Tagged: Tax Benefits

ATM :: A quick guide to hastening your home loan repayment

By RoofandFloor | UPDATED: JULY 17, 2017 14:00 IST | The Hindu

ATM

The thought of owing someone a debt is an uncomfortable one for most of us. When the amount owed is large, as in the case of home loans, the cognitive discomfort can be significantly greater. Additionally, the monthly financial burden of paying EMIs and housing loan interest isn’t exactly everyone’s cup of tea. To counter this, many homeowners choose to prepay their home loans.

There are multiple schools of thought when it comes to prepaying a home loan. However, there is no one-size-fits-all approach, and the decision must be made considering both financial and personal aspects.

Merely making the decision to prepay your property loan doesn’t solve your problem, though. Figuring out how to save up for prepayment is the key to succeeding without financial discomfort.

If prepaying your home loan is an option you’d like to consider, here’s a short guide on how you can make that happen.

Consider the decision

Determine whether prepayment is right for you. Home loans offer tax benefits that need to be taken into account. For instance, the housing loan interest (upper limit of Rs 2 lakh) can be deducted from taxable income. However, if your interest amount exceeds the upper limit, prepayment could save you the additional cost. Every individual’s situation is unique and should be assessed carefully before making the choice.

Fortify your backup

Get your financial safety net in place before committing to prepay the home loan. A general rule of thumb is to have the following taken care of:

• Emergency funds (medical or otherwise)

• Backup savings for EMIs and regular expenses in case of loss of employment

• Children’s education funds

• Other recurring financial liabilities

Plug the leaks

Scrutinise your financial records to identify where you tend to haemorrhage money. They usually show up in the form of unnecessary frills such as credit cards with additional privileges (that you don’t use), unused memberships (clubs, gyms and recreational establishments), loans with high-interest rates (here refinancing is an option) and so on. Eliminating these situations will improve your disposable income and thereby your savings.

Get creative

Saving up to prepay home loans can be simplified with some thought. Consider replacing your expensive forms of entertainment and recreation with creative, cost effective solutions. Tighten the purse strings as far as possible to boost your monthly savings.

Hike up the EMIs

This is a simple yet effective option. Even marginal increases in EMI payments can help reduce the principal amount. This helps reduce the tenure of the home loan. Reduced home loan tenure then results in lower total home loan interests.

Utilize windfalls

Consider partial repayments from unexpected sources of income such as bonuses, gifts from family and so on. Check with your bank regarding the number of partial repayments allowed beforehand (usually there is no such limit).

Supercharge your savings

Consider investing in a reputed mutual fund with reasonably good returns meant purely for home loan prepayment. Returns are higher than normal savings accounts while the tax payable is far lower than other forms of savings such as fixed deposits.

The choice to prepay a property loan should be made rationally and be backed by careful planning. Hasty, emotion-driven decisions could seriously hamper your overall financial wellbeing.

This article is contributed by RoofandFloor, part of KSL Digital Ventures Pvt. Ltd., from The Hindu Group

Source: https://goo.gl/gYFXTh

ATM :: Home loan tax reliefs often missed by taxpayers

By Preeti Motiani | ECONOMICTIMES.COM | May 11, 2017, 10.55 AM IST

ATM

The Union budget of 2017 brought mixed bundle of joy for the taxpayers. While the section 80EE was re-introduced, holding period was lowered which brought cheers for the taxpayers, on the other hand, the individuals claiming a loss on the let out property or deemed to be let out property were left in shock.

Many of you who already own a second house or looking to buy a new house might give a look at the rules listed below to receive the often missed benefits.

1. You can claim tax benefit on interest paid even if you missed an EMI.
Section 24 of the I-T act mentions the word interest payment “payable” on housing loan. It means that even if you have missed the EMI payment in a year you can still claim the tax benefit on it. It can be claimed as a deduction so long as the interest liability is there.

Kuldip Kumar, Partner and Leader – Personal Tax, PWC says, “One should retain the copy of the interest certificate issued by the lender i.e. bank or NBFC specifying the amount of loan, interest due etc. as this will help in case of any questioning from the tax department.”

The principal repayment deduction under Section 80C, however, is available only on actual repayments.

