By Sunil Dhawan | ET Online | Updated: May 05, 2018, 12.32 PM IST | Economic Times
Buying that dream home can be rather tedious process that involves a lot of research and running around.
First of all you will have to visit several builders across various locations around the city to zero in on a house you want to buy. After that comes the time to finance the purchase of your house, for which you will most probably borrow a portion of the total cost from a lender like a bank or a home finance company.
However, scouting for a home loan is generally not a well thought-out process and most of us will typically consider the home loan interest rate, processing fees, and the documentary trail that will get us the required financing with minimum effort. There is one more important factor you should consider while taking a home loan and that is the type of loan. There are different options that come with various repayment options.
Other than the plain vanilla home loan scheme, here are a few other repayment options you can consider.
I. Home loan with delayed start of EMI payments
Banks like the State Bank of India (SBI) offer this option to its home loan borrowers where the payment of equated monthly instalments (EMIs) begins at a later date. SBI’s Flexipay home loan comes with an option to go for a moratorium period (time during the loan term when the borrower is not required to make any repayment) of anywhere between 36 months and 60 months during which the borrower need not pay any EMI but only the pre-EMI interest is to be paid. Once the moratorium period ends, the EMI begins and will be increased during the subsequent years at a pre- agreed rate.
Compared to a normal home loan, in this loan one can also get a higher loan amount of up to 20 percent. This kind of loan is available only to salaried and working professionals aged between 21 years and 45 years.
Watch outs: Although initially the burden is lower, servicing an increasing EMI in the later years, especially during middle age or nearing retirement, requires a highly secure job along with decent annual increments. Therefore, you should carefully opt for such a repayment option only if there’s a need as the major portion of the EMI in the initial years represents the interest.
II. Home loan by linking idle savings in bank account
Few home loan offers such as SBI Maxgain, ICICI Bank’s home loan ‘Overdraft Facility’ and IDBI Bank’s ‘Home Loan Interest Saver’ allows you to link your home loan account with your current account that is opened along with. The interest liability of your home loan comes down to the extent of surplus funds parked in the current account. You will be allowed to withdraw or deposit funds from the current account as and when required. The interest rate on the home loan will be calculated on the outstanding balance of loan minus balance in the current account.
For example, on a Rs 50 lakh loan at 8.5 percent interest rate for 20 years, with a monthly take home income of say Rs 1.5 lakh, the total interest outgo for a plain vanilla loan is about Rs 54,13,875. Whereas, for a loan linked to your bank account, it will be about Rs 52,61,242, translating into a savings of about Rs 1.53 lakh during the tenure of the loan.
Watch outs: Although the interest burden gets reduced considerably, banks will ask you to pay that extra interest rate for such loans, which translates into higher EMIs.
III. Home loan with increasing EMIs
If one is looking for a home loan in which the EMI keeps increasing after the initial few years, then you can consider something like the Housing Development Finance Corporation’s (HDFC) Step Up Repayment Facility (SURF) or ICICI Bank’s Step Up Home Loans.
In such loans, you can avail a higher loan amount and pay lower EMIs in the initial years. Subsequently, the repayment is accelerated proportionately with the assumed increase in your income. There is no moratorium period in this loan and the actual EMI begins from the first day. Paying increasing EMI helps in reducing the interest burden as the loan gets closed earlier.
Watch outs: The repayment schedule is linked to the expected growth in one’s income. If the salary increase falters in the years ahead, the repayment may become difficult.
IV. Home loan with decreasing EMIs
HDFC’s Flexible Loan Installments Plan (FLIP) is one such plan in which the loan is structured in a way that the EMI is higher during the initial years and subsequently decreases in the later years.
Watch outs: Interest portion in EMI is as it is higher in the initial years. Higher EMI means more interest outgo in the initial years. Have a prepayment plan ready to clear the loan as early as possible once the EMI starts decreasing.
