered in mother’s name. Am I eligible for tax benefit.
Regards
Shekahr
Dear Shekhar, as you are not the registered owner of the house in question, you can’t claim tax benefit for the home loan taken by you.
Please do note, ownership of the property is precondition to avail any tax benefit.
Thanks
Ashal
Shekhar
No , it has to be on your name to claim tax deductions
Manish
Hi,
Thanks for the detailed explanation.
I am however now confused. I was under the confusion that you can get tax deduction for under-construction flat only for Principal under 80C.
I booked a flat in December 2009 which is still under construction. I was able to show Principal under 80C and get tax benefit. I confirmed this from HDFC Bank as well as from company CA and they all told me that Principal could be shown before possession but Interest can’t.
All of my friends are also taking tax benefit for Principal.
Can you please confirm.
Thanks,
Nitin
Dear Nitin, for under contruction property, you may claim Principal repayment benefit under section 80C. For unclaimed interest part, you may do so after getting the possession in 5 installments of 20% each starting from the FY of possession within the over all ciling of 150000 Rs. for self occupied house & without any limit for rented property.
Thanks
Ashal
Nitin
Do you have the certificate of possesion ?
Hi,
I have booked a house which is under construction. I have not taken any home loan. I am paying the builder directly using monthly installments without any interests. I have MOU with the builder as proof. Can I claim the amount I am paying each month as principal amount for tax deduction?
Dear Mihir, as there is no loan taken for the property, the question of principal repayment does not arise hence you can’t claim any tax benefit for the amount directly paid to the builder by you.
Thanks
Ashal
Q:
I AM PAYING LOAN ON PLOT PURCHASE FROM AUGUST2011 NOW I START CONTRUCTION ON PLOT WITH MY OWN MONEY AFTER PASS MAP OF HOUSE FROM CIVIC AUTHORITIES OF CITY. NOW I WANT RELIEF ON TAX ON MY HOME LOAN ON PLOT.PLEASE HELP US
Ashif
You can claim the tax benefit on the loan taken for construction , what is the issue ? Where are you stuck ?
Manish
DEAR MANISH
I HAVE LOAN ON PLOT AND I HAVE JUST STARTED CONSTRUCTION.SO HOW I WILL GET RELIEF FROM TAX PLEASE HELP
Dear Ashif Khan, you may claim the 80C benefit on the repayment of loan. For the interest benefit upto 1.5L Rs. you w’d have to wait till the completion of your house.
Thanks
Ashal
Hi,
I have taken a property soley registered in the name of my wife. Both of us are earning. We have taken a loan where i am the primary applicant and she is the co-applicant. Bank will issue certificate on both the name. ECS is done from my account. Now my concern is :-
1. Am i eligible for tax benefit?
2. Is my wife eligible for tax benefit ?
3. If i am not eligible for tax benefit then what is the solution?
4. If my wife is not eligible then what is the solution ?
Please suggest. Your suggestion will be of great help. Thanks for your help.
Regards,
Ramesh
Ramesh
1. No , the property has to be registered in both of your name, only then you can claim the tax benefit
2. Yes, your wife can avail tax benefit , in the ratio of the loan repayment
3. There is no solution other than getting the house registering in your name also
4. She is eligible
Manish
Dear Ramesh, in addition to what dear Manish has told you, please ask your wife to transfer her share of EMI everymonth to the account from where the EMI is paid out. As on date – practically only your wife is the owner & eligible for tax benefit. So to claim the same she should also pay her share of EMI.
Thanks
Ashal
I want to take a home and will be letting it out for initial few years. Also I will be taking home loan from Bank but Bank is only ready to provide loan on 80% amount of the property because they says its RBI guidelines. I do not have the rest 20% to make down payment. One of my friend is ready to fund me the rest 20% on interest, Now my question is if I take this home with 80% loan from Bank and 20% loan from my friend and then I let out that house, can I claim the tax rebate on both the interests, one being paid to the Bank and the other being paid to my friend. Please clarify. Thanks
Surinder
Yes you can .. if you see the article video , you will learn that you can pay the interest to Bank or friend and claim the interest part for both. however you can claim the principle part only on the loan taken from Bank , not friend
Manish
Thanks Manish for your prompt response. You said that I can take interest from friend or Bank but my question was from both i.e. from Bank AND Friend, not one of them and then claim the tax discount on both the interest parts, the interest I am paying to the Bank as well as the interest I am paying to my friend. Regarding Principal, I am not at all worried about the same since my 80c investments have already crossed 1 lakh Rupees.
One more query, is there any limit on the interest my friend can charge me for which I can claim tax rebate and also any restriction on the tenure
Thanks
Surinder
Yes you can take the tax benefit on the both the parties .. but the overall limit will be 1.5 lacs only .. Also in order to take the tax benefit on your friends loan amount, you will require the same kind of documents which you get from bank like AGREEMENT for loan etc etc .. you can get the list from the conversation in this comments section , i think someone talked about it in detail
Also there is no limit your friend can charge you , its based on your mutual agreement , but it would be a good idea to take it from friend because he can earn good return and you can also get it lower than bank
Manish
Hi Manish,
Why are you saying an upper limit of Rs 1.5 lakhs. I am not planning to occupy the property but let it out in which case I believe there is no upper limit on the interest. So my question is that if I take home loan partly from bank and partly from my friend and then let out the property and then claim the tax rebate on both the interests, i.e the interest paid to the bank as well as the interest paid to my friend, is that valid.
As far as the documentation is concerned, I am not sure why you say that the same kind of documentation is required like Bank because Bank will mention in their document that the house will belong to them unless I pay off the complete loan but the same statement cannot be mentioned by my friend since the house is already in the name of the bank , I don’t think it can be in the name of any other party
Regards
Dear Surinder, Yes you are right. for a let out property the ceiling of 1.5L Rs. home loan interest is not applicable. For your given situation I’m trying to explain with an example – House cost – 50L – @ 20-80 ratio, Friend’s loan 10L & Bank Loan40L Rs.
Now The interest you are paying for 10L Rs. + the interest for Bank’s 40L Rs. ‘ll be available for set off against the rental income & then your salary income.
Any reasonable rate of interest charged by your friend ‘ll be good say 10-12% as per current market rate. In case of your friend, the interest received from you for those 10L Rs. ‘ll be his/her income & S/he w’d have to pay income tax as per his/her tax slab.
Thanks
Ashal
Dear Manish,
Hi! I’m a salaried class, I’d taken home loan in Nov 2007 for society flat in Indirapuram Ghaziabad. The possession of the flat was given to me in May’2010. Since Aug’2010 the flat is on rent. I’m staying with my parents in South Delhi. My workplace is also in South Delhi. For the year 2010-11, i had paid my income tax adding the rental income to my salary, & i hadnot taken the benefit of HRA. Also thr’ the discussion above i’d come to know that if i’m paying tax on the rental income, the whole of the amount paid against intrest can be deducted from the income. Please confirm.