2. Principal repayment tax benefit is reversed if you sell before 5 years.
While the finance minister may have provided a relief by reducing the holding period to 24 months to qualify for the long-term capital gains but if you sell a house within five years from the date of purchase, or, five years from the date of taking the home loan, the tax benefit gets reversed.

“The deduction claimed will be added back to the income of the taxpayer in the year in which the property is sold,” says Archit Gupta, founder, Cleartax.com

However, the loan amortisation calculations are such that the repayment schedule has lower component of principal repayment in the initial years of the home loan and the tax reversal rule only applies to Section 80C. Also, the benefit of lowered holding period for capital gains will apply from April 1, 2018, AY only.

3. You are eligible for tax break only when you are a co-borrower and co-owner.
You cannot claim a tax break on a home loan even if you may be the one who is paying the EMI. For instance, there may be a situation when you’re paying the EMI of a home loan for the property which is owned by your parents or spouse.

“However, when the house is in the joint name and funded by both the spouses by a way of housing loan, both husband and wife can avail the separate deduction for the interest payments and principal repayment of such loan,” says Kumar.

Even if you own a property with your spouse, you can’t claim deductions if your name’s not on the loan book as a co-borrower.

4. You can claim pre-construction period interest for up to 5 years.
Any interest paid on the borrowing during the construction of a house is eligible for tax relief only after you have received the completion certificate.

“Interest paid during the construction period can be claimed as a tax deduction in five equal instalments starting from the year in which construction of the property is completed. The total tax benefit will be annual interest payable + 1/5th of the pre-construction period “says Gupta.

While filing returns for the AY 2017-18, the maximum limit for the self-occupied property is Rs 2 lakh. In the case of let out property, there is no limit.

The union budget 2017 has removed this anomaly and put the cap of Rs 2 lakh on the let out property. The same will be effective while filing the returns for next year i.e. 2018-19.

5. Re-introduction of the Section 80EE
To provide an additional relief to the homebuyers, the section 80EE has been reintroduced with effect from April 1, 2017. The maximum deduction available has been reduced from earlier of Rs 1 lakh to Rs 50,000 now.

However, this deduction comes with certain restrictions which need to be satisfied while availing this deduction. The conditions are:
a) The home-owner/s should be first time buyer even if the property is bought in the joint ownership,
b) The loan value must not exceed Rs 35 lakh and property value should not exceed Rs 50 lakh, and
c) The loan must be sanctioned by a financial institution during the period April 1st, 2016 to March 31st, 2017.

Archit Gupta, Founder & CEO, Cleartax.com says, “If the taxpayers are able to meet conditions for both of section 24 and 80EE, their taxable income can be reduced by 2.5 lakhs in FY 2016-17 return filing.”

6. Processing fee and other charges are tax deductible.
Most taxpayers are unaware that charges related to their loans such as processing fees or prepayment charges qualify for tax deduction. As per law, these charges are considered as interest and therefore deduction on the same can be claimed.

“Section 2(28A) of I-T Act defines interest as interest payable which includes any service fees and other charges in any manner in respect of money borrowed,” says Kumar.

Therefore, it is eligible for deduction under Section 24 against income from house property. Other charges also come under this category but penal charges do not.

Also, any payment made towards stamp duty and registration fees incurred by the individual are also tax deductible as per the section 80C(2) (xviii) (d) of the act.

7. Loans from relatives, friends and employer are eligible for tax deduction.
If you have taken a loan from friends and/or relatives to acquire a house then you can claim a deduction under Section 24 for interest repayment on loans. You can also claim a deduction for money borrowed from individuals for reconstruction and repairs of property.

“A taxpayer would need to obtain a certificate from the relative which would contain the details such as the amount of interest payable, amount of loan taken, specifying the property details for which loan is taken,” says Kumar.

However, one must remember that this rule is only applicable for interest repayment. You cannot avail the tax benefits available on the principal repayment on that part of the loan borrowed from your relatives, friends and employer.

Further, a lender, in this case, your relatives and friends must disclose the interest earned on such transaction while filing their income tax returns.