V. Home loan with lump sum payment in under-construction property
If you purchase an under construction property, you are generally required to service only the interest on the loan amount drawn till the final disbursement and pay the EMIs thereafter. In case you wish to start principal repayment immediately, you can opt to start paying EMIs on the cumulative amounts disbursed. The amount paid will be first adjusted for interest and the balance will go towards principal repayment. HDFC’s Tranche Based EMI plan is one such offering.
For example, on a Rs 50 lakh loan, if the EMI is xx, by starting to pay the EMI, the total outstanding will stand reduced to about Rs 36 lakh by the time the property gets completed after 36 months. The new EMI will be lower than what you had paid over previous 36 months.
Watch outs: There is no tax benefit on principal paid during the construction period. However, interest paid gets the tax benefit post occupancy of the home.
VI. Home loan with longer repayment tenure
ICICI Bank’s home loan product called ‘Extraa Home Loans’ allows borrowers to enhance their loan eligibility amount up to 20 per cent and also provide an option to extend the repayment period up to 67 years of age (as against normal retirement age) and are for loans up to Rs 75 lakh.
These are the three variants of ‘Extraa’.
a) For middle aged, salaried customers: This variant is suitable for salaried borrowers up to 48 years of age. While in a regular home loan, the borrowers will get a repayment schedule till their age of retirement, with this facility they can extend their loan tenure till 65 years of age.
b) For young, salaried customers: The salaried borrowers up to 37 years of age are eligible to avail a 30 year home loan with repayment tenure till 67 years of age.
c) Self-employed or freelancers : There are many self-employed customers who earn higher income in some months of the year, given the seasonality of the business they are in. This variant will take the borrower’s higher seasonal income into account while sanctioning those loans.
Watch outs: The enhancement of loan limit and the extension of age come at a cost. The bank will charge a fee of 1-2 per cent of total loan amount as the loan guarantee is provided by India Mortgage Guarantee Corporation (IMGC). The risk of enhanced limit and of increasing the tenure essentially is taken over by IMGC.
VII. Home loan with waiver of EMI
Axis Bank offers a repayment option called ‘Fast Forward Home Loans’ where 12 EMIs can be waived off if all other instalments have been paid regularly. Here. six months EMIs are waived on completion of 10 years, and another 6 months on completion of 15 years from the first disbursement. The interest rate is the same as that for a normal loan but the loan tenure has to be 20 years in this scheme. The minimum loan amount is fixed at Rs 30 lakh.
The bank also offers ‘Shubh Aarambh Home Loan’ with a maximum loan amount of Rs 30 lakh, in which 12 EMIs are waived off at no extra cost on regular payment of EMIs – 4 EMIs waived off at the end of the 4th, 8th and 12th year. The interest rate is the same as normal loan but the loan tenure has to be 20 years in this loan scheme.
Watch outs: Keep a tab on any specific conditions and the processing fee and see if it’s in line with other lenders. Keep a prepayment plan ready and try to finish the loan as early as possible.
Nature of home loans
Effective from April 1, 2016, all loans including home loans are linked to a bank’s marginal cost-based lending rate (MCLR). Someone looking to get a home loan should keep in mind that MCLR is only one part of the story. As a home loan borrower, there are three other important factors you need to evaluate when choosing a bank to take the loan from – interest rate on the loan, the markup, and the reset period.
What you should do
It’s better to opt for a plain-vanilla home loan as they don’t come with any strings attached. However, if you are facing a specific financial situation that may require a different approach, then you could consider any of the above variants. Sit with your banker, discuss your financial position, make a reasonable forecast of income over the next few years and decide on the loan type. Don’t forget to look at the total interest burden over the loan tenure. Whichever loan you finally decide on, make sure you have a plan to repay the entire outstanding amount as early as possible. After all, a home with 100 per cent of your own equity is a place you can call your own.
