First time home loan borrowers

In the Union Budget 2016, a new section 80E was introduced to benefit first time home loan borrowers. The government proposed an additional deduction of Rs 50,000 on interest payment of home loan EMI.

Note that this benefit is over and above the earlier limit which was 1.5 (principle)+ 2 lakh (interest) =3.5 lakh.

First-time borrowers can avail additional Rs 50,000 on the interest component. So, total and maximum tax benefits one can avail is Rs 4 lakh per year.

Conditions for first-time buyers

Individuals who are applying for the first time should note that they should not own another house owned by him.

Individuals will be eligible only if the loan availed is less that Rs 35 lacs and the  property value is less than Rs 50 lakhs.

While, the loan should has to be approved between 1st April 2016 and 31st March 2017.

Claiming tax benefit under 80C

Home loan borrowers should know that the principle deduction includes all other deductions such as PPF, NSC etc., under section 80C which is capped at Rs 1.5 lakh.

Say, for example, if an individual is claiming the benefit of Rs 1 lakh for repayment of the loan then he will be left with Rs 50,000 to claim for exemptions on PPF, NSC etc., altogether.

Tax benefits for co-borrower

An individuals who is a co-owner and co-borrower of the house can also claim for tax benefits. Note that if you are a co-applicant to the loan, but, the house is not in joint name, you cannot claim tax benefit.

If a home loan borrower is paying the principal amount of Rs 4 lakh, he can avail tax benefit only up to Rs 1.5 lakh under Sec 80C.

In the case of a joint home loan, co-borrower can also claim for Rs 1.5 lakh under sec 80C, together they can get Rs 3 lakhs. So it is always a better idea to jointly go for a home loan and ownership of the house.

Construction period of the property

Individuals are not eligible to avail tax benefits on principal payment during the construction of the property. Only once the property is constructed and when you are in possession of the property you can avail tax benefit for the same.

One is eligible to claim interest payment on preconstruction period once you are in possession of the property. This deduction benefit will be allowed for over 5 years starting from the year of possession.

Selling property before 5 years

It is not suggested to sell a property before 5 years of possession as the tax deduction claimed under sec 80C will be reversed and the amount will be taxable and will be added to income.

In such cases, the deduction of the interest payment under Section 24B can be enjoyed.

Experts suggest holding a property for a minimum of three years. Selling property after three years will be treated as long-term capital gains and taxed at 20% after indexation on profit.

HRA

HRA can be claimed if you are living in a rented home despite having your own house, you can avail the HRA benefit along with section 80C and section 24.

Tax benefits under the section can be claimed only when an individual is receiving house rent allowance as a part of his salary.

Individuals who have borrowed the amount from friends and relatives for home loan purpose can avail tax benefits. Note that, individuals will not be eligible for tax benefit on the principal amount, it is only applicable for interest component.

Other tax benefits

Along with principal and interest component, other expenses such as stamp duty, registration fee expenses can be claimed for tax benefits under Sec 80C. Also, processing fees charged for availing home loan can also be claimed for tax benefit.

Goodreturns.in