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Home Loan Tax Benefit Deductions

For property purchase, Home Loan Tax benefits is the biggest motivator to avail home loan. In one of my previous post, i highlighted 5 Disadvantages of Home Loan. In this post, lets find out Home Loan Tax Benefits which can help you to take informed decision.

As we know that Home loan EMI is basically divided into 2 parts i.e. Principal Repayment & Interest Payment. Home Loan Tax benefits are linked to these 2 components with differential tax treatment.

Home Loan Principal Repayment

The deduction for principal repayment can be availed under Section 80C of Income Tax Act. The disadvantage is that this deduction is clubbed along with other components like contribution to EPF, Insurance Premium, School Fees, ELSS, NSC etc. The combined max limit under Section 80C is 1 Lac for financial year. In all probability, most of the Tax Payers exceed this limit. Another Home Loan Tax Benefit which is clubbed under section 80C is deduction for stamp duty and registration charges paid for the property. Deduction on stamp duty and registration charges can be availed only for the financial year during which the property is registered.

Word of caution: Deduction under section 80C is available only for purchase or construction of residential property. This deduction is only available for self occupied property not for let out property. All the deductions claimed under this section 80C for principal repayment are reversible, if the property is sold within 5 years from the financial year in which possession is taken or property is bought. Deductions claimed during 5 years will be treated as income for the financial year in which you sold the property and you need to pay tax on same.

Home Loan Interest Payment

Under section 24(b) of Income Tax Act, deduction is available for Interest component of Home Loan. Unlike principal repayment deduction u/s 80C, deduction on interest payment is available for purchase, construction, repair & reconstruction of both residential & commercial property.

Many home loan borrowers are not aware that even the Processing Fees paid at the time of availing Home Loan or any Prepayment fees (Penalty) to prepay or close the home loan can be clubbed under section 24(b) for deduction on Home Loan Interest Payment. This deduction is available for both self occupied and let out property.

Maximum deduction under section 24(b) for self occupied property is 1.5 Lac & for let out property there is no limit i.e. deduction is available on actuals during the financial year.

One of the most commonly asked question is whether Home loan tax benefits are available for under construction property. Answer is Home Loan Tax benefits start from the financial year in which construction is completed & buyer gets the possession of the property. Deduction on principal repayment is not available for under construction period even if you were paying FULL EMI during under construction period instead of Pre-EMI. The interest paid (Pre EMI or interest component in FULL EMI) during under construction period can be claimed in 5 equal installments from the financial year in which construction is completed or Buyer gets the possession of House.

Now million dollar question which many readers ask me that they have take Home Loan from their parents, relatives or friends, can they avail Home Loan Tax Benefits. Answer is

(a) “NO” for deduction under section 80C for Principal Repayment. For claiming principal repayment deduction under 80C, The Home Loan should be availed only from Govt regulated (RBI or NHB) Home Loan Lenders like Banks & HFC’s or any other Govt Institution.

(b) “YES” for deduction under section 24(b) for Home Loan Interest Payment. If you have taken loan from relative or friend than you can claim deduction for Interest payment u/s 24(b).

Home Loan Tax Benefit
Home Loan Tax Benefit

Interest Payment deduction under section 80EE

For the financial year 2013-14, an additional deduction of 1 Lac is available for Interest Payment provided following conditions are fulfilled by the borrower.

1. Loan amount should be less than or equal to 25 Lacs

 2. The property value should not exceed 40 lacs

3. Borrower should not own any other property

4. Loan should be availed, sanctioned & disbursed only during financial year 2013-14

5. Property should be self occupied

With so many stringent conditions, i am not sure if anyone availed Home Loan Tax Benefit under section 80EE.

If you have any query or question related to Home Loan Tax Benefit. Kindly post the same in following comments section

 Copyright © 2011-2013 Nitin Bhatia. All Rights Reserved.

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sahil
sahil
10 years ago

Thanks for sharing this info on Tax benefits

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  sahil

Thanks for liking the post :)

Umesh Haldankar
Umesh Haldankar
10 years ago
Reply to  Nitin Bhatia

Sir,

One of the employee in our organisation satisfy all conditions defined in sec 80ee. But the house is still under construction. Interest paid during FY 2013-14 is 1,78,000.00 can we allow deduction of Rs.1 lac under 80EE. sec 80EE doen’t specify it has to be self occupied or fully completed construction. Please advise.

Nitin Bhatia
Nitin Bhatia
10 years ago

Section 80EE clearly specify that property should be self occupied and it also mention that loan should be availed, sanctioned and disbursed only during FY 2013-14 to avail the
benefit. For under contruction property, the loan disbursement is based on CLP (Contruction Linked Plan) therefore if property possession is not scheduled for FY 2013-14 implies that complete loan disbursement is not done during FY 2013-14. In short loan is availed and sanctioned in FY 2013-14 but not disbursed fully in FY 2013-14.

Considering above 2 points reg self occupation & loan disbursement should be in FY 2013-14. In my opinion your employee is not eligible for deduction under sec 80EE for FY 2013-14.

Benny
Benny
10 years ago
Reply to  Nitin Bhatia

i have taken a loan in 2004-2005 and taken posession of the property in 2010-2011, the pre emi interest benefit i have claimed in 2010-11, 11-12 and loan foreclosed in 2012-13, i have not availbed the unclaimed/accured pre emi for the 2 years when the loan was closed. can I get the tax benefit of the balance unclaiemd pre-emi in this year.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Benny

You cannot claim past benefit i.e. for FY 2012-13 in current FY but you can claim 4th Installment i.e. 1/5th amount as Interest deduction this FY 2013-14. The last & 5th installment of 1/5th amount next FY i.e. FY 2014-15

Neeraj
Neeraj
10 years ago

Hello,

I’m planning to buy a Apartment, which is supposed to get the possession in March or April 2014.
Pls elaborate:
1) If i’m eligible for Tax exemption (My loan disbursement is expected in Jan / Feb 2014)
2) If I’m eligible for deduction of Principle
3) If I’m eligible for Interest paid
4) Ours is joint loan a/c. Can both of us avail the benefits, if so how much for each? (ex loan amount 50 lakhs)

Thanks!

