Jagoinvestor
February 22, 2011
4 Home Loan rules most of the investors don’t know about
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?
I want to renovate my ancestral home. Can I get home loan for that?
If yes, will that loan be of longer tenure?
And how much will be the interest rates?
Hi Pushpak
This is very specific query which you should follow up with the concerned authority only. We wont be able to comment on that
Manish
Hi Manish,
Can you tell me the thumb rule for balance transfer in home loan? I mean how do I know whether it is beneficial to transfer the loan to another bank for lesser interest?
I have got a home loan from LIC. THe current interest is 11.4% since the initial lockin period on fixed interest of 10% for 3 years is over. When I requested them for a transfer to SBI on 9.1%, they offered me 9.95% on the total outstanding. I have already repaid 11 Lakh from the initial 40 lakh loan. So, the outstanding now in less than 27 lakh. LIC representative told me that it is beneficial to stay with them at 9.95% rather than switching since I have repaid this much already and the principle deduction has increased.
Could you please suggest?
Regards,
Manjeet
I think you should switch. The loan outstanding is good enough for now ..
I booked a flat in a project in mid 2009. In April 2010, home loan EMI started. The project got delayed and it is complete now, August 2016. I havn’t taken the home loan benefits till date, neither on principal, nor interest. Please advice, how can I avail tax break on home loan. Also, is it good to close the loan account now, since I got some money to do it ? If I close the loan now, can I still get the home loan benefits, if any ?
You can claim the tax benefit only if you have the occupancy certificate, else you cant.
Hi Manish,
we took loan on my name as co applicant and my wife as applicant and she is the owner for land and house. I am paying the money. can i get tax exemption. do i need to get any gift deed/sale deed from my wife?
Thanks in advance
Yes you can get it
Hi Manish
1. If I get renovation/maintenance in my self occupied home (with my own income i.e without taking a loan), can I claim in tax deduction on the expenditure occurred? I do have all the receipts for the material purchased but not for the labour
2. For renovation/maintenance of my second property for which I have taken possession but not yet rented out can I take any tax deduction?
Thanks
1. NO , there is no concept like that
2. No
IF I TAKE A HOME LOAN FROM OUR FAMILY MEMBER THEN
1) WHAT TYPE DOCUMENT REQURE TO PROOF FOR HOME LOAN
2) WHAT TYPE DOCUMENT REQUIRE FOR INTEREST CERTIFICATE ISSUE BY RELATIVE
A simple paper stating about loan is enough !
Hello Manish , Trust you are doing good.
I have taken a home loan from a bank to construct my third house but the loan amount is not sufficient and my father has agreed to help me with some money.
I understand that I can claim the tax benefits under section 24 for the interest that I will be paying to the bank as well to my father .
My father is a retired school teacher and pension is the only revenue that he has . He does not have a PAN. Since I am planning to pay the interest and return the principal in chunks to him. Could you let me know what proof / documents /certificates that I need to produce to claim the tax benefits u/s 24 ?
Sincerely,
Tom M
Just wanted to mention that the loan type is – ‘loan against property’
A simple plain paper document mentioning about the loan should be enough
Thank you. Appreciate your help.
Sincerely,
Tom
Hi Manish,
I have taken a loan on 19th March 2015 from UCO . Disbursement happen on the same day.
When i am checking on UCO login , It shows my first Installment date in 30-Sep-2017 .
I have already paid interest for 19th to 31st March 2015
1) When i generated Provisional TAX Certificate (to Submit in my Company for Tax Benefit) , Its showing very less amount for FY 16-17 .Is is because of incorrect First Installment Date ?
2) What Documents i have to submit for 80C and Tax benefit on Interest.
Please suggest
Regards,
Sachin
Hi Sachin
You need to check this with the bank itself for the 1st point
For second point, that statement itself is good enough. But you dont have to submit anything !
Dear Mr. Manish,
Regd. point #3, i.e. taking a loan from a family member/friend, I want to confirm if the rebate under Section 24 can be availed for a property before possession too?
No , it cant .. that rule still applies!
Hi,
I have one question regarding “Selling the House before 5 yrs reverses the tax saved earlier”, will it be consider the FY or Actual Years?
For Instance if I have purchased a property in Dec 2011 (which come under FY 2011-12) Will my Five years will be 2011-12, 2012-13, 2013-14, 2014-15, 2015-16 or Dec 2012, Dec 2013, Dec 2014, Dec 2015, Dec 2016?. If it financial year that means If I sell the property in April 2016 it will not be considered?
Thanks
Sachin Gupta
I am not sure on that, but it should be exact yrs !
I have closed my home loan on July 2016 by selling off the flat and then i got the same flat on rent from aug. 2016. Please let me know if i can get benefit for home loan and HRA as they were not applicable on the same time on the taxable year 2015-2016.
Yes, you can get both now
Mom ( who is home maker /not working) sold plot in may 2013 and we put whole 15 lakhs in capital gain account. Coudnt find suitable property.just 2 months left after which total 3 yrs will get complete and I will have to pay tax.
Suggest best way out.
My wife (working having salary 10 lakhs) purchased home in nov 2011 with home loan 20 lakhs. Valuation of this home has appreciated to 50 lakhs.
CAN my mother using her capitalgain amount purchase 40% ownership from my wife home.
ADVICE please
You can invest the money in REC or NHAI bonds !
