Can you claim a 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 a 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 the case of the under-construction houses is different. You cannot claim the tax deductions for the principal amount for the under-construction house. You need to have possession and certificate of ownership to claim tax under 80C. However, the Interest part is a little different. You can not claim the interest amount unless you get the possession of the house. However, you can always claim the deductions later in 5 equal installments for the next 5 yrs from the end of the 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 won’t 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 the 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, the interest component once saved is saved and it won’t 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. A loan taken from Friends and Family is eligible for Deductions (Interest)
In case you want to take a loan from your friends, parents or any other person, you can still claim the interest on the loan under sec 24, which is up to 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 the 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 up to Rs 30,000 for self-occupied properties. However, for houses which are let-out (a rented or second home which is not occupied), there is no limit for a tax deduction.
Comments? Which one of above 4 facts you didn’t knew about?