GST rollout, launch in India: Here are some impact areas on all household budgets right from purchase of a house to furnishing of the house and purchase of other necessities:
Updated: June 30, 2017 2:38 PM | Financial Express
GST rollout, launch in India: Finally, India is on the verge of witnessing a historic change from its current indirect taxation regime to the Goods and Services Tax (GST) regime with effect from 1 July 2017, with a grand ceremony on the night of 30 June 2017. Even though Congress, TMC and some other political parties have decided to boycott the event, it is going be a grand affair with PM Narendra Modi as the star speaker. The event will start at 11 pm on June 30.
GST aims at eliminating the multiplicity of taxes and removing cascading of taxes which leads to a higher tax incidence on customers today. With an intent to curtail the inflation, the Government has taken various measures viz. finalization of rates which are aligned to existing rate structure for most items and introducing an anti-profiteering clause in the GST law.
Here are some impact areas on all household budgets right from purchase of a house to furnishing of the house and purchase of other necessities:
Impact on renovation/construction budget of your house
Currently, in a typical construction contract, contractor’s price includes heavy incidence of Central Excise duty, Entry Tax, Central Sales Tax on material and Service tax on services used in construction which is ultimately passed on to customers in the form of higher prices.
The contactors shall have to pass on the benefits of lower tax burden under the GST regime to the customers by way of reduced prices as the contractors will be eligible for credit of GST paid on the material and services used in construction.
This benefit on account of GST will positively impact the budget on common households.
Impact on interior decorator services
Interior decorator services to get dearer by 3% since GST will be charged at 18% vis-à-vis current Service tax rate of 15%.
Impact on loan processing charges of banks
GST will be applicable on financial services, at 18 per cent vis-à-vis the current Service tax rate of 15%. Be ready to shell out more money as taking loans is going to get expensive.
Also, along with expenditure on upgradation of house, you might also want to invest in latest technology or home furniture. GST will have a bearing on the prices of such goods as well.
Impact on Electronic Appliances
Currently, the average tax incidence on most of the electronic appliances/ items is approximately 25-26% (including CST and other local taxes). GST on household electronic appliance like fridge, washing machine, vacuum cleaner etc. has been fixed at 28% under GST. Likely increase in the tax burden of customer by 2-3%.
Also, electronic segment faces stiff competition with a lot of new players and less established brands who are mostly based in excise-free zones and are awaiting clarity on how the present excise exemption will work, post GST. Therefore, impact on the products of such players may be known only after a few months.
Impact on other items
Common household furniture, mattress to attract higher GST rate of 28%. Positive impact on LEDs and carpets due to a lower GST rate (please see below).
Impact on daily necessities
There should not be any inflationary impact on account of GST on daily necessities as most of the items viz. unprocessed cereals like rice, wheat, essential items like milk, vegetables have been specifically exempt from GST.
All in all, GST should impact the household budgets in a positive manner, not only from a rate perspective but also on pricing of various products, albeit in a long run.
*Rates mentioned above are basis the general rate available for such category of products and for illustrative purposes only. Actual rates may vary depending upon the specifics of a product and state wise VAT rates.
(By Achal Chawla, Tax Partner, EY India. Views expressed are personal)
A second home loan may seem daunting, but if implemented correctly, can lead to a great deal of savings on income tax
By: Harshil Mehta | Updated: December 26, 2016 7:27 AM | The Financial Express
An individual who has taken loan for the second house is eligible to claim deduction, under Section 24 for the interest he has paid towards the loan amount.
Many people in India buy a second home for various reasons. It can be as an investment for capital appreciation, for use as a holiday home, to get a regular stream of income by way of rentals or to diversify their investment portfolio. The return on real estate as an investment is second only to equity and this makes investment in real estate a must-have in the portfolio of an investor.
In India, a bulk of the home loan is taken by customers to buy their first home to live in and everyone knows that getting a home loan entails several income tax benefits, but the benefits which follow a second home loan are not talked about as much. So primarily, due to little awareness around the tax implications of the second home, and lack of knowledge of the benefits, most people don’t even consider it. A second home loan may seem like a daunting task, but if implemented correctly, can lead to a great deal of savings on income tax.