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Neeraj

All the queries are linked to the fact when you will get possession. If it is March, 2014 than you can claim Home Loan Tax Benefits for FY 2013-14 but if it is April, 2014 than benefits can be claimed w.e.f FY 2014-15. I am assuming, you will get possession in April, 2014 i.e. FY 2014-15

1. You will be eligible for tax exemption from FY 2014-15. Loan disbursement has not role in this. It depends when you get possession.
2. Yes, for the principal paid during FY 2014-15
3. Yes, for the interest paid during FY 2014-15. Also complete interest component paid before FY 2014-15 (Pre EMI or interest paid before possession) can be claimed in 5 equal installments from FY 2014-15 till FY 2019-20
4. Yes, both of you can avail tax benefits subject to max limit prescribed under each section in the proportion of share in the house and the loan. Assuming its 50:50 in both property and loan. Principal paid is 3 Lacs and Interest paid is 5 lacs than you & your wife can claim 1 Lac each under section 80C for principal and 1.5 Lac each under section 24(b) for interest i.e. principal and interest will be divided into respective share subject to max limit under each section.

Chandravadan
Chandravadan
10 years ago

Hi,
I have taken home loan of EMI of 13000. In current FY, i have paid 50000 rs. as prepayment other than regular EMI. Are that 50000 rs. will come under 80C ?

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Chandravadan

Yes, you can claim deduction of 50000 Rs under section 80C towards principal repayment.

Chandravadan
Chandravadan
10 years ago
Reply to  Nitin Bhatia

Thanks Nitin…

RahulMir
RahulMir
10 years ago

Hello,
I have taken a loan of 4 lacs from my relatives and my asset cost is less than 40 Lacs. How can I claim the interest under section 80EE and What documents I need to submit for the claim?
Thanks & Regards
Rahul

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  RahulMir

Deduction under section 80EE is available only for loans availed from Banks, HFC’s or Govt Institutions. As your loan is from relative, you are not eligible for same. You may avail tax benefit under section 24(b) for interest payment.

Vikas Patil
Vikas Patil
10 years ago

Hi Nitin, Thanks for information
on availing tax benefit on home loan. I have following questions –

1) I took home loan in 2011 and
paid interest around Rs. 1 Lac. Then i got possession in 2013. Currently i am
paying EMI around 27K and interest part of EMI is 2+ Lac. I am claiming
interest in section 24. Please advise, how and when i can claim above mentioned
pre-possession interest (Rs. 1 Lac)

2) I have transferred my home
loan from one bank to other bank in May 2013. My EMI is ~27K. Also property
value is below 40 Lac. Home loan amount is 28 Lac. Can i claim tax benefit
under section 80EE?

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Vikas Patil

1. You have not mentioned in which month you received possession in 2013. If you received possession between Jan’13 to Mar’13 then you can claim Pre EMI interest of 1 lac in 5 equal installments of Rs 20k each from FY 2012-13 to FY 2017-18 i.e. 20k for every financial year.

If you received possession between Apr’13 to Dec’13 then you can claim tax benefit on Pre EMI interest of 1 lac in 5 equal installments of Rs 20k each from FY 2013-14 (Current Financial Year) to FY 2018-19 i.e. 20k for every financial year.

2. You cannot claim tax benefit under section 80EE because the loan should be availed, sanctioned and disbursed only during FY 2013-14 to avail the benefit. You availed loan in 2011 therefore not eligible for tax benefit under section 80EE.

Nitin Bhatia
Nitin Bhatia
10 years ago

Thanks a lot for sharing the details, I would like to add that while delivering this judgement, the Chennai income tax tribunal has considered high court judgement regarding clubbing of interest on loans taken for the land as an expense for the acquisition of the land therefore interest on loan is the cost of acquisition of the land.

Tribunal missed important point that in case of land, interest paid on loans taken for land is not allowed as deduction for computing taxable income therefore there is no double tax benefit / deduction. Whereas in Chennai tribunal case, applicant received double tax benefits for same component.

Moreover there is Supreme Court judgement that a double deduction cannot be presumed until and unless expressly provided for in the law. Citing this judgement the chennai tribunal judgement is not a law and if you club interest in the cost of acquisition then IT officer can still question the logic and you need to fight your case with IT department. The cost of litigation in income tax related cases is very high so just weigh the cost benefit analysis before claiming benefit citing Chennai tribunal case.

I will definitely write a detailed note on this topic.

Alok
Alok
10 years ago

Hi Nitin,

I booked one flat in 2010 and availed loan for the same in 2011. This flat is under construction. Now in addition I have purchased 2nd ready to move in flat in May-2013 which meets all conditions except first flat condition if we assume under construction flat as 1st flat. Is there any option to avail 80EE benefit for 2nd flat home loan.

Thanks.
Alok

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Alok

If you already own a property then you are not eligible for tax benefit under section 80EE. It doesn’t matter whether 1st property is under construction or ready to move in. In your case, you are not eligible for tax benefit under section 80EE.

Alok
Alok
10 years ago
Reply to  Nitin Bhatia

Thank you Nitin for timely help.

Rahul
Rahul
10 years ago

Hi Nitin,
I am very confused that can I claim my principal amount under 80C for that property which is under construction right now.Some sites are saying yes, you can claim but some are neglecting this.
Please help me to understand this clause.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Rahul

Hi,

You cannot claim deduction on Principal amount under section 80C for under construction property. You may claim deduction on Pre-EMI interest in 5 equal installments from the FY you will receive possession of house. Pls check my following post regarding the same.

https://www.nitinbhatia.in/home-loan/home-loan-tax-benefit-deductions/

Thanks

Amit
Amit
10 years ago

Hi Nitin,
I have taken home loan alongwith my wife (working) and my father(Retired), also my father earning details has not given for applying Home loan, as he is retired from job. Flat is registered in name of all three of us.
Can you please tell me whether me and my wife are eligible to claim 150,000 for interest paid each ? and 1 Lac for 80C each ? or is it based on share of ownership over the flat? Also EMI is paid from my account.
Please suggest me some solution as well if it is based on share.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Amit

All 3 can claim income tax benefits individually irrespective of share in property i.e. Under section 80C for principal repaid, all 3 together can claim upto 3 Lacs (Max 1 Lac each) and Under section 24(B) for interest payment, all 3 together can claim upto 4.5 Lacs (Max 1.5 Lac each). If total principal repaid is less than 3 lacs & interest payment is less than 4.5 Lacs then it should be in proportion of share in the property.

Amit
Amit
10 years ago
Reply to  Nitin Bhatia

Thanks for clarification on this, can you please tell me if Interest paid in any given year is less 4.5 Lac(let say 3 lac), then what is the way that at least two person can show 1.5Lac each and third person show zero?

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Amit

I am assuming all 3 are contributing equally to EMI even if amount is debited from your account. If you are paying entire EMI then your wife and father cannot claim Income Tax Benefits. Secondly if there are 3 owners and % share in property is not mentioned in the sale deed then it is assumed that all 3 have equal share in property. My Third assumption is that house is self occupied. Fourth assumption is all 3 are co-borrowers in Home Loan i.e. in same proportion as share in property.