Source: https://goo.gl/3hozR4

NTH :: New Income Tax Rules On Home Loan Come Into Effect. Details Here

Now the limit that can set off against the loss from rented house property has been restricted to Rs. 2 lakh per annum.
Edited by Surajit Dasgupta | Last Updated: April 09, 2017 16:48 (IST) | NDTV Profit

NTH

The government has changed income tax rules that could increase the tax outgo of those who have taken a home loan for a property that has been rented out. The amount that could be set off on home loans for rented property has been reduced. Earlier, in case of rented property, the loss from house property – which is basically the interest paid on home loan minus rental income – was allowed to be adjusted from income without any limit. This helped significantly reduce tax liability. Now the limit that can set off against the loss from rented house property has been restricted to Rs. 2 lakh per annum. This came into effect from April 1, 2017 (assessment year 2018-19).

However, on rented properties, the interest paid above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years.

For example, your interest outgo on a second property is Rs. 5 lakh in a particular year. Assume that you are earning a rent of Rs. 1.5 lakh annually from the property. Such buyers, as per the current rules, are allowed to adjust the difference of Rs. 3.5 lakh (Rs. 5 lakh interest minus Rs. 1.5 lakh). But from the next financial year, they will be allowed deduction of just Rs. 2 lakh. The remaining amount of Rs. 1.5 lakh (Rs. 3.5 lakh minus Rs. 2 lakh) can be carried forward up to eight financial years and be adjusted later.

Tax experts say that some high net worth individuals – who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially – would be particularly hit from this new tax rule.

Note: Income tax rules say that those who own more than one property can only treat one of them as self-occupied and the rest have to be assumed to be rented. Income tax has to be paid on notional rent.

From April another tax rule related to the properties will also change. The new tax rule will help bring down tax liability from property sale. The holding period of a property for qualifying under long-term gains will get reduced to two years, from three years currently. As per current tax norms, if a property is sold within three years of buying, the profit from the transaction is treated as short-term capital gain and is taxed according to the slab rate applicable to him/her. So reducing this time period to two years will bring down tax liability.

Thus, after two years, the transaction will be able to qualify for long-term capital gains, thus lower taxes. Under long-term capital gains on immovable properties, the profit is taxed at 20 per after indexation. Under indexation, inflation during the holding period is taken into account and thus the purchase price is adjusted, reducing the tax burden on the property seller. There are also other benefits for the seller under the long-term capital gains tax. If the gains are invested in some select government investment schemes, the tax liability goes down significantly.

Source: https://goo.gl/N8K3mp

NTH :: Income Tax Rules On Home Loan To Change From Saturday. Details Here

Tax experts say that some high net worth individuals, who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially, would be particularly hit from this new tax rule.
Written by Surajit Dasgupta | Last Updated: March 28, 2017 09:01 (IST) | NDTV Profit

NTH

Interest paid above Rs. 2 lakh on rented properties can be carried forward for 8 years from April 1.

To address the anomaly of interest deduction in respect of let-out property vs self-occupied property, the government has changed income tax rules, which will come into effect from next financial year April 1, 2017 (assessment year 2018-19). In this regard, the government has cut down tax benefits borrowers enjoyed on properties let out on rent. According to current tax laws, for properties rented out, a borrower could deduct the entire interest paid on home loan after adjusting for the rental income. On the other hand, borrowers of self-occupied properties get Rs. 2 lakh deduction on interest repayment on home loan.

However, on rented properties, effective from April 1, interest paid above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years.

For example, your interest outgo on a second property is Rs. 5 lakh in a particular year. Assume that you are earning a rent of Rs. 1.5 lakh annually from the property. Such buyers, according to the current rule, are allowed to adjust the difference of Rs. 3.5 lakh (Rs. 5 lakh interest minus Rs. 1.5 lakh). But from the next financial year, they will be allowed deduction of just Rs. 2 lakh. The remaining amount of Rs. 1.5 lakh (Rs. 3.5 lakh minus Rs. 2 lakh) can be carried forward up to eight financial years and be adjusted later.

Tax experts say that some high net worth individuals, who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially, would be particularly hit from this new tax rule.

From April another tax rule related to the properties will also change. The new tax rule will help bring down tax liability from property sale. The holding period of a property for qualifying under long-term gains will get reduced to two years, from three years currently. As per current tax norms, if a property is sold within three years of buying, the profit from the transaction is treated as short-term capital gain and is taxed according to the slab rate applicable to him/her. So reducing this time period to two years will bring down tax liability.

