The loan ranger’s guide to home financing

Every year there’s a flurry of news and reviews at the time of the Union Budget around what it means for you. We thought we’d do a simple listing of the salient points around taking a home loan today as a refresher and ready-reckoner for the home buyer of 2016-17. A home buyer in India is entitled to claim both the interest and principal components of home loan repayments for tax benefits.  Section 80C – concerning repayments of your home loan principal 1)The portion of your EMI which goes towards principal repayment gets claimed under Section 80C subject to an overall limit of Rs. 1,50,000 2)However, tax benefit of home loan under 80C for repayment of your home loan principal is applicable only on fully-constructed properties having received their completion certificate. a)Any principal repaid in those years during which the property was under construction would not be eligible for tax relief. b)It’s also worth noting that buying an under-construction property will entail Service Tax, as opposed to no ST on a completed property. Section 24 – concerning repayment of your home loan’s interest component 1)Interest payments up to Rs. 2 lakhs for a self-occupied residence are tax exempt under Section 24 of the Income Tax Act 2)In case of property for which the home loan has been taken is not self-occupied, no maximum limit has been prescribed, and you can claim tax deduction of the entire interest amount under Section 24. 3)Point to note: Section 24 and 80C are different in that the deduction on interest payments under Section 24 should be claimed on yearly basis, even if no payment has been made during the year. This is distinct from Section 80C which allows for deduction only on the principal paid in the assessment year. Section 80EE – additional benefits for first-time home-buyers 1)The Union Budget 2016 also saw the re-introduction of Section 80EE under which, if you’re a first-time home buyer of a property costing within Rs. 50 lakhs, then you’re eligible for an additional tax relief of Rs 50,000 per annum on a loan of up to Rs 35 lakh. a)This incentive is over and above the tax deduction of Rs. 2,00,000 under Section 24 and Rs. 1,50,000 under Section 80C. b)The loan should be sanctioned between 1st April 2016 and 31st March 2017. c)The benefit of this deduction would be available till the time the repayment of the loan continues. Closing cheer 1)The above tax deductions are per person, and not per property. So in case you’ve purchased a property jointly, and have taken a joint home loan, then each person repaying the amount would be eligible to claim whole deduction separately. This is a sponsored piece.