Thanks & regards,Harjit Singh
Harjit
You can claim the tax benefit from the the interst paid. but can not be deducted
Manish
Dear Harjit, there is a clarification in dear Manish’s reply. As the house in question is on rent, you can claim full interest benefit. In fact you may revised your ITR for FY 2010-2011 & even claim the unclaimed interest of that year.
I’m giving you an example for easy understanding –
@ 8500 Rs. mly,
A. yly rental income = 102000
B. Tax paid to local municipal authorities = 2000
C. Actual Rental income = A – B = 100000
D. 30% standard deduction on C = 30000 (this is towards upkeep & maint. of house, no matter you are actually spending less or more than this amount, it ‘ll remain fix @ 30%)
E. Interest paid on home loan = 300000
F. Net income from house property = C – (D+E) = -230000
The F above is a loss which can be set off against your salary income.
Above was an example, please put in your actual nos. For last FY, as the house rent was from August to march & before that from April to July, the house was not on rent, so take the rental value of 8 months only for calculation.
If you are still in doubt, please check section 24 of income tax act 1961.
Thanks
Ashal
Thanks Ashal,
That example was great and it clarifies my doubt.
Now my question is about documentation needed from my friend. Is it not enough if my friend just give a certificate to me that he is offering me loan at so and so rate of interest with 2 or more witenesses attesting to that. Is there some specific set of documentation to be prepared in predefined format to be eligible to take home loan from my friend so that I can claim Tax discount on that interest
Regards
Dear Surinder, loan documentation is different thing & interest certificate for the purpose of tax benefit is different thing. For example in case of bank –
At the time of sanctioning the loan, the bank & you sign a lot of papers & some on stamp papers also. Where as to claim income tax benefit, you just visit the branch, a simple letter from bank mentioning the total EMI to be paid with the break up of principal & interest in that EMi repayment is enough to avail at source tax benefit from your employer. So for the given situation – Yes you have to do a simple loan documentation with your friend (for your ease, you may use your parents, in laws, siblings, spouses of siblings also for such internal loan). To claim tax benefit, every year, just like bank, your friend ‘ll also give you a simple paper mentioning the amount of interest either paid or to be paid the FY.
Please feel free to ask if you need more help.
Thanks
Ashal
Thanks a lot Ashish.
So you are saying if my friend or lets say my father or brother giving me home loan, and have faith in me and do not sign any documents and just give a certificate mentioning the principal and interest breakup, that one document is enough every year to claim the tax rebate.
Also let me complicate the question a little bit. Lets say on the same house where I have taken the loan from Bank, I take the rest amount of Loan from my father as well as my friend. What I am asking is whether there is any limit to the number of parties on the same house from whom you are borrowing loan or there can be infinite number of parties
Regards
Dear Surinder, Please read my reply again. For loan a simple documentation is required i.e. on a stamp paper of say 100 Rs. with the terms & conditions of your loan written on that stamp paper & signed by both parties.
What I meant plain paper was for income tax benefit on interest part.
There is no such restriction that from how many parties you are arranging the loan for a single house.
Thanks
Ashal
Dear Mr. Ashal & Manish
Really this is a great article and an eye opener to many of ‘Younggen’ team.
To be frank almost all the 4 things mentioned in the Main Article are new to me (I am partly aware about Point 1). I am very much interested in point 3 (ie., loan taken from frds/family). I took housing loan of about 19.5 Lakhs from IDBI bank and 10 Lakh loan from my father (I have 2 yngr brothers). House possession was taken in March 2011 and house is rented since then. I was under impression that i could show only the bank’s interest as part of my other income. But, from your article, i understood, interest repayment for loan took from father can also be shown.
Now coming to the documentations part, as my father & brothers have faith on me, they took only Promissory Note as proof for giving me loan. No Agreement on Stamp Paper was signed. Is there any possibility for me now to set off the interest paid to my father? Can I now make agreement copy on stamp paper with current date and still claim for the current financial year.
Hoping your great reply. Regards, KK Babu
Dear KK Babu, Yes you may still prepare your loan documentation. To keep the matter clear, please retain your original promissory notes also.
Please do note the interest paid to your father as well as brothers ‘ll be their income respectively & it’s taxable for them after adding it to their income from all other sources.
Thanks
Ashal
Thanks Mr Ashal. I will try to do the same now.
hi i have a question i bought a flat for which i m paying interest around 300000 per year that flat is registered on the name of my wife and me.. she is also co-borrower
i want to know if we are paying EMI 50-50 percent how much amount we can claim under section 24 individually. as u mentioned that maximum limit is 150000 . i want to know this limit is for an individual means both can claim 150000 or i will be 75000,75000 in this case..plz reply thanx
Deepak
You both can claim upto 1.5 , so total is 3 lacs , but note that you should also have the house in your name , if the house is totally on your wife name, then you cant claim the tax deduction
Manish
Dear Deepak, From your query, it’s clear that both of you are co-owner & co-borrower. In this case, both of you are eligible for 1.5L Rs. individual limit. So the 3L Rs. interest payment can be divided as 1.5L Rs. each between both of you & accordingly both can claim tax benefit under section 24 of Income Tax Act 1961.
Thanks
Ashal
Hi Manish/Ashal,
It’s really good article and Q&A followed by the article. Please clarify on my query with figure.
I am staying at my parents place and claiming the HRA (company provides Rs. 12500 PM) , parents show that in their other income and pay tax. We got overall benefit on tax slab as i am with 30% slab and my parents on 10%. House on their name and they have built it.
I have invested/planned to purchase 3 house. 2 are in same city and 1 in different.
House 1 : interest pay per annum is 1,54,692.00 (12,891 pm). Located in same city (outskirts of city) , but in near future BDA palnned to expand to those area also.
House 2 : interest pay per annum is 1,69,596.00 (14,133 pm). Located in same city (outskirts of city) , but in near future BDA palnned to expand to those area also.
House 3 : interest pay per annum is 1,05,996.00 (8,833 pm). Located in different city.
Please explain me how to save maximum tax on principal and interest on above property and also from HRA.
Thanks,
Subendu
Subendu
This question should be best answered in forum only : http://www.jagoinvestor.com/forum/
I bought a house in Mar 2007 at 14.5 Lacks and Took a Renovation loan of 3.5 Lacks in Mar 2009 and Finally Sold it in July 2011 at 21.5 Lacks. Now I have few Queries:
a) Can I claim the principle and interest for 4 months period of Apr 11-Jul 11 ? As I paid 75K as Interest and 17 Lacks as principle but I do not hve possesion till Mar-12 Finanacial Year end.
b) Do I have to return the benifits under section 24 taken in last 4 years having made Long Term Capital Loss on the peoperty ?
Thanks in Advance !!