Thus, after two years, the transaction will be able to qualify for long-term capital gains, thus lower taxes. Under long-term capital gains on immovable properties, the profit is taxed at 20 per after indexation. Under indexation, inflation during the holding period is taken into account and thus the purchase price is adjusted, reducing the tax burden on the property seller. There are also other benefits for the seller under the long-term capital gains tax. If the gains are invested in some select government investment schemes, the tax liability goes down significantly.

(Know Your Tax Liability Here)

Source: https://goo.gl/jwT9V2

ATM :: Are you aware of the home loan benefits women enjoy in India?

Searching a dream home remains very much in the mind of the people as it gives them the assurance of their stay for lifetime. The same assurance is not possible with a rented accommodation.
By Rishi Mehra | Published: March 9, 2017 2:39 PM | The Financial Express

ATM

Searching a dream home remains very much in the mind of the people as it gives them the assurance of their stay for lifetime. The same assurance is not possible with a rented accommodation.

In the pursuit of your dream home, you invariably rely on a home loan which can be availed for as long as 20-30 years. Since the home loan tenure is so long, the eventual loan cost from the customer end can be very high. But that can reduce in the case of a woman borrower. So, stay tuned as we take through the benefits that women borrowers can enjoy in the case of a home loan.

Lower Interest Rate
The interest rate holds the key to a cost-friendly home loan journey. Home loans are invariably in large amounts for a longer duration. So, if the interest rate is on the higher side, your pocket can get pinched. A slight difference in the interest rate can reduce the flow of interest outgo substantially in a period of 20-30 years. In addition, the monthly installment will also come down. A women borrower enjoys a concession of 0.05% in the interest rate from most banks in India. Let’s see the interest rate offered to women borrowers by several lenders in India.

Interest Rate Offers of Different Lenders (Suppose Loan Amount is Rs 50 lakh and Tenure Equals to 20 years)

From the table, you can see a saving of around 38,000 for women borrowers over male applicants.

Reduction in Stamp Duty
Stamp duty does form the part of the property cost. And a difference of a few percentage can make a huge difference in your home ownership cost. The lenders finance a home loan at about 80%-90% of the property cost. As far as stamp duty goes, it differs from one state to another. Particularly, when women buy a property, the stamp duty generally remains lower. A concession of 1%-2% is generally applicable. So, on a property worth Rs 60 lakh, a woman borrower can save around Rs 60,000-1,20,000.

Tax Benefits
Like the male counterparts, women borrowers can also be eligible for a tax deduction on the home loan repayments. The maximum tax deduction allowed in the principal and interest repayments is Rs1.5 lakh and Rs2 lakh, respectively. Women borrowers applying for a home loan along with their husbands can receive the tax deduction in an equal proportion.

These are some of the benefits that women borrowers enjoy in the case of a home loan. But choose a lender that can offer you a loan at a much lower interest rate than its competitors.
(The author is Founder and CEO, Wishfin)

Source: https://goo.gl/7ileQz

POW :: Tax saving season is here: These are the best ELSS mutual funds

Suresh KP | Feb 15, 2017, 05.48 PM | Source: Moneycontrol.com
Investing in tax saving ELSS mutual funds would help you to save tax u/s 80C as well as giving superior returns.

POW

Many of the tax payers are looking for various options to save income tax u/s 80C. While there are several options to save tax, one of the attractive ways is to invest in tax saving funds, technically known as ELSS.

What are tax saving funds?
Equity Linked Saving Scheme (ELSS) or tax saving funds provide tax exemption u/s 80C along with higher returns compared to any other tax saving option. Investments in ELSS upto Rs 1.5 lakh bring in tax deduction under section 80C.

Compared to other tax saving schemes like Tax saving FD, PPF, NSC etc, ELSS offers higher returns. However, a point to note is that these returns are not guaranteed. These ELSS have low lock in period of 3 years. Other instruments have lockin period ranging between 5 years to 15 years.

After taking into account these benefits lets look at five ELSS that can be considered as good investment options to save tax and create wealth.