Second home self-occupied
You can avail deduction on interest paid towards home loan. An individual who has taken loan for the second house is eligible to claim deduction, under Section 24 for the interest he has paid towards the loan amount. There is also no maximum limit for the exemption on interest paid on the second home loan. However, an individual in this case will not be eligible to claim any exemption under Section 80 C as the second home will not be considered as self occupied property. For example, if an individual has taken a second home loan and he has paid R1 lakh as interest and R50,000 as principal amount for a year, he can then claim income tax benefit on R1 lakh.
You can avail deduction on interest during the pre-construction period. An individual who has a second home loan for an under-construction property can claim tax deduction on 20% of total interest paid during the pre-construction period. The maximum time limit to avail this tax benefit is five years. For example, if a second home loan tax benefit for interest during under construction or pre-construction period is R1.5 lakh, an individual can claim R30,000 per year for five years and not beyond.
Claim taxes paid to local bodies
An individual can also claim tax deduction on the taxes paid to the local authorities in the financial year in which they are paid. These include municipal or property taxes. It can be claimed on accrual basis and not payment basis.
Repair, maintenance charges
One can also claim tax benefits on repair and maintenance of the property. It is a fixed rebate that an individual can claim irrespective of the expenditures one has actually incurred. It is flat 30% and is allowed after the deduction of property tax for the fair rental value of the property.
A second home loan can bring definitive advantages to individual borrowers. Home loans have enabled dreams of home ownership within the reach of the common man. Various tax benefits have made it one of the most preferred options to fund home buying.
The writer is CEO, DHFL
Chandralekha Mukerji | ET Bureau | October 5, 2016
2016 is looking to be one of the best years for home buyers.
More tax benefits, rate cuts on loans, stagnant property prices, new launches in the ‘affordable’ segment with freebies and attractive payment schemes.
Many of you will be looking to take advantage of these benefits and buy a house.
While hunting for a house at the right price, you’ll be haggling with the bank to cut a loan deal too.
Even if you get a discount on both, your tax bill can burn a hole unless you know the rules well. Here goes a list of six lesser known and often-missed tax benefits on home loan.
You can claim tax benefit on interest paid even if you missed an EMI
Unlike the deduction on property taxes or principal repayment of home loan, which are available on ‘paid’ basis, the deduction on interest is available on accrual basis.
Meaning, even if you have missed a few EMIs during a financial year, you would still be eligible to claim deduction on the interest part of the EMI for the entire year.
“Section 24 clearly mentions the words “paid or payable” in respect of interest payment on housing loan.Hence, it can be claimed as a deduction so long as the interest liability is there,” says Kuldip Kumar, partner-tax, PwC India .
However, retain the documents showing the deduction so that you can substantiate if questioned by tax authorities. The principal repayment deduction under Section 80C, however, is available only on actual repayments.
Processing fee is tax deductible
Most taxpayers are unaware that charges related to their loan qualify for tax deduction.
As per law, these charges are considered as interest and therefore deduction on the same can be claimed.
“Under the Income Tax Act, Section 2(28a) defines the term interest as ‘interest payable in any manner in respect of any money borrowed or debt incurred (including a deposit, claim or other similar right or obligation)’.
” This includes any service fee or other charge in respect of the loan amount,” says Kumar. Moreover, there is a tribunal judgement which held that processing fee is linked to services rendered by the bank in relation to loan granted and is thus covered under service fee.
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.
Principal repayment tax benefit is reversed if you sell before 5 years
You score negative tax points if you sell a house within five years from the date of purchase, or, five years from the date of taking the home loan.
“As per rules, any deduction claimed under Section 80C in respect to principal repayment of housing loan, would get reversed and added to your annual taxable income in the year in which the property is sold and you will be taxed at current rate,” says Archit Gupta, CEO, ClearTax.in.
Thankfully , the loan amortisation tables are such that the repayment schedule is interest heavy and the tax-reversal rule only apply to Section 80C.
