After having passed out of Business school and receiving a job in a big firm, life seems a little better with every passing day. As our pay increases and we are able to pay off our education loan, it happens to be that we are not left with many investment options besides mutual funds and shares.
Lets look at this differently, we might be able to make a lot of money, but if we do not make good use of that income in way that we invest so as to receive long term benefits and tax benefits. There is a very good chance by the end of the financial year we will not be able to produce many documents to claim our tax returns.
Lets consider our options besides investing in mutual funds. Well there is the extremely slow and very low yielding fixed deposits, then there are recurring deposits, post, LIC and finally there is the interest charged on property taxes or basically the EMI paid towards the same.
Lets discuss Income Tax benefits on home loan interest in FY 2016-17 in detail.
Tax Benefits on Home loan?
It is not every day that we come across such a phenomenon, where an investment that we are utilizing to the fullest ends up saving us tax as well. Give it a thought, we purchase cars, we drive them on a regular basis, but they never give us any tax benefits.
But homes on the other hand, we live in, it gives shelter to a family of many people, it is so useful and yet seems to benefit us in matters related to deduction of taxes as well. Let’s get to the details.
According to the budget announced in February 2016, first time tax payers on home loans get an additional exemption of Rs.50,000/- for interest on home loans. You are allowed a maximum of Rs.2,00,000/-, but ensure the property is self occupied and not in the name of your parents, spouse etc. The most important part of repayment on home loans though is that the repayment is divided into 2 main parts
- Principal amount repayment
- Interest amount repayment
When can I claim tax benefits?
To begin with, you cannot claim tax benefits during the pre-construction period, even if you have started paying the home loan EMI’s. There are chances that most likely the amount is paid but the possession is not been given for maybe a year or sometimes two.
It is very much advisable to take a home loan in the first place that will only ask you to start paying the EMI after possession. Section 24 states that there will not be any deduction if the property is still to be constructed in relation to the interest payment. You can apply for deduction of the interest charged during the pre-construction period, by availing the same after the construction is complete, in a total of 5 equal installments.
Certain Terminologies to Understand during which the Tax is applied
There are basically a couple of jargons or terms that will be thrown at you in a discussion to understand taxation for housing related matters, lets discuss the same in bit more detail,
The first and foremost jargon will be,
- Prior period - Prior period is also known as under construction period, the term basically represents the tenure from the time you have borrowed the home loan to the end of the financial year in which the property was acquired after completing of construction. The period from borrowing of money till the construction of the house is called as pre-construction period or under construction period.
- Prior period Interest - It is the interest charged from the date when you have borrowed the home loan to the date of the financial year that precedes the financial year when the construction was completed.
Those are more or less the 2 ways to go about the tax benefits, if you still have some doubts remaining, you can give us a call and speak with our customer service executives or a representative and he will clear out all you doubts related to interest on home loan repayment.
We strongly suggest that you discuss these matters with an expert or a representative who will be able to clear all your doubts in relation to tax benefits on home loan repayment. You can also search home loan interest deduction in income tax ay 2016-17 on the internet. You may also calculate your interest by looking out for home loan tax benefit calculator.
Let’s discuss additional tax benefits on home loans
Additional Tax Benefits under Section 80EE
Off lately the government has given additional benefits on home loan interest for up to Rs.50,000/- but to qualify for the same, we need to meet certain restrictions,
- The tenure of the home loan taken must be in between 1st April 2016 till 31st March 2017
- As on the date when it is sanctioned the one taking the home loan should not own any property
- The loan must be only from a financial institution and not anywhere else.
- The value of the house in total must be less than Rs.50,00,000/-
- The loan amount must be less than Rs.35,00,000/-
It is only when you qualify for these terms that you will be eligible for an additional deduction of Rs.50,000/-
Lets Summarize These Terms for you
The principal Paid
The interest Paid
Self occupied - first home
These will be no changes upto Rs. 1,50,000/- and upto Rs. 2,00,000/- in the case of senior citizens
Upto Rs.2,00,000 if paid till the end of financial year from when it was taken or else Rs.30,000/-, for further details do have a look at our website.
In the case of a first home that is rented or vacant
Again there will be no change for upto Rs.1,50,000 and in the case of seniors an amount of Rs. 2,00,000, if one is staying in a different city for work
No change on any interest paid without any limit
In the case of a second house
No change in the entire interest paid
If under construction
There is no time limit on the period in which the deduction is technically allowed, it can happen anytime and one can deduct it any way.
Over and all, always remember to submit your documents on time, once you do end up submitting, make sure you have had the time to follow up with the person regarding the status of the submission.
One has to understand that it is next to impossible for the authorities to make sure that all the entries are taken care of. There may be times that they must have missed out on notifying you regarding some error in your submission.
This does not mean they are at fault and legally they will not take any responsibility in the event that you failed to rectify the error and missed out on receiving any tax benefits for the financial year. There also might be a chance that they must have notified you but, your schedule being so busy, you might have just missed out on that important mail or message.
Also remember the home loans that you take which is joint, in the name of two people you will have more deductions as compared to individual home loans.
In the event that you own more than one property and it is occupied by people who are living on rent, you can claim that the property is vacant and claim tax deductions on the same.
You can also avail for a home loan in the name of the entire family and avail for deductions, each member can benefit from the same. everyone can enjoy the benefits and it can work in everyones favour. You can look up interest on housing loan deduction for fy 2015-16 to find out more about the same and you will receive many results for the following. You can also search for section 80ee of income tax act or section 24 of income tax act to know more about the deductions you are entitled for. Look out for section 80ee for fy 2015-16 in order to know more about deduction related information and check out interest on housing loan deduction for ay 2017-18 to know more about it.
The advantage of it all is that the more you are aware of the deductions you can avail, the more are the chances that you save on money or save on taxes.
Make sure to look up our website Policy Bazaar to clarify the doubts you have about tax deduction on housing loans interest. We are always there to clarify your doubts on the same and we hope you make the right choice in relation to investments. We will also guide you with other investment related decisions and health insurance related matters.
All and all invest safely, invest in the right kind of investments that will provide you returns and exempt you from taxes in the future.
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