Person X and Person Y Has taken a home loan together in March 2013 with 50% -50% ownership
House registered in Feb 2016
From March 2013 till march 2016 Interest paid is 10Lakh, I understand this aggregated 10lakh amount to be divided in 5 equal years and to be claimed in 5 years.
My question is
1) So for FY 15-16 can i claim Interest component for tax benefit? or should it be from FY 16-17?
2) can person X and Person Y each claim 2 lakh as interest component for FY 15-16?
or is it 1lakh for person X and 1 lakh for Person Y?
3)please confirm the understanding, Interest component for FY 16-17 is max 2 lakh for each person X and 2 lakh for person Y?
Appreciate a ton always!
HUGE LEARNING!
Thanks
Bharath
1. Registration does not matter, its the possession year from when you can claim it
2. BOth can claim upto 2.5 lacs per year, it was raised from 2 lac to 2.5 lacs recently in last budget
3. Already answered
By possession you mean legally –Occupation certificate is the binding document right? or is there any other legal document to consider?
Yes, I am talking about occupancy certification here , not the physical possession
Apologies for so many requests, and highly appreciate your patience
My builder is saying to get OC is gonna be in April 2016 (then i wont be abel to claim 2l interest instead only 30K interest, completion of building in 3 year clause) but he can give me Builder Completion Certificate in the march 2016, will this document work for me to claim tax benefits?
you said registration is not compulsory, do you have the link handy where i can look at that information in detail?
Appreciate a ton, Thanks always
There is no link as such, but a OC is required as a valid proof for claiming the interest.
HI Team,
amazing article kudos to the team!
Recently i heard that Income tax benefits would be reduced to 20% if the possession of house is not taken with in 3 years from the start date of the loan. Please shed some light on this
questions
1) Is this accurate understanding?
2) If yes then from which year is it applicable? (loan should be taken in which year or any such clause)
3) If yes then with in 3 years of starting loan means “Day from the disbursement is started or the Day from the EMI is started?”
(Well first one is bank just pays some money to builder and collects only interest from borrower and the EMI woudl start after 2 years.)
I am confused, i am relying on you guys for information.
I did lot of google no help ther 🙁
Appreciate your efforts
Thanks
Bharath
Hi Bharath
1. Yes
2. From the time loan is taken
3. Day from when disbursement is started
Yes thank you so much.
for readers this article explains clearly
Double Whammy
Looking at fine print of Section 24 of Income Tax Act, if you do not get possession of your house within 3 years from the end of financial year in which loan was taken; it will be a double loss for you.
You are paying rent and EMI (or pre-EMI, as may be applicable) at the same time. Tax deduction on interest payment will come down to Rs 30,000 (from Rs 2 lacs). For someone in the highest tax bracket, this will result in maximum loss of ~Rs 56,000 per financial year. Additionally, there will be no benefit for principal repaid during the construction period.
For instance, if you took a home loan in July 2011 and you do not get possession of your house by March 31, 2015, you can avail a maximum tax deduction of Rs 30,000 per financial year (after you get possession of the house). A double whammy indeed.
If your builder does not deliver on time, not only do you have to go through a lot of mental agony, you might even have to go through a lot of financial pain.
Hi Manish,
I’m planning to buy an under construction property. Say, my loan disbursement starts in Apr, 2016 and if by Mar, 2019 I don’t get possession (due to delayed construction) then can I still claim interest exemption for these 3 years once I get possession ? Assume that I get possession in Mar, 2020 and that I have one more self-occupied property in the same city.
Thanks a lot.
regards
Abhishek
Yes, you can get it !
I m planning to close home loan in March 2016. I have taken tax benefit for five years i.e. interest & principal . Next year, can I show HRA as same house has owned by my wife?
If not please let me know is there any other way to save the tax
No you cant do that . There is no way to save tax if you dont have the house loan
I have sold my house in 10.1.2015
Than can i Get benifit of housing loan interest
paid upto 31.12.2014
Interest is 60000
Self occupied
If yes in which section ya case law
If not so why
I took joint home loan me , my mother and brother of 25lac.
property is on my mother name.
me and my brother is paying loan EMI.
can we both avail tax benefit of 80c and section 24 ?
i paid stamp duty of 2lac by cheque for property registration on my mother name.
can i claim for tax ?
No , the property has to be on the name of the person who wants to claim the tax benefit !
Hi-
Need advice
I am salaried, purchased a resale apartment in April 2015, am I exempted for resale property? Loan taken from HDFC Bhiwadi.
It’s a joint loan, though I am making 100% payments from my sal account? Ownership on both my and my wife name..
What all docs to submit considering purchase of resale prop if i need to take 100% tax benefit.
Thanks in advance.
You will get all tax benefits as you are paying full amount
Hi,
I have a house that I bought jointly with my mother in June 2012 on a home loan fro HDFC Limited. Since I am migrating abroad and my brother is going to be taking care of my parents, I have made a gift deed and transfer my share of the property to my brother and sister in law recently.(HDFC sanctioned the deed and the loan has been transferred to them). My question is that since the property been gifted is less that 3 years old, will I have to pay taxes for the principal deduction that I have claimed for the last 3 years? I have not sold the property but it is a gift deed. Any help would be greatly appreciated
I dont think you will have to refund back the benefits .
Thank you, Manish!