Loans from relatives and friends is eligible for tax deduction
You can claim a deduction under Section 24 for interest repayment on loans taken from from anyone provided the purpose of the loan is purchase or construction of a property.
You can also claim deduction for money borrowed from individuals for reconstruction and repairs of property .
It does not have to be from a bank. “For tax purposes, the loan is not relevant, the usage is.
” The taxpayer should be able to satisfy the assessing officer how the loan has been utilised for constructing or purchasing a house property and completion of construction was within five years and other conditions are met,” says Gupta.
“The interest charged should be reasonable and a legal certificate of interest should be provided by the lender along with name, address and PAN,” says Gupta.
This rule, however, is only applicable for interest repayment.You will lose all tax benefits for principal repayment if you do not borrow from a scheduled bank or employer. The additional benefit of Rs 50,000 under Section 80EE is also not available.
You may not be eligible for tax break even if you are just a co-borrower
You cannot claim a tax break on a home loan even if you may be the one who is paying the EMI. For one, if your parents own a property for which you are paying the EMIs, you can’t claim breaks unless you co-own the property.
“You have to be both an owner and a borrower to claim benefits. If either of the titles are missing you are not eligible,” says Gupta. 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.
You can claim pre-construction period interest for up to 5 years
You know you can start claiming your home loan benefits once the construction is complete and you receive possession.
So, what happens to the installments you made during the construction or before you got the keys to the house? As per rules, you cannot claim principal repayment but interest paid during the period can be accrued and claimed post-possession.
‘The law provides a deferred deduction on the interest payable during pre-construction period. The deduction on such interest is available equally over a period of 5 years starting from the year of possession’, says Vaibhav Sankla, director, H&R Block.
Arvind Rao | Aug 27, 2016 09:56 PM IST | Business Standard
Flexible payment schemes offered for under-construction property can lead to tax issues when the owner sells it. It’s not clear in the Income-Tax Act whether the seller should take the indexation benefit from the date of getting possession of the house or if it can be calculated based on each instalment paid after registration.
The flexible payment started with 80:20 scheme, where a buyer pays 80 per cent of the home value upfront either from his own funds or through a loan. The remaining is paid on possession. At present, there are many complicated variants of it such as 5:10:30:25:20:10 to help buyers to pay for a house without taking a home loan. In most cases, the agreement for the flat is registered on payment of one or two instalments that establishes the buyer as a legitimate owner and prevents the developer from selling the house to another buyer when the rates go up.
But when the owner sells the property bought through the flexible payment scheme, calculation of capital gains tax can get complicated if a person holds the property for more than three years, which makes it a long-term capital asset.
The Income Tax Act says that in case of computation of long-term capital gains, the tax payer can index the cost of acquisition of the property since the date of acquisition to the date on which it has been sold.
Indexation is done with the help of a Cost Inflation Index, which is notified every year by the tax authorities. The first year when such an index was notified was in 1981-82 at a base value of 100 and the index notified for 2016-17 is 1,125. If an individual purchases a house for Rs 20 lakh and sells it at Rs 50 lakh, he is liable to pay capital gains tax on the profit made, which is Rs 30 lakh in the example. But the buyer can reduce this liability by using Cost Inflation Index. The longer one holds the property; the lower would be the tax outgo.
The correct method of calculating capital gains came up before the Mumbai Income Tax Tribunal, which was pronounced in July 2016. The taxpayer had declared long term capital gains on sale of property at Rs 29,02,270 after considering the indexation benefit of Rs 19,93,232.
The tax payer had become a member of a housing society in 1993 and was later allotted a flat in 1994. The housing society constructed and allotted flats to all the members. The taxpayer claimed that he had been paying proportionate cost of construction on various occasions from 1994 to 2006, as and when called upon by the society. While calculating the indexed cost of acquisition, the tax payer adopted the cost inflation index, corresponding to each year of payment.