-Gaurav
Gaurav
1. No , the tax benefits are there only when you possess the home
2. No , Nothing like it
Manish
Dear Gaurav, It’s advisable to post your query in the forum.
This question should be best answered in forum only : http://www.jagoinvestor.com/forum/
Thanks
Ashal
Hello Manish,
Thanks for the article.
Could you please help me clarify the below query?
I’m currently paying Pre-EMI (Interest) for a flat i have purchased last year and the same is expected to complete and would be ready for possession by Mar-2012.
From your points, i’m clear that i can show the tax exemption for the total Pre-EMI interest amount i have paid in equal parts of 5 starting from this financial year (as I would be getting the possession before 31 Mar 2012). Below are my questions..
1. How would I produce the possessoin letter now as the cut-off date to submit the investment proofs is 13th of this month?
2. How would I know how much is the total interest amount bank is gonna pay till Mar-12?
3. What are the documents i need to submit to avail the tax exemption on the interest part i have been paying?
Thanks much in advance,
Venky
Here is the reply from Ashal for you
—-
Dear Venkatesh, in case you are not able to file the details with your employer till due date i.e. 13th Jan, You can claim the tax refund while filing your income tax return.
Thanks
Ashal
Dear Venkatesh, in case you are not able to file the details with your employer till due date i.e. 13th Jan, You can claim the tax refund while filing your income tax return.
Thanks
Ashal
Very useful information..keep up the good work.
I have a query Example : Suppose Ajay bought a house on loan on 5th June 2010 and he pays total 4 lacs as interest in next 2.5 yrs and gets possession on 7th Nov 2012 . He will be able to claim this 4 lacs Rs in equity installments in the next 5 yrs period , which is 80,000 per year in 2013 – 2017 . However the total limit for exemption will still be 1.5 lacs per year.
Here so Ajay can claim 80000+1.5 lac from 2013 – 2017 or total 1.5 lac from 2013 – 2017 ?
It would be total 1.5 lacs only ..
You would say whats the use then .. because anyways its 1.5 lacs per year .. but the thing is suppose his total interest in a year is generally 90k only , so he is not able to exhaust it fully .. but suppose he is allowed to use his old interest also , then by combining it may be he can reach 1.5 lacs
Manish
Dear Chandraprakash, if the house is self occupied, the interest benefit is limited to 1.5L Rs.
If the house in question is on rent, the interest benefit is unlimited.
For the given situation, My take ‘ll be to go for a notional rent option if the adjusted amount for notional rent, come out more than 1.5L Rs.
If possible to you, can you quote the possible rental value for your flat?
Thanks
Ashal
Hi,
I have an existing house loan along with my brother. We both are joint owners and claiming tax benefits, 50% each. The house is in Delhi.
Now, I am planning second loan for buying a house in Hyderabad (I am currently working here). I have following queries:
Can I claim both principal and interest for tax benefits?
What will happen to my HRA, if the Hyderabad property is still under construction?
If I make my wife as joint owner (she is an housewife and has no source of income), will I get all the tax benefits or just 50% as she is joint owner?
Thanks,
Ritesh
Ritesh
You can get only the interest benefit on the second house and you can also claim HRA
If you wife is the co-owner and co-borrower , how will give give the EMI ? You can claim tax benefits on interest and there will be no limit on that as its your second house . the only thing is you need to have a possession certificate from builder , else you cant claim the deduction on under construction property
Manish
Dear Ritesh, As you are co-owner of a property in Delhi & the same is declared as self occupied, another property in Hyderabad can’t be self occupied for taxation purpose. Out of the 2 properties, you have to opt which one is self occupied & which one is on notional rent.
Till the time the H’bad property is not under your possession, no tax benefit on it’s interest portion ‘ll be available for you.
Yes for principal repayment of both home loan, you may claim it for tax benefit under the over all limit of 1L Rs. under section 80C.
If your wife is not working & her name is merely for future operational purpose (she may sell house easily in your absence being co-owner), you may claim full interest amount for tax benefit as you are providing all the money for house purchase be it down payment of the house or EMI payment later on.
Till the time your house in H’bad is not ready for possession, you may claim HRA benefit. Once you move in to that house to live in you can’t claim HRA benefit.
Thanks
Ashal
Thanks Ashal for the response.
I plan to declare Delhi house (which I co-own along with my brother) on notional rent (since the rental income, technically, will be divided into 2 parts and therefore the tax burden for me will be less). Please advice.
Also, the Hyd house will be ready for possession in couple of months. So, I plan to declare it self-occupied and hence lose some money on HRA
But I can claim full principal (under 1 lac bracket) and complete interest portion. Please confirm.
For taking 100% tax benefits for Hyd house (since my wife has no income), do I need to submit some kind of declaration/affidavit?
Thanks,
Ritesh
Dear Ritesh, sorry for the late reply as I missed your query. Yes you may claim Delhi house for notional rent, if the total equation is favorable to you.
Please do note principal amount of both home loans is available for benefit under section 80C. Yes once you declare H’bad house, you ‘ll lose your HRA benefit.
If your employer demands any proof, you may give a declaration on a plain paper that the name of your wife is merely for operational purpose & to counter future hurdles to sell house in your absence.
Thanks
Ashal
Thanks Ashal and Manish. This is really helpful.
Hi Ashal/Manish,
Looking forward to your clarification on Tax benefit on “Interest” part of Home Loan. I bought my first (& only) house last year [April 2011] for 40Lakhs in Blr and from May till Nov it was not occupied. I gave it for rent only from [Dec 2011] for 12000 rupees. I currently stay in Mumbai. As my my interest outgo for homeloan is almost 4Lakh +, showing rental income (as 48000) will help me save more tax or can I claim only 1.5 Lakhs as benefit? Please suggest?
Thanks,
Vijay
Vijay
This 48000 will be counted as your income , you should be able to claim total 4 lacs of interest as the house is given on rent and is not self occupied . I have a little confusion if this can be done as its a first house .. because generally second house is given on rent and is considered in most of the cases
Manish
Dear Vijay, here is the answer for your query. Your Tax benefit ‘ll be calculated as below –
I’m giving you an example for easy understanding –
@12000 Rs. mly,
A. Annual rental value of the house = 12000*12 = 144000
B. Actual rent received = 12000*4 = 48000
C. Tax paid to local municipal authorities = 2000
D. Actual Rental income = B – C = 46000
E. 30% standard deduction on D = 13800 (this is towards upkeep & maint. of house, no matter you are actually spending less or more than this amount, it ‘ll remain fix @ 30%)
F. Interest paid on home loan = 400000
G. Net income from house property = D – (E+F) = – 367800
The G above is a loss which can be set off against your salary income.
In the above example, please put in your actual nos. For property tax & recalculate as per this given example.
As the house was on rent for 4 months only in actual, it’s not fault. You can still claim the full benefit.