1) Reliance Tax Saver Fund
This MF scheme objective is to generate long term capital appreciation from a list of stock portfolio and invests predominantly in equity and equity related instruments in India. This scheme has provided 20.3% annualized returns in last 5 years. Even in last 3 years, this scheme provided 30% annualized returns. This scheme is ranked by Crisil as Rank-3 (1 is vergy good performer and 5 is weak performer)

2) Axis Long Term Equity Fund
This tax saving scheme aims to generate regular long term capital growth from a diversified portfolio of equity and equity related securities in India. This mutual fund scheme is the top performer in the ELSS funds over five years time frame. This scheme has provided 21% annualized returns in last 5 years. Even in last 3 years, this scheme provided high returns of 24.9% annualized returns. This scheme is ranked by Crisil as Rank-4 (1 is vergy good performer and 5 is weak performer)

3) DSP BR Tax Saver Fund
The mutual fund scheme aims to generate medium to long-term capital appreciation from a diversified stock portfolio of equity and equity related securities along with tax savings. This mutual fund scheme is the top performer in the ELSS funds.This scheme has provided 20.4% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 26.6% annualized returns. This scheme is ranked by Crisil as Rank-1 (1 is vergy good performer and 5 is weak performer)

4) Birla SL Tax Relief 96 Fund
This mutual fund scheme aims for long term capital appreciation by investing upto 80% in equity and balance in debt related instruments. This scheme has provided 19.1% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 25.6% annualized returns. This scheme is ranked by Crisil as Rank-2 (1 is vergy good performer and 5 is weak performer).

5) Franklin India Tax Shield Fund
The MF scheme aims medium to long term growth of capital along with income tax rebate. This scheme has provided 17.5% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 24.3% annualized returns. This scheme is ranked by Crisil as Rank-3 (1 is vergy good performer and 5 is weak performer).

Smart investors would invest in a good ELSS mutual funds which helps them to save tax and also provides high returns compared to any other tax saving options.

The author of this article is founder of Myinvestmentideas.com.

Source:https://goo.gl/MxYfdc

ATM :: Real Estate is dead – long live Real estate

By Harsh Roongta | Facebook post

ATM

Ok – I admit that the headline is to grab your attention. But in this budget the finance minister has proposed several clever changes in the tax laws that will discourage investments in multiple properties yet at the same time encourage first time home buyers to buy their homes rather than live on rent.

Currently 4 factors drive investments in multiple real estate properties. First- Real estate is the only asset class left that still easily allows laundering of large unaccounted “black” income. Second – most investors have the ability to take loans for buying a residential property. Third – these loans are very cheap as the interest paid on these loans is fully tax deductible and the resultant loss can be set off against business income or salary income. Fourth- the “capital gains” on sale after 3 years are treated in a concessional manner and can be completely tax free if reinvested in another property and become fully laundered after the second round of investment.

The proposed changes hit at the first and the third factors. The restrictions on receiving any cash in excess of Rs. 3 lakhs is bound to create difficulties in paying and/or accepting large sums of cash that are typically required on these kinds of property purchases. Another factor is the effective removal of the tax deductibility of home loan interest on multiple properties makes the home loans much more expensive. I think these 2 factors will have a far greater negative impact then the small positive factor of making the long term capital gain period at 2 years instead of 3 years earlier. These kind of properties are rarely held for decades and hence the other positive factor of change in indexation date will have no impact on holding of multiple properties.

Once the impact of these factors sink into the market it will have a further adverse effect on the already low demand for high value properties. Meanwhile the government has already announced a slew of measures to encourage the buying of reasonably sized (650 sq ft carpet area or around 1000 sq ft – saleable area or a decently sized 2 BHK flat) affordable homes in urban areas. Full details of the new subsidy scheme are still awaited. If newspaper reports are to be believed then households having income of upto Rs. 18 lakhs per year will also be eligible for a one time subsidy of around Rs. 2.20 lakhs through their home loan lender. The existing subsidy scheme is well designed with no restriction on sale of the houses bought under the scheme nor is there a limit on the value of the houses or the loan amount. The limits are only on household income and flat size. It also requires that it should be the first purchase for the household and the women of the house should be the owner or joint owner and the house should be in an approved project. It’s a scheme that is already working well for lower income households (income upto Rs. 6 lakhs per annum) and there is no reason it will not work equally well for the wide swathe of middle income households that are expected to be covered. Developers are also given tax benefits on profits from affordable home projects. Both these things can create a massive demand for “affordable” homes. Hence Real Estate is dead. Long live Real estate.

Source: https://goo.gl/MAzzoZ