The tax officer however held a different view. He argued that the property tax assessment bill issued by the municipal corporation showed that the said flat was assessed to property tax from January 1, 2007 and therefore the date of acquisition of the property was to be taken as January 1, 2007.
Accordingly, the tax officer’s cost indexation calculation was determined by adopting the said date, thereby increasing the tax burden on the seller. The officer calculated the taxpayer’s additional liability at Rs 4,71,074. The officer added this amount to the tax payer’s income. At the first level of appeal, the appellate authority confirmed the tax officer’s view and decided the case against the taxpayer.
Tribunal favours the taxpayer
At the Tribunal, the tax payer put forth his case that the benefit of indexation of cost should be granted to him right from 1994 when he started making payments and not from January 1, 2007 when the house was first subjected to property assessment.
The tax officer argued that a property can be said to be acquired only after its possession is handed over to the buyer, and therefore adoption of date as the one he considered is justified.
On considering the merits of the case, the tribunal observed that the society in question was allotted land by Maharashtra Housing and Development Authority or Mhada and the conveyance deed was made in favour of the society in 1994. Being a member of the society, the tax payer was allotted a flat and was issued the share certificate in 1994. It was also observed that an allotment letter for the specific flat was also issued to the tax payer in 1995.
The Tribunal was of the opinion that it is not necessary that the taxpayer must become an owner by way of conveyance deed for the purpose of computing capital gains. As the tax payer had acquired the right to obtain a specific flat in the society in 1994 itself, the indexation of the cost of acquisition of the flat has to be granted with respect to the initial date of 1994, subject to the fact that the indexation be applied to each instalment as and when the same was paid. The case, therefore, was decided in the favour of the tax payer.
The case provides an extremely useful tax planning measure for those who plan to purchase an under-construction house. They must register the property as soon as possible and become the legal owners. If they sell the property after holding it for more than three years after completion, they will get the indexation benefit even for the instalments paid.
A registered agreement provides definitive details of the property such as flat number, floor, size of the flat, etc. On the contrary, merely having allotment letter, which do not define the flat, will not be helpful. In the past taxpayers with allotment letters did not get any relief in similar cases.
The case in question had stronger facts: A society already existed and the taxpayer held share certificates. These principles should equally apply to buyers in under-construction projects who would become society members post completion.
- TAX RELIEF
Calculating capital gains on property bought in flexible payments scheme can be complicated when the owner sells it
- Income-Tax Act lacks clarity on whether the seller can calculate capital gains from the date of property registration or from the date of possession
- Mumbai I-T Tribunal has ruled that date of possession is not necessary
- Buyers should therefore register property as early as possible, which establishes them as legal owners
- Buyers with allotment letters, which do not define the flat, have failed to get relief from tax authorities in the past
The writer is a chartered accountant and financial planner
A homebuyer will be able to avail tax deduction of Rs.2 lakh on interest paid even if the house is ready in five years from the end of the finance year in which the home loan was taken
Ashwini Kumar Sharma | Last Modified: Thu, Mar 03 2016. 07 07 PM IST | Live MInt
Budget 2016-17 did not have much to offer to the individual taxpayer, as there was no change in slab rates nor was there an increase in deduction limits under various sections. However, it offered some relief to those who had recently bought or are planning to buy an under-construction apartment. The change, which is related to deduction against repayment of home loan, is small but holds big benefits for many homebuyers. In a recent story (http://bit.ly/1Qjwg84), we had stated how real estate project delays increase the effective cost of home buying by more than 25% for a homebuyer, and that the loss of tax benefit due to project delay is the biggest culprit. The new tax benefit offered in the Budget helps here. Here’s how.
Existing tax rules
Tax benefit on repayment of home loan helps homebuyers bring down the tax outgo substantially. According to the Income-tax Act, 1961, a borrower can claim deduction under section 80C against principal repayment, which has an overall limit of Rs.1.5 lakh, and up to Rs.2 lakh for payment of interest under section 24(b) for a self-acquired house. If the house is leased out, then the entire interest paid on home loan can be claimed as deduction. These tax breaks, however, are available based on the ownership of property.