With above assumptions, everything is divided based on % ownership in property. As i mentioned in my comment, if interest paid is less then 4.5 lac then it will be divided based on share in property. If it is 3 lacs then all 3 can claim 1 Lac each provided everyone is contributing to EMI equally.

Abhinav Singhvi
Abhinav Singhvi
10 years ago

Hi Nitin.

If I get possession of my flat in Feb, can I get text benefit on interest paid for whole year or I will get tax benefit on interest paid only for Feb and March, another related question can I get tax benefit and HRA both if I have given my house on rent and I am living in rented house?

Nitin Bhatia
Nitin Bhatia
10 years ago

The Pre-EMI interest i.e. interest before possession of house can be claimed in 5 equal installments from the FY you get the possession of house e.g. you receive possession on 1st Feb, 2014 then all the interest you paid till 1st Feb can be claimed in 5 equal installments starting current FY 2013-14.

For EMI paid for Feb’14 and Mar’14 i.e. after possession, you can claim regular Home Loan Tax Deductions.

Yes, you can claim both but tax treatment will be different. In this case you cannot claim any benefit on Principal repayment under section 80C and for interest component you can claim Loss/Income from House property under section 71B and Sec 24 of Income Tax Act

Bharat Kaushik
Bharat Kaushik
10 years ago

Hi Nitin,

I took my first Home Loan in April 2013 for Rs 22L for a property in delhi. I am staying with my parental house in delhi only.

Can i Claim defection U/S 24, 80EE and 80C or it is not applicable as i am claiming HRA too for my parental house by showing my mother as landlord.

One more question is that can 80EE claim separatally if U/S 24 B is not applicable in my case.

Thanks

Bharat

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Bharat Kaushik

As you are claiming HRA which implies your property is not self occupied therefore you cannot claim tax benefit under section 80C, Section 80EE & Section 24(B)

However under section 24, you may claim Loss from Let out property. It can be calculated as follows. Rent can be notional.

(Annual Rental Value of House property – Property Tax) – 30% of (Annual Rental Value-property tax)-Interest paid on Housing Loan

bharat kaushik
bharat kaushik
10 years ago
Reply to  Nitin Bhatia

Thanks a ton Nitin. I hope finance team my office agrees on claiming loss u/s 24.

Just one more clarification that is only on interest paid. 80C is not applicable in my case. Right.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  bharat kaushik

Yes, 80C is not applicable as property is not self occupied.

Shashwat pandey
Shashwat pandey
10 years ago
Reply to  Nitin Bhatia

but sir for 80EE no possetion is required to take benifit of intrest. so he can claim it.

kiran
kiran
10 years ago

I have a home loan availed during 2008 from a Housing Finance company and planning to avail a second loan on the same property from a PSB. If I am eligible for the home loan, do I get rebate for interest and principal so availed on the second loan under Sec.80C?
Kiran

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  kiran

You cannot get 2 Home Loans on same property.

Mohan Lal
Mohan Lal
10 years ago

R/Nitin g,
I have taken Home loan for Flat in Oct 2011 and paid Rs. 4,09,578/- as Pre-EMI till August 2013 (possession of Flat).
I paid Rs 1,22,265/- as interest from Sep 2013 to Feb 2014.
Can I claim rebate of interest on home loan as under
1. Rs. 122265/- for Fin year 2013-14.
2. Rs. 81,915/- as 1/5th of Pre-EMI interest in Fin yeas 2013-14
Total rebate for Fine year 2013-14 = Rs. 1,22,265/- after possession + Rs. 81915 (1/5th of Pre-EMI interest) = Total Rs. Rs. 2,04,181/-
please reply at the earliest.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Mohan Lal

Your calculations are perfect but tax benefit will depend whether property is self occupied or rented out. If the property is self occupied than you can claim max deduction of Rs 1.5 Lac on interest component i.e. Interest + Pre-EMI interest.

If the property is rented out than you can claim full amount i.e. Rs 2,04,181/- as a deduction for Home Loan Interest Payment.

Uma
Uma
10 years ago

Hello Nitin,

Recently I have got loan sanctioned from SBI for my property and EMI calculated will be 30K. Myself and my husband both are nominee for this property.

Now we both would like to avail tax benefits and hence we will paying EMI (50% each) from our respective salary account. But now am confused because in this case we need to maintain two accounts to make EMI go on time without any slip which will become over head at later point of time.

Hence am looking into feasibility of maintaining just one EMI account and from this only I want all the money to be deducted. This account can be either of mine or my husband. But am not sure in this case we both can avail the tax benefit or not.

Anyways I need your suggestion on same whether we should go with One account EMI deduction or with 2 accounts (respective salary accounts).

Many Thanks

Uma

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Uma

You open a joint savings account in your and your husband’s name. Pay EMI from this joint account. Both of you can claim tax benefit subject to max limit under each section.

Uma
Uma
10 years ago
Reply to  Nitin Bhatia

Hello Nitin,

Thanks for your suggestion.

But I assume bank always insist to enable ECS from a salary account where every moth salary gets credited. Myself and my husband salary account is different (both in Axis Bank itself). However we have joint account in couple of more banks and one of them is SBI which is obviously not salary account. I have not maintained a good transaction history with this SBI account but it is active since more than 4 years.

Now my doubt is that whether it is possible to enable ECS on this SBI bank account which is joint . We will make sure that there will be sufficient balance available always before EMI due date. Will bank accept ECS from this account. (While submitting documents I have provided my Axis bank statement not the SBI one)

Sorry for my ignorance but I have heard if we go with Split EMI (EMI from 2 sources) then we both can avail 1.5 Lac each tax rebate under section 24(b). I mean combine together we can avail 3 Lac tax rebate. However with single ECS , we will just get 1.5 Lac combine rebate with 75K each. Is this true!!!

Thanking you again for your great work and guiding people like us.

Best Regards
Uma

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Uma

Banks cannot force ECS only from salary account. You may select any account of your choice for ECS. Reason bank insist on ECS through Salary account is that chances of ECS default are less through Salary account as borrower maintain balance in salary account for ECS.

You can shift your ECS from Axis Bank to SBI by submitting fresh ECS mandate form with Axis Bank. Bank cannot refuse ECS from SBI.

As a thumb rule, if any payment is made from joint account it is assumed that both the parties are paying in equal proportion through joint savings account. It is not necessary that there should be 2 ECS to prove this.