Dear Manish, if a person put his first house on rent & showing the rental income, the Income tax rules allow the full interest benefit. There is no compulsion that the first house should be self occupied & the rental income ‘ll come in to picture only from the 2nd house onwards.
Thanks
Ashal
Hi Ashal/Manish,
I have taken a home loan for Constructing a house in my home town. In my current organization they need possession letter to claim home loan tax benefit, which i dont have. Please let me know what documents i can provide other than possession letter in case of self constructed houses.
Thanks,
Sandeep
Dear Sandeep, the house in question is still under construction or completed & the family (your parents) is living there?
Please clarify.
Thanks
Ashal
hello everyone
I would like to know does it matter when i get the possession in financial year…like if i get it in march 2012 so can i claim interest and principle paid from april 2011…. can i claim deduction for processing fees of the loan,stamp duty and registration fess,if all done in this financial year..awaiting responses thanks
Dear Shyam, even if your possession certificate is of date 31-03-2012, full FY 2011-2012 interest ‘ll be available for set off within the over all limit of 1.5L Rs. for self occupied house.
Processing fee paid to bank is not eligible for tax benefit.
Stamp duty & registration fee are eligible for tax benefit under section 80C within the over all limit of 1L Rs. in the FY of expenses made.
Thanks
Ashal
Dear Ashal,
here I have query, as you said even if the possession certificate date is 31-03-2012, the total interest is eligible for tax exempetion (upto 1.5L) , here can you please clarify the total interest means?.
I mean, Actual EMI starts from the month of march (assume the registration happened in march), prior to that we will be paying Pre-EMI, so the total interest includes pre-EMI intrest also?
Regards
Srinivas
Dear Srinivasa Reddy, even the Pre EMI interest paid in the FY 2011-2012 in the above example ‘ll be eligible for tax benefit within the over all limit of 1.5L Rs. for self occupied house.
Thanks
Ashal
Dear Ashal,
Thank you very much for your quick response,
I have two more queries.
1. in your response you mentioned that If the house is self occupied, what if the house is given for rent to some body?
2. Right now I have taken home loan form Axis bank for the flat of an apartment which is under construction and will be completed by Oct-2012 and probably possession may happen in this FY as I the owner and my wife as co-borrower . Now I want to make my wife as Co-owner so that she also can get tax benifit (she is also working and earning). Is it mandatory to convert my wife status from Co-Borrower to Co-Owner to get tax benifit? if we both want to share the EMI, do we both get interest tax exemption benifit for 1.5L indvidually (if the total interest is more than 1.5 lakhs and up to 3lakhs) or together upto 1.5lakhs?
What is the procedure for making my wife as Co-Owner from Co-Borrower?
Thanks & Regards
Srinivas
Dear Srinivas Reddy,
1. Please do note in case of rented out property, Full interest with out any limit ‘ll be available for tax benefit but at the same time, rental income ‘ll be added to your income from all other sources. For exact calculation of rental income please read my prev. replies to others.
2. In case of wife is not an owner, she can’t claim any tax benefit. If the property is not registered yet, ask your builder/developer to include name of your wife also into the property document. If the property is already registered under your name. You have the onoly option to sell 1/2 portion to your wife with the consent of your banker (Axis bank in this case). The ownership of the property is pre condition to claim any tax benefit. If I assume both of you are co-owner, than 1.5+1.5 = 3L Rs. interest is the max. limit which you & your wife can use individually.
Thanks
Ashal
Shyam
No it does not matter when did you get it in a financial year .
I am paying preEMI since Jan 2011 (opted Maxgain scheme in SBI and opted PreEMI for 18 months). Posession expected in Feb 2012 and 3 months back Bank delivered full amount to builder and I got my registeration as well done, But I need to submit my tax proof this month before 31st Jan 2012. I got Interest certificate from Bank which does not show anything about PreEMI component, but it just gives Principal and interest component only. can I just claim Principal and Interest this year?. Do I need to get possession certificate from Builder? can I claim HRA as well since I am staying in Rented house and I have rental agreement till Feb 2012?
Vijayan
Yes you would need possesion certificate .. and you can claim HRA also
Vijayan
Yes .. you will need
I had purchase home at X city and I am taking Tax benefits of the same.If My wife take new porperty in Y city as a joint home loan Can I get Tax benefits of the same.
Or Can my wife take 100 % tax benefits ?
Kindly reply.
Manmohan
Yes.
Dear Manmohan, The Y city property ‘ll be a joint ownership or you are mere the co-applicant in the home loan?
For better interaction, you may post your question at forum also.
http://www.jagoinvestor.com/forum
Thanks
Ashal
Property is in the name of my wife but i am co-applicant in home loan.
Dear Manmohansinh, as you are merely the co-borrower & not the co-owner of the property, you can’t claim any tax benefit on the city Y property. Your wife being the sole owner of that property, ‘ll claim full benefit.
Thanks
Ashal
Dear Vijayan, Please calrify –
Your single ownership house is in X city.
Your joint ownership house is in Y city.
Both of you are living in Z city due to your jobs.Am I correct in my understanding?
Thanks
Ashal
Dear Vijayan, I’m sorry the prev. reply was meant for dear Manmohansinh. Here is for you.
To claim interest benefit under section 24b on your home loan, possession of your house is a precondition. So unless your possession certificate is not with you, you can’t claim interest benefit.
Home loan principal repayment tax benefit under section 80C is independent of possession & you may claim the same even if the possession of your house is not with.
As your employer is demanding proof till 30 or 31st Jan 2012 & you are not in position to do the same, please don’t worry, you may claim the same while filing your income tax return in May June 2012 & get the refund of excess tax deducted from your salary.
Till the time you are actually living on rent & can produce the proof of the same, HRA tax benefit is available to you.
Thanks
Ashal
thanks a lot for the response. So that means, with the possession certificate, the interest amount divided by 5, (ex.Rs.300000/5=60000) only can be claimed for this year 2011-12 right?. My builder promised to give me the possession letter by 30th Jan 2012 and am planning to claim interest component as well as part of tax submission. Is it 1/5th will have to be claimed along with HRA, or whole interest amount can be claimed along with HRA ( which is not possible I believe)?
Dear Vijayan, Please do note, the pre EMI interest paid from april 2011 to Jan 2012 & normal interest paid for Feb. 2012 & march 2012, i.e. total interest paid in current FY is eligible for tax benefit under section 24b for the self occupied house within the over all limit of 1.5L Rs. So the unclaimed interest for you is only for the months Jan 2011 to march 2011 which you w’d have to claim @ 20% each in 5 FYs.
Please do not confuse yourself with HRA & home loan issue. Till the time, you are actually living on rent, HRA benefit is available for you. Home loan benefit for interest ‘ll comes in to picture after possession only.