Until the construction of the property is complete and you have the registration and ownership documents, you may not be able to claim these deductions. So, no possession means no tax benefit on the huge home loan. And that’s not all.
The bigger problem is when construction of a property gets delayed.
As per the prevailing tax rules, if the property does not get completed within three years, the maximum deduction allowed to a taxpayer for interest on home loan reduces to Rs.30,000 per annum. One can only claim deduction up to Rs.2 lakh if the property she buys gets completed within three years from the year in which the loan was taken. However, given the current condition of the real estate market, on an average, residential projects are getting delayed by 24-30 months. So, for those who take a loan to buy an under-construction property, delay in delivery leads to a substantial hit on tax savings.
In his Budget proposal for 2016-17, the finance minister proposed to increase the time limit for completion of projects from three years to five years. So, once implemented, a homebuyer will be able to avail tax deduction of Rs.2 lakh on interest paid even if the house is ready in five years from the end of the finance year in which the home loan was taken.
If you take a home loan in August 2016, and you get the house in March 2022 or before, you get the full Rs.2 lakh tax break. However, if you get the house after March 2022, you will not get the full benefit.
Source : http://goo.gl/Os5wAL
NDTV Profit Team | Last Updated: February 12, 2016 12:42 (IST)
The purchase of a house, by taking out a home loan, is considered good by personal finance experts, who generally scoff at long-term liabilities.
A house, unlike other personal goods such as cars, is considered to be an asset. There’s tax benefit too. Home buyers can claim an exemption of up to Rs. 1.50 lakh on principal payments for home loan under Section 80C of the Income Tax Act.
Buyers can avail Rs. 2 lakh deduction paid towards interest component of home loan per year.
The above-mentioned benefits apply for self-occupied properties and not for under construction houses. Further, in case of a delayed possession, the tax benefits get reduced substantially. Many a times, tax payers – unaware of this provision – claim full tax benefits on their home loan and get notices from the tax department.
According to Section 24B of Income Tax Act, a person can claim a tax deduction of up to Rs. 2 lakh on the interest paid on a self-occupied house if the possession of the property is done within three years of taking the loan.
In case the possession is given after three years, then the amount of deduction is reduced to Rs. 30,000 per year.
This means in case of delayed possession (when houses are delivered three years after a home loan has been taken), buyers can claim only Rs. 30,000 (15 per cent of the current allowed deduction of Rs. 2 lakh) as exemption.
Those who unknowingly claim exemption can get into serious trouble and may have to pay huge penalties, experts say.
“If the home buyer in such cases still claims interest of Rs. 2 lakh per annum, the tax office could disallow the deduction of Rs. 1.7 lakh per annum which could result in additional tax and interest payable by the home buyer to the tax office. At their discretion the tax office can also levy penalty for claiming excessive deduction,” says Parizad Sirwalla, National Head-Global Mobility Services-Tax, KPMG.
The penalty in this case may range between 100 per cent and 300 per cent of the extra tax deductions claimed, says Amit Maheshwari, managing partner of Ashok Maheshwary & Associates.
Tax experts say that home buyers are getting tax notices for claiming over Rs. 30,000 deduction, despite delayed possession. “As people are getting the possession of the house which they booked five to seven years back now, tax department are scrutinising the returns and people are getting notices from the tax department for the same,” says Sudhir Kaushik, chief financial officer, Taxspanner.com.
Tax experts believe that Finance Minister Arun Jaitley in the budget should relook at the tax benefits offered on home loans. “It may be worthwhile to consider an amendment in the provision not limiting such deduction to Rs. 30,000 per annum in cases where the delay in completion of construction is caused on account of reasons beyond the control of the home buyer,” says Parizad of KPMG.
Tapati Ghosh, partner at Deloitte Haskins & Sells, said: “One of the measures that could be considered is the extension of time limit to 5 years at least for the under-construction properties.”
Source : http://goo.gl/AGvChJ