Though it is not required still you both can deposit your respective contribution in SBI account for income tax purpose and can transfer your ECS mandate from Axis bank to SBI.

Raman Awasthi
Raman Awasthi
10 years ago

Sir, I took loan of Rs.20 Lacs for a flat costing nearly 34 lacs in June 2013. Paid around 2 lacs stamp fee and 6000 processing fee. I will get possession after two years. It’s construction linked loan scheme. Can I get tax rebate on Interest being paid by me. Since Aug 2013.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Raman Awasthi

Pre-EMI interest can only be claimed from year you will receive possession of house. You can claim dedcution on Pre-EMI interest in 5 equal installments starting from FY, you will receive possession.

You can claim deduction on stamp duty paid under section 80C and Processing fees under section 24(B) for this FY.

Muchkund Joshi
Muchkund Joshi
10 years ago
Reply to  Nitin Bhatia

Hi Nitin
Can pre-emi interest (1/5th) amount be claimed additionally to the interest amount of Rs.1.50 lacs (max)?

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Muchkund Joshi

It seems property is self occupied. Maximum limit of 1.5 lac include Pre-EMI interest. In other words, Pre-EMI interest cannot be claimed additionally over and above max limit of 1.5 Lac.

For let out property there is no limit.

mahesh
mahesh
10 years ago

Sir, I have sold my flat on sept 2012 and booked under construction flat on Jan 2014 for 22 Lacs.
I will get position of the flat on Oct 2014. Will i be eligible for benefit under 80CC

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  mahesh

No, you will not get benefit under Sec 80C for FY 2013-14. You may claim benefit from FY in which you will get the possession of flat.

Domadia Jasmine
Domadia Jasmine
10 years ago

Dear Mr.Nitin,I am an NRI & I dont have any I.T relate filed open, I completed my 10 years of Home loan of ready possession in India, Mumbai, I am coming to mumbai end of this month to collect my documents from bank in personnel as you suggest in one of your column, for me to open a I.T return files is there any way benefits me?Thanks

Nitin Bhatia
Nitin Bhatia
10 years ago

No, it is not required if you don’t have any source of income in India.

Kuku
Kuku
10 years ago

Hello Nitin,
I took possesion of my home in Oct 2012.
Interest paid before possession (till 31st Mar 2012) was 350000/-.
So, I got 1/5 part (75000/-) tax benefit in FY 2012-13 and next 1/5 in this FY2013-14.
In Sep 2013, I repayed all loan amount and closed the loan account. Am I eligible to take tax benefit on remain 3/5 amount of interest paid before possession.
Thanks
Kuku

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Kuku

Yes, you can claim the tax benefit for pre-EMI interest this FY even though you closed the loan account.

Kuku
Kuku
10 years ago
Reply to  Nitin Bhatia

Thanks Nitin.

And I should be able to claim for next 3 FYs as well for remaining 3/5 amount of interest paid before possession. Right?

Thanks Kuku

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Kuku

Yes, you can claim 1/5th Pre-EMI Interest for 3 more FY’s.

Anju
Anju
10 years ago

Hello,

I have a home loan of 615000 from SBI. As per the bank, the emi amount repayable in 2013-14 is 84000 (52200 Interest and 31800 Pricipal) ie, Monthly 7000. But I every month I was paying more than my EMI (eg: 10 000 / month) So I paid 120000 in this FY. Will I get tax benefit for all these amount or I can avail tax benefit for only 84000 ?

Thanks
Anju

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Anju

You will get benefit on 120000 under respective sections of IT Act.

Anil agiwal
Anil agiwal
10 years ago

Hi Nitin.

I have one query regarding capital gain calculation when property is sold.
Should the interest paid to bank for property purchased using loan be considered in cost of acquisition. None of capital gain calculation on web consider this. There was case disposed in chennai income tax tribunal stating that interest paid should be included in cost of acquisition even if interest benefit is claimed under sec 24. http://articles.economictimes.indiatimes.com/2012-11-22/news/35300677_1_house-property-capital-gains-income-tax-department

Could you please check this and write a article to benefit all the home loan borrowers.

Anil Agiwal.

Saranya
Saranya
10 years ago

Hello Mr. Nitin,

Is it possible for me to take tax benefit on equitable mortgage deed paid to CERSAI and mandatory property insurance paid for at the time of availing home loan under Section 80C?

Thanks for your help.

Saranya S

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Saranya

No, You cannot claim tax benefit under section 80C. Technically the stamp duty for equitable mortgage deed paid to CERSAI is paid by bank / HFC and they recover the same from borrowers.

Also to clarify, Property insurance is not mandatory and there is no tax benefit available for same.

Saranya
Saranya
10 years ago
Reply to  Nitin Bhatia

Thank you.

Nitin Bhatia
Nitin Bhatia
10 years ago

In this case, the individual is claiming HRA from employer therefore technically property is not self occupied but let out. He can claim tax benefit on interest component under section 24 as a Loss from let out property.

As i mentioned in my post that one of the 5 key clauses for availing tax benefit under section 80EE is that property should be self occupied residential unit. In this case as property is let out not self occupied therefore tax benefit of 80EE is not applicable.

According to tax laws the definition of Self Occupied Property is that property which is used by individual for his own residential purpose thus possession is required.

Lochan
Lochan
10 years ago

Hello Mr. Nitin,,

I have a general query. My Query is that can the Pre construction Interest be claimed as deduction if the house property is sold after 2 year of completion?

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Lochan

Yes, you can claim income tax benefit on Pre EMI interest in 5 equal installments for 5 Financial Years including the FY in which your received Possession even though you sold the property after 2 years of completion.

Amit
Amit
10 years ago

I have booked a flat in sep-2009 by paying 1.5 Lakh and then i paid another 1.5L in Aug2010.
This is construction linked payment plan.
I took the Home Loan of 20Lakh in March 2011.
But i am yet to get the possesion of the same and possesion is expected in dec 2014.
Will i be eligible for the Tax exemption on interest paid before the posession ?
Can i take one more loan from my relative for this flat and claim the tax exemption for the both the loans?

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Amit

Yes, you can avail Tax benefit on interest paid before possession but only with effect from Financial Year in which you will receive the Possession. You can avail 2nd Home Loan but tax benefit will depend on residential status. If you are staying and buying both flat in same city than one of the flat will be considered as Self Occupied and 2nd will be considered as Rent out therefore tax treatment of each flat will be different.