Thanks
Ashal
hello Ashal
In your recent answer to vijayan , you have said that principle can be claimed without possession.. many articles i have read, say that one cannot claim principle until possession and has has to fore-go it forever and that interest only can be claimed, that too after possession
2nd i would like to know if wife is co borrower and co owner , but if the husband is the only earning member(loan amount eligible was calculated on husbands earning only and wife was shown as nonworking in bank application)..can he claim 100% of the EMI paid for his deductions
thanks
Dear Shyam, please check the wordings of section 80C & section 24b at the income tax site – http://law.incometaxindia.gov.in/DIT/Income-tax-acts.aspx
I’m reproducing below for section 80C for your quick reference. Quote –
(xviii) for the purposes of purchase or construction of a residential house property the income from which is chargeable to tax under the head “Income from house property” (or which would, if it had not been used for the assessee’s own residence, have been chargeable to tax under that head), where such payments are made towards or by way of—
(a) any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or
(b) any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or
(c) repayment of the amount borrowed by the assessee from—
(1) the Central Government or any State Government, or
(2) any bank, including a co-operative bank, or
(3) the Life Insurance Corporation, or
(4) the National Housing Bank, or
(5) any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is eligible for deduction under clause (viii) of sub-section (1) of section 36, or
(6) any company in which the public are substantially interested or any co-operative society, where such company or co-operative society is engaged in the business of financing the construction of houses, or
(7) the assessee’s employer where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act, or
(8) the assessee’s employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society; or
(d) stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee,
but shall not include any payment towards or by way of—
(A) the admission fee, cost of share and initial deposit which a shareholder of a company or a member of a co-operative society has to pay for becoming such shareholder or member; or
(B) the cost of any addition or alteration to, or renovation or repair of, the house property which is carried out after the issue of the completion certificate in respect of the house property by the authority competent to issue such certificate or after the house property or any part thereof has either been occupied by the assessee or any other person on his behalf or been let out; or
(C) any expenditure in respect of which deduction is allowable under the provisions of section 24;
Unquote, Now you may check on your own from the above that possession is not a precondition for principal repayment for a home loan, tax benefit under section 80C.
Now I’m reproducing below the section 24b wordings. Quote –
49 [ Deductions from income from house property.
24. Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:—
(a) a sum equal to thirty per cent of the annual value;
(b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:
Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :
Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed 50 [within three years from the end of the financial year in which capital was borrowed], the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees.
Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:]
51 [Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.
Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.]
Unquote – Here for section 24b the language is very clear that construction is completed, which was not the case for section 80C.
I hope it clarifies your doubts.
Thanks
Ashal
hi Ashal
thanks for the info.. till now i was under the impression that we have to forego the principle before possession and only interest can be claimed after possession in 5 equal installments
request you to please answer the 2nd part of my question which is as below
i would like to know if wife is co borrower and co owner , but if the husband is the only earning member(loan amount eligible was calculated on husbands earning only and wife was shown as nonworking in bank application)..can he claim 100% of the EMI paid for his deductions
Dear Shyam, From the query, what I understood is that wife’s name is for practical reasons – in your absence (if you are no more), she can sell the property being the co-owner of the property. As all the down payment has been done from your own money as well as you are paying the EMI amount from your own money & your wife being a no income person, you are entitled to claim full income tax benefits of the property in question.
Thanks
Ashal
Can I get Income Tax benefit of my F.D. from a bank ?
Dear Manmohansinh, You are eligible for tax benefit only on Tax saver Bank FDs & that too limited to just 1L Rs. within the over all limit of section 80C.
Please do note Tax Saver FDs have a lock-in period of 5Y & you can’t break or take any loan against these FDs in between if you require money.
Thanks
Ashal
Hey there would you mind stating which blog platform you’re working with? I’m looking to start my own blog in the near future but I’m having a difficult time choosing between BlogEngine/Wordpress/B2evolution and Drupal. The reason I ask is because your design seems different then most blogs and I’m looking for something unique. P.S Apologies for being off-topic but I had to ask!
Wordpress with thesis theme
Manish
Will some one please answer to this;
I have got possesion of my flat in Dec 2011. I dont stay in Pune, where this property in located. Hence, I have rented it out from Jan 2012.
My interest on the home loan is more than 1.5 lakhs. I want to claim income tax waiver on complete amount.
My doubt is, will be the interest on loan be calculated for complete financial year or just for last 3 months, since this property is rented out from Jan 2012.
Dear Ashwin, Why are you not posting your question on the forum?
http://www.jagoinvestor.com/forum
By the way a direct answer to your query is yes, you may claim full FY interest benefit adjusted for your rental income.
Thanks
Ashal
Dear Ashal,
Thanks for the reply.
Does it mean that I have to show rental income from January to March 2012 and interest from April 2011 to March 2012?
And sorry for not posting my query on the forum. Since this thread included different types of queries, I thought it was good enough to post it here itself. Would had been more better had I posted it on the forum itself.
Dear Ashwin, Yes the rental income from Jan to march 2012 & Interest from April 2011 to March 2012. Please calculate the same as per the examples given above or post your query in the forum & we may discuss there.
Why am I insisting on forum? The reason is you ‘ll not only get your basic query answered but also you ‘ll get several more discussions going on in the forum which may help you.
Thanks
Ashal
Dear Ashal,
Thanks for helping me out.
Hi Manish,
My experience says otherwise wrt point 1,
I have taken home loan for an under construction home in noida, I have opted for tranche EMI scheme from HDFC ltd.
I submitted the proof of the same with my organisation and was allowed to claim both interest and principle component as deduction,
Please correct me if the procedure followed by my employer was not correct
Dear Chander Goyal, the Income Tax Act is very clear that possession of the house is a precondition to avail Tax benefit on the interest part. It’s your employer or rather your accounts deptt. who erred in giving you the benefit with out confirming the possession of your house.
Thanks
Ashal
Can anyone give declaration in Form 12C (Rule 26B) that he will get possession of house before the end of Financial Year & what is the emploter role in this connection?
Dear Tarun Dua, Please do note, Form 12C for declaration purpose has long been abolished by the Income Tax deptt. A plain declaration to your employer for your savings & home loan etc. related deduction is enough. The onus lies on the employer to check & verify the authenticity of the declaration.
As far as your basic query for declaring the house ‘ll be under possession of you by the end of FY & basis of this to avail tax benefit is not possible. The act is very clear on this. The possession of the house is a pre condition to avail tax benefit on your house.
In case you are not able to show the proof of possession to your employer within time in this FY & the excess income tax is deducted from your salary, please do not worry as you have the option to claim your tax benefit at the time of filing your Income Tax return.
Thanks
Ashal
Taken loan of Rs 12 lac frm hdfc. first cheque of rs 6 lacs was issued on 13-feb-12. but during online surfing, i cam to know that rs 6,000 will be deducted on 15-mar-12 through ecs and balance tenure increased to 241 month while original tenure is still 240 months. i would like to know how this figure came as pre emi of rs 6,000 and tenure of 241 months. here i would like to mention that this rs 6,000 will go to interest portion only not in principal.
