“Home is where the heart is.” Yes, having your own roof over your head, brings a sense of fulfillment. You cannot call a rented apartment your home. It doesn’t belong to you. You’ll leave it someday. Want to achieve something great in life? Well….just get your own home.
But there’s a small problem….you’re just 26. You have a decent job and earn a good salary. A good home in a metro city, costs several lakhs. How can you afford it? You’re tempted to postpone the purchase, till you earn more money. A very bad idea….Yes, in a few years, your salary would go up. But would the price of a house/apartment, remain the same? Prices of homes in India, especially in metro cities, are shooting up. Wouldn’t it be wise to avail a home loan and buy your dream home?
It’s a 3 in 1 benefit.
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You avail a home loan and repay the borrowed amount in EMI’s. Your EMI’s are divided into 2 parts.
EMI (Home Loan) = EMI (principal) + EMI (Interest).
You get a tax deduction up to INR 1.5 Lakhs a year, under Section 80 C of the income tax act, on the EMI (principal) of your home loan. You pay stamp duty and a registration fee while purchasing your home. You can avail Section 80 C deductions, for stamp duty and registration fees.
Remember: If you sell your home within 5 years of the purchase, the Section 80 C benefit is reversed. These amounts would be added to your taxable salary, in the year the house/apartment is sold and taxed as per income tax slab, you fall under.
You get a tax deduction of INR 2 Lakhs a year, under Section 24 of the income tax act, on the EMI (interest) of your home loan. Your property must be self occupied. You get the tax deduction under Section 24, on the interest repayment of the home loan, even if you avail the loan from relatives and friends. Your friend/relative should be filing ITR (Income tax return). He has to report the interest income, he earns from the home loan. He has to pay tax on it.
What if you avail a home loan to purchase an under construction apartment?
You avail a home loan and book an under construction apartment. Your home will be ready in a few years. You start paying EMI’s on the home loan, to the bank.
Section 24 is very clear…You do not get any tax deduction on payment of interest on home loan, until your home has been constructed.
So what can you do? The interest that you have paid before the completion of construction of the apartment (pre-construction interest), must be aggregated (added up). Now, this entire aggregated amount is divided into 5 equal installments. You can now avail the tax deduction under Section 24, for five successive financial years, from the year the construction of your apartment has been completed.
Your house/apartment must be constructed, within five years from the end of the financial year, in which you have availed the home loan. Otherwise, the interest benefit you get under Section 24, will not be INR 2 Lakhs. It’ll be just INR 30,000.
Are you buying a home for the first time? The Union Budget 2016, brings much cheer to first time home buyers, in India. You get a tax deduction of INR 50,000, under Section 80 EE of the income tax act, on the interest you pay for your home loan. This is over and above, the tax benefit of INR 1,50,000 under Section 80 C and INR 2,00,000 under Section 24.
When do you get Section 80 EE benefits?
You can avail a joint home loan, with your working spouse. Your and spouse income is added, to calculate the home loan eligibility. You are able to avail a higher amount of home loan. What about tax benefits? Tax benefits are available to a person….not a property. You and spouse, can both claim deductions separately, under Section 80 C, Section 24 and Section 80 EE. This helps you save a lot of tax.
Badly want to own a home? Need a helping hand in these tough times. Look no further than the home loan. With tax benefits, this is the real deal.
Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.
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