Ram
Ram
10 years ago

My loan was sanctioned in the month of Feb 2013 and first check was disbursed in May 2014. Will I be able to claim deduction under section 80EE? Note: I meet all the other criteria for claiming 80EE.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Ram

You are not eligible for Tax benefit under section 80EE as your loan is sanctioned before 1st April, 2013 i.e. it is not sanctioned in FY 2013-14.

Prakash Joshi
Prakash Joshi
10 years ago

I am presently in service of Indian army. I own one houses, on which i had taken a joint loan with my wife in the year 2010. The interest component on loan work out to be Rs. 177000 ( 37000 pre construction interest) for the F.Y 2013-2014.The house has been given on rent, and the rental income is received in the bank account of my wife. Now since i m in service and have a taxable income, can the interest paid on loan can be claimed as deduction u/s 24(b) in my computation of income along with the rental income? Further what is the maximum amount of deduction on account of interest that can be claimed in the return?

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Prakash Joshi

As the property is not self occupied, you can claim LOSS FROM LET OUT PROPERTY u/s 24(b). It can be calculated as follows. Rent can be Fair Market Rental income.

(Annual Rental Value of House property – Property Tax Paid) – 30% of (Annual Rental Value-property tax Paid)-Actual Interest paid on Housing Loan

The max deduction for interest is 1.5 lac in case of self occupied property and for let out property there is no limit as calculated above.

prakash joshi
prakash joshi
10 years ago
Reply to  Nitin Bhatia

Thanks Nitin.
Will it matter that the rental income is received in the bank account of my wife and not mine for claiming loss from the property in mine computation.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  prakash joshi

Yes it matter as it will considered as your wife’s income. You have not mentioned whether property is jointly owned by you and your wife or it is only in your name. If property is in your name only & wife is receiving rent than rental income will be considered as income for your wife as income from other sources and she need to pay taxes on same. In this case, you can claim tax deduction by declaring fair market rental value. Best option in this case is that you receive rent & gift the rent to your wife which is non-taxable. You can account rent received to calculate Loss from let out property.

If property is jointly owned than you both can claim tax deduction in proportion of property ownership provided both have contributed financially in proportion of ownership. Your wife can transfer rent in same proportion to you. Both of you can claim loss from let out property.

The entire tax treatment depend on property ownership i.e. joint or single

Ajay
Ajay
10 years ago

I sold my ancestor residential house for Rs. 35L in Jan 2014, which was inherited by me from my grandfather. The Value of the house on 1.4.1981 was 85000, giving rise to Capital Gain of Approx 27 L. A new house of value Rs. 29 L was purchased on March 2014 , by paying Rs. 20 L from the sale proceeds and balance Rs. 9 L by house loan of 15 years tenure. The balance sale proceeds of Rs. 15 L had been converted into a fixed deposit and the monthly interest proceeds are used to pay off the EMI of Loan. Now my query is whether utilization of sale proceeds to pay the EMI of Housing loan will qualify to claim deduction u/s 54 of the capital gain so raised? If no what should have been the right course of action?

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Ajay

If Sale Proceed is utilized to pay EMI of Housing Loan, it does not qualify for deduction u/s 54 EC Capital Gains Tax. Only option is to Invest in tax saving bonds. These bonds are issued by National highways Authority of India and Rural Electrification Corporation. There is a lock-in period of three years and max Rs 50 lakh can be invested. If the entire gain is invested, it is fully exempted from tax. If Investment is of a lesser amount than proportional deduction can be claimed. Please check following link for REC bonds. These bonds are issued by some banks also.
http://www.recindia.nic.in/54ec.html

Sonu
Sonu
10 years ago

Hi Nitin,

I bought a property which is in the joint name of me and my wife.
EMI of rs 64000/- is paid by me alone and gets deducted from my salary account..
My income is taxable but my wife’s income is not under taxable bracket.
I have let out my property and staying in rented house.

My query is:
1. I want to know if I will get the complete tax benefit of interest component of emi or will it be shared and hence i would get half?
So, for eg. The interest component is approx 54,000/- and hence 54,000*12=6,48,000
Will i get tax exemption of Rs. 6,48,000/- or 3,24,000/- ?

2. Also, while renting out the property, is is mandatory that both my and my wife’s name appear in the rental agreement or either one person’s name is enough?

3. When i am taking a house on rent, do i need to show that both the joint owners(me and my wife) are staying on rent or it sufficient to put any one’s name?

Please help with clarification.

Regards

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Sonu

1. As you are paying 100% EMI therefore you can claim complete tax benefits. You can claim loss from let out property and can claim entire interest component of 6.48 lacs for calculation
2. As property is jointly owned therefore it is advisable to mention both names in rental agreement.
3. In this case your name is sufficient.

nidhi
nidhi
10 years ago

Hi Nitin,

I have applied for joint-loan with my husband last month, to purchase 2 neighboring under-construction flats from same builder which are under-construction. We have paid 10% in Dec 2013 and we’ll be paying another 10% in 10 days. For the remaining 80% amount – 44 Lakh, we are taking a joint loan. We will receive the possession in 3-5 years.

Can you please confirm::

1. When will we be able to take rebate for principal under section 80 C ?
(I assume after construction is complete and only it is self-occupied property and we will not be able to take HRA then)

2. What amount can be taken as rebate by both of us for both the properties ?
(I assume incase of self-occupied property, both of us can claim 1 lakh each for both properties, meaning 2 lakh each for each financial year.)

3. When will we be able to take rebate for interest under section 26 ?
(I assume after construction is complete we can get rebate for that year as well as for the years when the property was under construction.)

4. What amount can be taken as rebate by both of us for both the properties ?
(I assume ::
a) 1.5 Lakh rebate each for each financial year if is self-occupied property or total interest paid for that financial year rebate each if it is rented property,
b) Also for the years when the property was under construction, the interest paid divided by 5 in 5 financial year over and above that years rebate for both of us)

5. We have applied loan from both our salary accounts, then will the emi be deducted from both our accounts or from only one and how will this affect our rebate calculation later when the construction is completed?

6. We have paid 10% and will be paying another 10%, after that the 80% amount will be loan from the bank, will it be beneficial to take 20 years loan or 15?
(I assume 20 years is better. As I can pay more amount that my monthly EMI and without any extra cost, this will reduce my principal and thus my interest as well. So even if I take 20 Years loan and pay back in 15 years, the interest that I have to pay will be same as that I would have paid, if I would have opted for 15 years loan)

Thanks a lot!!!

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  nidhi

I am assuming that both properties are joint and for both properties there are separate joint Home Loans. In case of 2 properties, 1st property is considered as Self occupied and second property is always considered Let-out. It is upto you to decide which one you will declare self occupied and another as Let-out. For max tax benefit, you should declare property is less Home Loan as Self occupied and other as Let-out.