Dear Sudhank, As it’s a partial withdrawl from your sanctioned loan amount, HDFC is charging a PRE EMI interest for one month & this same one month is added into your normal loan term. The 6000 Rs. is the interest for the amount of 6L Rs. used by you from 13th Feb 2012 to 15th march 2012.
The calculation is rightly done by HDFC in this case. Please understand, PRE EMI interest itself means that you are paying merely interest & not the full EMI. So the question of adjusting principal from this 6000 Rs. does not arise.
Thanks
Ashal
Sudhank
This topic is best suited for discussion on jagoinvestor.com/forum
Hi,
Is there any IT rule that if I pre-pay and close the home loan before expiry of 3 years, then all the previous years Income Tax rebates will be reversed? I am being told the same by my banker… Pls let me know of any such rule..
Regards
Rajesh
Dear Rajesh, No your banker is telling alie. There is no such restriction to prepay your home loan.
The reversal kind thing happens only if you are claiming section 80C benefit against the principal repayment & selling the house, I repeat selling the house before 5Y holding period & that too up to the extent of Tax saved under section 80C. No reversal of section 24 i.e. interest part. So Interest related tax benefit remains intact.
Thanks
Ashal
Rajesh
I guess you will get right answer at : http://www.jagoinvestor.com/forum/
Dear Ashal,
Thanks a lot for this pin-pointed clarification.
And yes, it is typical of the lenders to stretch the loan tenure by discouraging loan fore-closure.
Regards,
Rajesh
Dear Rajesh, Lender ‘ll try it’s max. to keep your loan active for a longer duration. That’s where it’s profits are lying.
On our part, we have to try our best to prepay our loan as early as possible.
Thanks
Ashal
hi i have booked a flat but i still have not the possesion of the flat and becouse of that i m paying interest only upon the loan amount will i get the deduction under section 24 in this financial year.EMI WILL START FROM SEPEMBER 2012 ONLY
No tax benefit on interest if you dont have possession !
Hi,
I have booked a flat and just sanctioned my loan. SBI has disbursed 20 lakhs to builder now. Still 20% amount needs to be paid. My flat will be ready in june and the remaining amount will be paid then. Will my emi start immediately? If not, then what amount will I be paying now? What is the formula to calculate that? Is pre-emi a default option or had I to specify it at the time of sanctioning?
Also, I came to know that there is some relaxation period before start of home loan. I was told that it had to be specified at the time of submitting the application. I don’t remember if I have done that. Is there a way to do it now?
Rakesh
generally these are the questions which a person finds out before taking the loan , it will all be as per the documents you have signed, there is no general rules .
I want to take a land for 6 lakhs. I enquired and got to know I would not get a home loan. So I will take a personal loan. Now, can I take a home loan later and pay off the personal loan?
Lavanya
It does not work that way .. you cant do that . no company will give you home loan like that
Hi Manish,
My husband and I are planning to buy a house. The house will be on the name of me and my mother-in-law. My husband and I would be co-applicants to the home loan.
Two questions:
1. Since I will be servicing the loan alone, can I claim 100% benefits.
2. Can my husband show the rent to his mother for residing in that house? (And since her income would still not fall into the taxable category, we could save this tax!)
Request your opinion/ advice on the same.
Anjali
Dear Anjali, you are going to play with fire. You said your MIL & you ‘ll be the co-owner. So for the situation that your husband ‘ll pay rent to your MIL (his own mother) ‘ll invite trouble from Income Tax people.
Being co-owner, you ‘ll also be considered for that rental income & on the other hand, being a husband & wife, both of you are not supposed to pay rent to either of you. It’s not possible from taxation point.
May I know, why you are adding your MIL’s name & not your husband’s name in the property? Do your husband own some other property already under his name?
Please answer.
Thanks
Ashal
Anjali
1. Yes you can claim the tax benefits upto the limit you contribute to it
2. Yes . this is smart way of doing it and it will work
Dear Manish, Ashal,
Seems like the opinion is divided here. So, I am confused even more….
Ashal, is it necessary that I will be considered for that rental income? Realistically speaking why can’t that income accrue just to my MIL?
Manish, whats your opinion on that?
PS: We are not adding my husband’s name as we want to keep the option open for him to own another property further down the years….
Regards
A
Anjali
I think Ashal has a good point here which I didnt look at . Think about it yourself .. Your husband giving rent for the house which you also own , how is that possible . I am not saying it from rules point of view ,but tomm if tax officials raise this point , then what will be your answer to it ? Can you share it here .
Also I am not sure if the home loan guys will pass the loan itself if its not on the loan applicants name (like your husband) .
Manish
Hi Manish,
I’ve few queries on tax benefit for housing loan which is as below.
Around 1 year back, My mother, me and my younger brother took loan for building a house. My mother is the owner of the land where we built the house now. My mother is the main applicant and me and my brother are coapplicants.
We were under assumption that we’ll be getting the tax benefit as we are co-applicants (Me & My Brother). But we came to shock when we came to know that to get the tax benefit, we need to be the owner of the house.
So is there any way we can get any tax benefit ?
Also if my mother has to transfer the property on our name, what will be the procedure ?
Also is this possible to sell a house which is under loan ?
Thanks in advance.
Thanks & Regards.
Subhasis
Dear Subhasis, if the bank permits, your mother may sell a part of her ownership to both of you. In this case, after becoming the owner of the property you & your brother may claim tax benefit.
Yes, you may sell the house which is under loan.
Thanks
Ashal
int.on house propert is deductible if loan is taken from relative??
Hard
Yes , definately ! ..
Hi Manish,
i am already claiming deduction on the interest that i am paying to the home loan from the bank.
additionally, can i get a deduction on the interest that i am going to pay to my uncle for the money borrowed from him for buying a house (for the balance amount of the payment for the flat)??
the flat is rented out, while i myself live in a rental flat, hence technically i can claim exemption on the complete amount that i am paying as interest.
what documents will i need to produce if i want to claim such an exemption?
Saurav
Dear Saurav, Yes you can claim deduction against the combined interest paid by you for loan from bank + loan from uncle taken for the rented out property. You have to show youe rental income. In case of Uncle’s loan, had you prepared any loan document? If not even then, I assume that the transaction was done though cheque or net banking transfer of amount from his account to your bank account. Please prepare a loan document between you & your uncle mentioning the T & C of the loan taken by you & please make specific objective in that document that the loan is to be used as home loan to purchase a property.
Thanks
Ashal
thanks…
Saurav
Yes .. you can claim the interest part on the laon taken from your uncle .. you need to show the loan papers (i am sure you must have prepared some legal document for this)
Manish
Saurav
their new term plan is updated one with better riders and extended the duration of term plan with low premium .. Rest everything is same .. if you trust the company , you can move ahead else go with HDFC/LIC/SBI !
