K. Ramalingam | Updated On: September 11, 2013 19:26 (IST) | NTDV Profit
Buying a house means making your dream come true. Unless you have loads of money to pay for your dream house, you spend hours and days looking for a suitable property for achieving this, carrying out all possible background checks and finally scouting for the best deal on a home loan.
Though most of us avail home loans, there are a few less-known facts about them which are worth knowing. Let’s take a look at two simple questions:
1. What are the available tax deductions for your under-constructed house?
2. Do you still get tax benefit from your home loan, if you have taken it from a friend and not from a bank?
Many of you might not be having answers to these questions. To realise that one is ignorant is a great step to knowledge.
So let’s try and explore these new dimensions of home loans:
Tax deductions for under-constructed houses
Do you know that you should have a certificate of ownership and possession of the house to claim tax under Section 80C? Without complete and proper analysis, investors presume that they can claim for tax deductions of their houses which are under construction and go ahead with the loans.
Let’s take an example. Say Mr Gupta bought a house on loan on 25th November, 2009. He paid a total sum of Rs. 5 lakh as interest in the next 3 years and obtained possession on 19th November, 2012. He could claim this Rs. 5 lakh of interest in equal installments, which is 1,00,000 per year from 2013 to 2017, in the next 5 years. Total limit for this exemption will still be Rs. 1.5 lakh per year.
The above example explains the real scenario. Therefore, you cannot claim the interest but deductions can be claimed later on in 5 equal installments for next 5 years from the end of the financial year of possession.
Extension or renovation of your house
If you are taking a loan for extending or renovating your existing house, you can only claim the interest amount under Section 24 and not the principal under Section 80C. However, the limit in this case is only up to Rs. 30,000 for owner-occupied properties. If it is a rented or leased property, or a second home which is not a self-occupied property, the tax deduction is not limited.
Selling a house serving home loan
If you sell your house within 5 years from the date of buying, all the tax benefits which you have claimed under Section 80C will be added in your salary in the year of sale and termed as income.
For example, if you bought a flat in July 2011 and in next 3 years you have claimed Rs. 2 lakh under Section 80C, this amount will become your income in the financial year in which you sell the property and will be taxed accordingly. However, the interest component is not reversed.
Loan taken from family and friends
Under Section 24, you can claim up to Rs. 1.5 lakh per year of interest on your loan. You will be able to claim this even if you want to take it from your friends, parents or any other individual. However, in order to be eligible for claiming the principal amount under Section 80C, you need to avail the financial lending from some bank or financial institution.
Knowledge is power. Knowing these less-known facts about home loans will help you take better decisions. Informed decisions lead us to better results. And better results lead to progress, productivity and prosperity.
K. Ramalingam is the chief financial planner at Holistic Investment Planners, a leading financial planning and wealth management company. The opinions expressed here are the personal opinions of the author. NDTV is not responsible for the accuracy, completeness, suitability or validity of any information given here. All information is provided on an as-is basis. The information, facts or opinions appearing on the blog do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.
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