1. You are right. You can claim deduction on 80C from the date of possession only for self occupied property and you cannot claim HRA for self-occupied property.

2. For self-occupied property both of you can claim separately 1 Lac under 80C for principal and 1.5 Lac for interest component therefore total 2 Lac for principal and 3 Lac for Interest subject to actual principal repayment of 2 Lac and Interest Payment of 3 Lac during FY.

For let-out property you cannot claim any deduction on principal but on interest component, you can claim deduction without any limits i.e. on actuals.

3. Pre-EMI interest can be claimed in 5 equal installments starting from FY in which you will receive possession.

4. For self-occupied property, the Pre-EMI interest is part of total interest limit of 1.5 Lac each. For let-out property, it is on actuals i.e. total interest paid + total Pre-EMI interest.

5. You need to check with bank. Its better to open 1 joint account and contribute equally to both Home Loans from your respective salary accounts. In Income tax, it is critical to show flow of funds for claiming deductions i.e. “who is paying” to avoid any tax dispute.

6. I beg to disagree. I will suggest 15 years Home Loan. The interest component is high during initial years. 20 year Home Loan closed in 15 Year will have high interest component compared to 15 Year Home Loan closed in 15 years.

Shadab
Shadab
10 years ago

Hi Nitin,

I am going to purchase an under construction flat, possession will be in next year end, can I get tax benefit in this FY for Stamp Duty, Registration? I will undergo registration in this month.
if Yes, in which section I should declare?

Please let me know what all other charges can be considered, I have also paid vat & service tax to builder.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Shadab

You can claim Tax benefit u/s 80C for Stamp Duty and Registration Charges. Processing fees paid for availing Home Loan can be claimed u/s 24(b) for deduction on Home Loan Interest Payment.

Shadab
Shadab
10 years ago
Reply to  Nitin Bhatia

As I understand I can declare below in this FY before possession:
80C: (field mentioned as “Inv. In Infrastructure Comp” in our payroll site) = Total of stamp duty+Reg
24(b): loan processing fee+administrative charges+MODT+service charges etc excluding CERSAI charge.

and in next year after possession I should declare 1/5 of interest & principal paid before possession along with EMI paid after possession every year.

please correct me if I am wrong

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Shadab

The property is registered once it is completed & ready for possession..I am not sure how come under construction property is getting registered..I hope you have informed the bank that you are going for Property Registration very soon. Please clarify with bank whether after registration your FULL EMI will start or you will be paying Pre-EMI till possession.

Legally after registration, property is considered as ready for occupation.

I will suggest on Tax treatment only after getting inputs on above mentioned points..Also pls let me know whether property will be self-occupied or let out.

Shadab
Shadab
10 years ago
Reply to  Nitin Bhatia

As per Sales Manager of Builder, I will get possession by next Diwali.

The draft that I have shared with you on email is the only document we are going to register at registrar office next week, it is mentioned in that the construction is in progress. I think it is consolidated form of all agreements that Bank will require. Builder has already taken Stamp Duty & registration cost + 20% contribution from the total agreement value+ Service Tax + Vat from me, They also told me that they will issue Sale deed at the time of possession that will be internal.

DSA of ICICI sent me below checklist for disbursement:

1.sale agreement
2.construction agreement(if it is there)
3.noc
4.demand note
5.cost break up
6.OCR receipt

DSA told me that I will have both option to choose from, Full EMI or Pre EMI.

I think opting out full EMI will be better option because I have observed that Banks disburse 90% of the loan amount till the structure is ready which will take only 6 to 8 months & remaining part (flooring 5%+ at possession 5%) will take about a year hence if I opt for Pre EMI, I will get benefit till 6 to 8 months and Later I would end up paying Pre EMI which will be close to Full EMI for a year which will only be interest part and no amount will go towards principle.
If I opt for full EMI, I will pay more towards principle till full disbursement.

Please note that Property is at Pune and I am availing loan from ICICI bank in Bangalore. Once registration is done at Pune, I will bring required documents and give it to ICICI DSA at Bangalore then Bank will disburse amount as per construction stages.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Shadab

I could not understand the logic behind registration of under-construction property around One & a half year before possession. You may clarify the same from builder

I will suggest Pre-EMI till possession. Reason being if you start Full EMI today than you will be paying interest on Total Loan Amount. Assuming your Home Loan is of 50 Lacs and disbursement till date is 25 Lacs…In FULL EMI though you have taken only 25 lacs from bank till date but you will be paying interest on full amount i.e. 50 Lacs whereas in Pre EMI you will be paying simple interest on disbursed amount i.e. 25 lacs.

Shadab
Shadab
10 years ago
Reply to  Nitin Bhatia

Thanks Nitin for correcting me on EMI type, I will check with DSA on this.
For registration I will check with Builder again.

Shadab
Shadab
10 years ago
Reply to  Nitin Bhatia

Confirmed with few of my acquaintances & builder’s representatives that builders register under construction flats in Pune & Mumbai, logic could be it gives security & beneficial to buyer & bank both:

For Buyer:
1. Buyer will have a solid proof that he has invested huge amount in said property with builder (20%contribution+Service tax+vat+stamp duty+reg+other charges), more than 30% of the total cost of the property at purchase + EMI till possession.
2. Buyer will start getting tax benefit before possession.

a. What will be security to buyer if property is not registered?
b. What if builder increases property price while registration at the time of possession(2 to 3 years after booking)?

For Bank:
1. Bank will have required documents such as index2 to mortgage said property if buyer goes default in future.

a. On what documents Bank will disburse loan if property is not registered?
———————————————————————-

Tax treatment:

Confirmed with DSA, I can opt for Pre EMI.

Can I make declaration as below this FY?

1)Stamp Duty + Registration
Charges. => 80 C
2)Processing fees/administrative charges + Pre EMI (because its all interest) => 24(b)
3)Service tax+VAT => Dont know which section it will fall into.
4)MODT+ Franking charges+other Bank charges if any =?