Hi,
Nice article. I wanted to be knowing that my husband and me have taken a home loan amounting to an interest of 30000 p.m. (approx.) Since the limit on interest of Home Loan is only 1,50,000 p.a. – can my husband and me claim it separately so that we cover at least 3,00,000 out of the total interest that we are paying? We have taken the loan together though the EMI goes from my salary account
NIharika
You guys can claim it seperately but here are the conditions
1. The flat should be on both people name
2. The Loan was taken by both of you
3. The EMI is paid by both you people , because then how do you prove that both of you are repaying it ?
Manish
Dear Niharika, is the property in question is a joint ownership or single ownership? Is it for self consumption or on rent? The EMI pmt. is from your account but is your husband making any contribution to your account for the payment of that EMI? Please clarify.
Thanks
Ashal
1) Property is on the name of both of us
2) It is for self-consumption
3) Well, contribution by my husband to my account for EMI payment – not explicitly, but we can have some amount transferred from his a/c to mine every month, if this would suffice
Also, I had another question – Possession of our house would be in Dec 2012. Can I go ahead and declare the interest paid for home loan in April 2012 itself because possession date is in this FY itself, for tax benefit?
Dear Niharika, till the possession of your property is not with you (both of you), you can’t claim tax benefit on interest part. From now onwards make it a habit to receive at least 50% of EMI amount from your husband’s account to your EMI payment account to avoid any future problems.
As the ownership is joint, both of you are eligible for 1.5L Rs. individual interest benefit. So in total 3L Rs. interest ‘ll be available for tax benefit.
Thanks
Ashal
Thanks a lot Ashal. I also wanted to know, after recieving the Possession certificate as well, we may still be staying in the rented house till the time that new house is ready with all facilities (interiors, etc).
During this period, can I be claiming tax benefit on the interest part of EMI and the HRA benefit also?
Regards,
Niharika
Dear Niharika, Yes is the answer, you may claim both HRA as well as home loan tax benefit in the same FY.
Thanks
Ashal
Hi my house is in under construction stage and will be ready for possession from Dec 2012, So can I claim both HRA and housing loan benifits(150000+principal amount) in this financial year? Please advise.
Thanks,
Deepak
Deepak
You can only claim HRA as of now .. you can claim Tax benefit on sec 80C and interest part only on possession !
Dear Deepak, Yes you may claim both benefits. Principal amount is available even today for tax benefit. Interest benefit ‘ll be available for home loan once, the possession is there but for all the interest paid in the FY even from April to Dec.
thanks
Ashal
My wife is a bank employee. her bank offers her a home loan for 13 lacs with a very low interest but as per the situation and market condition its hard to get a land with that amount. If I will go for a loan then will bank allow me for two loans on same property?
Kahnu
Thats totally on the bank if they allow or not .. this question should be asked to bank directly .
Dear Kahnu, The bank may allow the higher loan amount at regular ROI for you & lower ROI for your wife being the employee of the bank. Please check with the bank. By the way, please do note – in case of lower ROI than market rate, there ‘ll be a perquisite value addition in your wife’s income for the difference of Market rate to the rate charged from your wife.
Thanks
Ashal
Hi,
As we cannot claim the interest portion under section 24 and as there is a limit on 1.5 lacs too, i’ve been advised that during filing of income tax return one can claim refund under loss of income against house or property. So what are the repercussions of claiming the interest portion here. There is catch though- one has to continue the same every yr and not decide to claim under section 24 in between.
Plz validate this. Also, what are the CBDT guidelines and restrictions.
Dear Parry, I’m unable to understand your query? can you elaborate it? The house in question is under your possession or not? If it’s under your possession & self occupied, you may claim a max. interest of 1.5L Rs. under section 24b.
If it’s on rent, then after showing the rental income, you may claim full interest even above 1.5L Rs. whatever you are paying under section 24b but in case, the house is not under your possession & still under construction, you can’t claim interest benefit.
Thanks
Ashal
Thanks for the information both Manish and Ashal
Dear Manish,
Thanks for providing such valuable information. I regularly read your post and gaining lots of financial knowledge. Request you to provide your suggestions on my below queries:
1. I am planning to buy a 1BHK flat around 24Lakhs, for that i am thinking paying 16lakhs downpayment out of which 8laksh will be from my pocket and 8Lakhs i will be taking from my real sister (unmarried,IT Professional) and rest of 8lakhs i will take home loan. So, i want to know whther my sister can give me money at 0% interest rate or should i take at around 6% interest rate(which one will be better for me), so that i can claim tax rebate under section 24, but this will put her in higher tax bracket, so this interest income to her will be taxable. What is the legal process of taking this money from sister and paying her that money back?
2. My father has plot at my howetown on his name, what will be the tax implications , if i spent money on constructing house on this plot? should i spent money for this from my pocket or should i take home construction loan for this? which opton will be better for me ? Please suggest.
Thanks & Regards,
Sunny Balwani
Sunny
1. You can take a loan from here .. just make a formal document which says that you are taking loan at X% of interest . from documentation point this should be ok , but better catch a real estate lawyer for details
2. You cant get tax exemptions as the plot is not on your name
Dear Sunny, if your Own income is in higher Tax slab than your Sister, then only it makes sense to take loan & paying interest to your sister. By the way, why are you not taking loan from your Father for this house? If your father is retired & in zero or lower tax slab, you may (actually you should) take loan from him.
2. As the plot in question is not in your name, you can’t claim Tax benefit for the home loan taken for construction on this plot. Yes You may become a co-borrower for the home loan along with your father for the home loan taken for construction on this plot.
Thanks
Ashal
hi manish,
i had been to almost all the above post but still had one unanswered question:-
If i am getting possession of my flat in July’12, i will be claiming principal as well as interest component in fy12-13 and i will be occupying house after possession i.e. august onwards.
now my question is regarding hra exemption, can i claim exemption for the full year or till august only i.e. for 4 months, moreover if i am claiming hra for 4 months, can i claim interest part fully for 12 months or not?
Dear Rishab, for your given query, as you w’ll be on rent for April to July period only, the HRA ‘ll benefit ‘ll be till that time only. Interest benefit ‘ll be available for full 12 months i.e. april 2012 to march 2013.
Thanks
Ashal
Rishab
There is no relation betweeen HRA and your house .. If you can show the rent reciepts for all the months , you can claim the HRA .
Thanks Ashal and Manish for valuable suggestions, My father is retired and has spent his savings on our studies. So, only option is to take money from my sister.
Dear Sunny, a workable solution. Please ask your sister to gift the amount to your father. Once the money is with your father, take it on a loan from him & pay interest rate @ 10-12% yly. As your father is retired, I assume he is in zero tax slab & a Sr. Citizen. so the interest paid by you to him ‘ll not get impacted by Tax.