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Shadab

1. Correct. You can claim tax deduction on Stamp Duty and Registration charges u/s 80C.
2. Total Pre-EMI interest paid can be claimed in 5 equal installments starting only from the FY in which you will get the possession. As you will get possession next year in Nov’15 therefore you cannot claim Tax deduction on Pre-EMI interest during this FY. Processing fees can be claimed along with Pre-EMI interest for under-construction property i.e. add Processing fees in Pre-EMI Interest and claim in 5 equal installments
3. No Tax deduction available on Service Tax and VAT
4. Not eligible for Tax dedcution

Shadab
Shadab
10 years ago
Reply to  Nitin Bhatia

Thanks Nitin for clarifying on tax treatment, awaiting your opinion on registration part as mentioned above.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Shadab

I have shared my inputs

Krishna Kishore
Krishna Kishore
10 years ago

Hi nitin,
I recently purchased a ready built flat in secbad. And I m a defence employee. For defence employees property tax is exempted upto the extent of one house. So please advice me the entire procedure and reqd doc to avail this benifit. If possible pl give an article on property tax in your blog.
I will be awaiting for ur reply.

Nitin Bhatia
Nitin Bhatia
10 years ago

You can obtain and fill respective form (Application for Property Tax Exemption) and submit to it to the local municipal office.

ravikumar
ravikumar
10 years ago

Hi Nitin, i am looking for a house of 33L under pre approved venture from axis bank. I am first time taking a home loan. could you pls guide me hoe to proceed and what are the tax benefits i can avail as i am first timer for a home loan. The property is approved by Axis bank, what are the best policies thid bsnk hsd? What type of loan should i go for, fixed or floating. Pls. guide me.

Thank you.
Ravikumar

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  ravikumar

You may check my posts on Home Loan through following link. I have answered all these queries in detail through Home Loan posts

https://www.nitinbhatia.in/category/home-loan/

hunny Singh
hunny Singh
10 years ago

Hi Nitin,
I have a query that I booked a flat on Aug 2008 and took loan of Rs 24 Lakhs. I have made payments for the Flat in the below manner:
Aug 2008 4 Lakhs
Jun 2009 5 Lakhs
Sept 2009 6 Lakhs
June 2010 5 Lakhs
(All payments through approved Loan)
Rest at the time of possession which is expected in Feb 2014. How can I claim benefit of Interest on loan as it takes more than 3 years to get construction completed.
Please reply.
Regards,
Sarvjit

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  hunny Singh

You mentioned possession is expected in Feb’14, just to check you received possession in Feb’14 or its typo error i.e. possession is expected in Feb’15.

If possession is received than whether property is self occupied or let out.

Please share these details as Tax treatment depends on above 2 factors.

Mohan
Mohan
10 years ago

Hi Nitin,

I father owns a house and live in that house paying 20,000 as monthly rent and use that for HRA.
Since my father is a retired, I along with him took a home extension loan for 28L and starting build a house in the first floor from April and will be ready by September. So can I claim both the HRA and interest paid for the first 6 months?

Thanks
Mohan

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Mohan

Being a co-borrower you cannot claim income tax deduction for home extension loan as you are not the co-owner of the house.

Amit Gaur
Amit Gaur
10 years ago

Hi Nitin
I have bought a property in Gurgaon and I do not plan to stay there for a year. I am currently staying at Gurgaon in a rented apartment. How much interest rebate will I get – 1.5 lacs or unlimited ?

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Amit Gaur

You can claim Interest deduction @ actuals. You have to show this property as Let Out and can claim loss from let out property using following formula

= (Annual Rental Value of House property – Property Tax) – 30% of (Annual Rental Value-property tax)-Interest paid on Housing Loan

priyanka kothari
priyanka kothari
10 years ago

Hello Nitin
I have a property which I took 2 years back and have sold in the month of march, also I have taken a housing loan on the same property. So I want to know whether will this property be charged under income from house property ie under deemed to let out as already I have one self occupied property and will I get the benefit of Sec 24b and am I suppose to reverse the deduction taken last year under S-80 C of principal repayment

Nitin Bhatia
Nitin Bhatia
10 years ago

You are right, as per income tax act 2nd property is considered as let out property. As i mentioned in my post that all the deductions under 80C are reversible if the property is sold within 5 years. All deductions claimed during last 5 years will be treated as income in the FY in which property is sold. This amount will be treated as income and you need to pay income tax as per your tax slab.

You can claim loss from let out property under sec 24(b) using following formula
= (Annual Rental Value of House property – Property Tax) – 30% of (Annual Rental Value-property tax)-Interest paid on Housing Loan

priyanka kothari
priyanka kothari
10 years ago
Reply to  Nitin Bhatia

But I want to know, whether will my property which I have sold in the month of march 2014 will be charged to income from house property for P.Y. 2013-14, and also can husband and wife show different house property as self occupied property

Nitin Bhatia
Nitin Bhatia
10 years ago

For FY 2013-14 you can claim loss from let out property if it was not self occupied. Husband and wife can show different property as self occupied provided both are staying in different cities or within same city due to legal marital dispute which is under litigation.

priyanka kothari
priyanka kothari
10 years ago

Hello Nitin
I have a property which I took 2 years back and have sold in the month of march, also I have taken a housing loan on the same property. So I want to know whether will this property be charged under income from house property for the current year and also will I get the benefit of Sec 24b and am I suppose to reverse the deduction taken last year under S-80 C of principal repayment
see more

rajeev
rajeev
10 years ago

Hello Nitin,
I have purchased a property in joint name with my wife who is co-borrower also. The EMIs are being deducted from my salary account.
Now my wife who is also working , already has a property solely in her name and she claims tax deductions under section 80 C and 24 (b) against that loan.
Both the houses are vacant owing to our job compulsions.
My question is how much tax exemption can we now claim on this second loan? Can we both claim deductions under section 24(b) and 80 C , if yes then how much ?
Regards
Rajeev

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  rajeev

I am assuming you are currently staying on rent but you have not mentioned where is your joint property and your wife’s property i.e. in same city or in some other city. The income tax benefits will depend on your city of residence and location of other 2 properties.

rajeev
rajeev
10 years ago
Reply to  Nitin Bhatia

I am currently staying in a govt.provided accommodation at a remote location. Both the flats are located in the same city , in NCR.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  rajeev

Your Wife’s Property: Assuming your wife is staying with you. She cannot claim tax deduction under section 80C. The property will be deemed to be let out property and she can claim loss from let out property

Joint Property: As you paying the EMI therefore you can claim loss from let out property. Since your wife is not contributing towards EMI therefore she cannot claim any income tax benefit from Home Loan on joint property.

Venkateswara Rao
Venkateswara Rao
10 years ago

Hi,
In Home Loan if we do part pre payment of principal outstanding in addition to the regular EMI, can we get tax deduction under section 80c on this part prepayment.