Thanks
Ashal
Thanks a Lot Ashal for this excellent solution. I will do the same. but if in next one year my sister gets married and after that if she wants some amount of given money back ,so can i or my father can pay her lets say 1 lac per annum to my sister as a gift. Please confirm the same.
Regards,
Sunny
Dear Sunny, Yes is the answer. You or your father may give any amount of gift to her as per choice of yours’.
Thanks
Ashal
Thanks Ashal
I have a property under construction which will be completing by sep2012. Also I’m planning to pay the principle with the pre emi amount from apr12 to sep 12. Am I eligible for tax deductions for both the pre emi interest and principle paid during the months of apr12 to sep12 along with the regular emi & principle(oct12 to mar12) paid for the financial year 2012-13?
Bala
Yes .. you should be able to claim it as you will occupie the house in the same year
my father purchase house from vastu vihar in deed he is landowner and builder is vastu vihar.now my father is selling top floor to me can i get home loan on that
Yes .. definately .. you can get home loan
I plan to buy a home. I’ll need to borrow about 10L from my father for this, apart from taking a home loan from a bank. It’ll be my first property. My question is: Can I show the property as let out to my father, with the rent he’ll be paying to me roughly matching the interest that I’d be obliged to pay him for the amount that I’ll be borrowing from him…? I generally plan to reside in the same house. But the thing is, since the property is very far from my current place of work (20+ kms), I might also look at renting out a small studio at a rent of 3-5K pm closer to my office. This’ll be kind of back up shelter for me for the days I’m late at office, and can’t travel that far. If I let it out to my father, can I claim tax deduction on the full amount of interest to the bank…? And am I forced to rent out another property to let out my own one to my father? Or can I legally stay on with him as a visitor, so long as I show the rent he’s paying me as part of my income…? Mind you, the rent he’ll be paying me might offset the interest that I’d be paying him — so effectively there may not be any net transfer between us. The aim of this arrangement is to get make the entire interest payment to bank (which might come to about 5-6 L per annum) as tax deductible. If the law requires that I take a separate residence on rent for myself to be able to let out my own property, I’m willing to do that, because it’ll even help me, since commuting from that place everyday will be a hassle. I may not claim any HRA rebate, because my annual rent paid will anyway fall under the threshold (less than 10% of basic salary), if I rent out a studio or small 1BHK. Will appreciate if Ashal or someone else could quote the relevant section of the law for this case. I’m assuming that letting out to my father is allowable in law (my parents will actually be staying there).
I am not understanding how you want to show it as rent to your father , while you can do it , how is it helping you or your father ? The first point is you will not be able to claim the deduction if its not self-occupied, so you cant claim tax deduction and also show that its on rent ! .
You misunderstood the question. I said I’d want to let it out to my father. Therefore, I’d be the recipient of the rent. From him. That rent would be added to my own income. This would allow me to get the entire interest amount on my bank loan as tax deductible, which’d otherwise have been capped at 1.5L. Supposing I pay 6L annually as interest on a 60L loan, by this arrangement I’d get that entire amount as tax deductible. Let’s assume that my father pays me 15K per month, which’d come to 1.8L per annum. After 30% standard deduction, I’d have to pay income tax on the remaining amount, that is 1.2L. However, I’d also be paying interest to my father for the 12L that I borrowed from him, which comes to roughly 1.2L per annum. Therefore, I’d have virtually no extra tax liability for my rental income, but I’d still get the benefit of having the entire 6L interest that I pay to the bank as tax-deductible, instead of just 1.5L being tax deductible, if the flat were occupied by me.
Thank you for your reply, anyway.
if loss from house property is more than 2.5L, the return will be automatically picked up for IT scrutiny. ensure that your accounts and returns are good to pass scrutiny
Muthu
I never knew that. . is that the general trend !
http://www.simpletaxindia.net/2010/08/selection-of-cases-for-scrutiny.html
http://taxguru.in/income-tax/criteria-guidelines-for-selection-of-cases-for-income-tax-scrutiny-for-assessment-year-2010-11-or-financial-year-2009-2010.html#more-33858
http://www.caclubindia.com/news/2007
/7/PROCEDURE_FOR_SELECTION_OF_CASES_FOR__SECRUTINY__FOR_NON_CORPORATE_ASSESSEES.asp – link not working now.
There are three ways that a return can be picked up for scrutiny that i know off – CASS (computer assisted), AIR (annual information report) and manual.
In CASS, they change the norms for selection every year. couple of years back, loss above 2.5L from house property was being picked up. unfortunately, i was one of them. after the experience, i closed one of the two home loans that i had
.
OK , thats a good info .. will have to study it more !
I doubt if this is possible (but not sure about it) .. The unlimited interest is only on the second home (which runs parallel) , so i dont see if you will really achieve anything by letting it to your father .
I think this should be discussed at length at our forum : http://www.jagoinvestor.com/forum/
My home loan begun in March 2008. I took the letter of possession in April 2008 and have been claiming tax benefit under 80C and 24 b since then.
It is May 2012 and I want to sell the flat now and buy a new one; a cheaper (smaller) one so that I can pay off my home alone using the price escalation of my existing flat.
I understand that whatever I have claimed in 80C till now will be added to my income. However, I need clarification. Say, if I declared 50,000 every year under 80C for principal amount of home loan for last four years, will 2,00,000 be added as is to my income in the year I sell the flat?
Also, if I sell the flat for 70 lac out of which I pay off 30 lac of home loan, what will be my tax liability given the fact that I reinvest 40 lac in the new property immediately?
Thank you …
Yes .. Rs 2,00,000 will be added as income , but now this is on you , if you want to show it or not , legally you should show it
Also in case you sell your house at 70 lacs and use all 70 lacs to pay off the loan of buy another property, then there is no tax to be paid !
Hi.
Is there a limit to Deduction of ‘Interest payable of home loan’ from Salary after deducting the let off/rental value? I assume there is cap of 1.5 lacs max as deduction of home loan interest from salary for Income tax computation. But for rented property there is no upper limit of 1.5 Lacs?
Interest payable on Housing loan for let off property can be claimed as deduction without any upper limit. Is it correct?
thanks in advance
Rajesh
I am planning to take HRA rebate too as this property is far off from my work place. Trust i can avail exemption from HRA and home loan interest both at the same time.
Rajesh
Yes it its too far , you should be able to get it
It should be a second home also
I have only one house which is let out. Can I claim interest deduction more than Rs. 1,50,000/-
I dont think so ..
Why? is it specifically written in sec 24 of IT act?
Sumit
You can raise this on our forum and see what others have to say . I am not 100% sure on this now : http://www.jagoinvestor.com/forum
Sir,
Please advise how we can claim the interest of LOAN taken from other. under section 24, what is the procedure for claiming.
Make a written document saying that you have taken a loan from someone and repaying it !