Nitin Bhatia
Nitin Bhatia
10 years ago

You can claim deduction on prepayment of principal outstanding during FY subject to max limit of 1.5 Lac under section 80C (As increased in recent budget from 1 Lac to 1.5 Lac for FY 2014-15)

Marsec
Marsec
10 years ago

Hi Nitin,
I have a home loan taken in 2004 for 15 year tenor, with emi of Rs 7500/ only at a fixed Rate of Int 8.75%. My sister is residing in this house without rentals. I am planning to avail another Home loan for 25 Lacs in different city since I am not fully utilising the Sec 24 b. I would be letting out the house I would be buying in a month”s time.
I would like to know about the following :
(a) Should I have to pre close my existing home loan before going in for another loan with a different bank?
(b) How would my tax exemption on interest payment considered ? If it is on” Loss of letting out property ” basis, I can probably afford having higher emi and lower tenor.
Pl. advice
Marsec

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Marsec

(a) No, you need not to close 1st Home Loan. You can avail it as 2nd Home Loan provided your EMI outflow of both Home Loan does not exceed 50%-60% of your net take home income and all other Home Loan eligibility criterion are met.
(b) 2nd property is always deemed as let out property therefore you can claim loss from let out property. High EMI and Low tenure is a good idea to claim max tax benefit.

Marsec
Marsec
9 years ago
Reply to  Nitin Bhatia

Hi Nitin,
Thanks for your advice. Could you please explain with example the equation for claiming loss from let out property.
Secondly, Can I still claim the exemption on interest paid for my first loan.
Is it advisable to have the loan covered under Insurance which claims that waiver of loan amount even if I get disability during the tenure of loan

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Marsec

You can claim loss from let out property under sec 24(b) using following formula
= (Annual Rental Value of House property – Property Tax) – 30% of (Annual Rental Value-property tax)-Interest paid on Housing Loan

I will not suggest you to go ahead with Home Loan Protection Plan i.e. Home Loan Insurance.

I am assuming both properties are in same city. You can declare one house as self occupied and second one as let out property. You can claim Income tax deduction on both the Home Loans for two different properties under this arrangement. Also, i would like to add that you need to pay wealth tax for 2nd house as per income tax act. Only 1st property is exempted from wealth tax.

Marsec
Marsec
9 years ago
Reply to  Nitin Bhatia

Hi Nitin,
Both the properties are in different cities and I live in the third city.My first property is occupied by my widowed sister. The second one is under construction which I will take possession in Aug 2014.I would be letting it out.
when would I be required to pay the property tax during this FY and How do I calculate the wealth tax?.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Marsec

Both properties can be declared as Let out as you live in 3rd city therefore you can also claim HRA exemption along with loss from let out property from both the properties.

For wealth tax, you need to compute market value of your assets (to be chargeable under wealth tax) and minus any debts against these assets. You need to pay 1% wealth tax on the amount in excess of 30 lakhs e.g. if net asset value is 50 lakhs then you need to pay 1% wealth tax on 20 Lakh.

Dhananjay
Dhananjay
10 years ago

Hi Nitin,

I have gone through few of your blogs. I have a question. I am staying in my own house. I have now bought flat from reputed builder in bangalore as investment. I have approached SBI, which is almost about to approve the loan. Possession of flat is in 2017 April. In this case, should I go for pre-emi of Full EMI. I don’t have cash flow problem. However I am not sure, if i will keep that house even after Possession or will sell it just before registraion. I have been looking through the net, but didn’t get a proper answer. Hence trying to get in touch with you.

Nitin Bhatia
Nitin Bhatia
10 years ago
Reply to  Dhananjay

As you have bought a house for investment purpose therefore to keep cost of acquisition low and maximize returns, i would suggest you to opt for FULL EMI. Only word of caution, just ensure that in FULL EMI option interest is being charged on only amount disbursed till date instead of Full Home Loan amount. Reason being for under construction property, some lenders charge interest on Full Home Loan amount in Full EMI option rather they should charge interest only on disbursed amount.

Ankish Chaudhari
Ankish Chaudhari
10 years ago

Hello Nitin, As per my understanding, I am a fit case to avail section 80EE. My Loan Sectioned amount is Rs. 25 Lacs. Property value is 39 Lacs. Loan was sectioned in FY 2013-14. Now, I have following two questions:

1. Property is still under construction. Will it stop me availing 80EE benefit. The entire EMI is PRE EMI interest of Rs. 33,000.
2. If I am eligible for section 80EE, do I need to submit any document to IT Dept or just mention the deduction amount of PREEMI i.e., Rs. 33000.
Thanks in Advance.
Ankish

Nitin Bhatia
Nitin Bhatia
9 years ago

You are not eligible for this deduction as the property is under construction. The home loan should have been disbursed during FY 2013-14.

Ankish Chaudhari
Ankish Chaudhari
9 years ago
Reply to  Nitin Bhatia

Thanks Nitin for your quick response. Home loan have been disbursed in FY 2013-14. For the property under construction, I was reading the following where I do not see any condition restricting the property under construction. Please clarify:

’80EE. (1)
In computing the total income of an assessee, being an individual, there shall
be deducted, in accordance with and subject to the provisions of this section,
interest payable on loan taken by him from any financial institution for the
purpose of acquisition of a residential house property.

(2) The deduction under sub-section (1) shall not exceed one lakh rupees and
shall be allowed in computing the total income of the individual for the
assessment year beginning on the 1st day of April, 2014 and in a case where the
interest payable for the previous year relevant to the said assessment year is
less than one lakh rupees, the balance amount shall be allowed in the
assessment year beginning on the 1st day of April, 2015.

(3) The deduction under sub-section (1) shall be subject to the following
conditions, namely:—

(i) the loan has been sanctioned by the financial institution
during the period beginning on the 1st day of April, 2013 and ending on the
31st day of March, 2014;
(ii) the amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees;
(iii) the value of the residential house property does not exceed forty
lakh rupees;
(iv) the assessee does not own any residential house property on the date
of sanction of the loan.

(4) Where a deduction under this section is allowed for any interest referred
to in sub-section (1), deduction shall not be allowed in respect of such
interest under any other provisions of the Act for the same or any other
assessment year.

(5) For the purposes of this section,—

(a) “financial institution” means a banking company to which
the Banking Regulation Act, 1949 applies including any bank or banking
institution referred to in section 51 of that Act or a housing finance company;

(b) “housing finance company” means a public company formed or
registered in India with the main object of carrying on the business of
providing long-term finance for construction or purchase of houses in India for
residential purposes.

Nitin Bhatia
Nitin Bhatia
9 years ago

The deduction under section 80EE is only available for FY 2013-14. Section 80EE clearly specify that property should be self occupied and under construction property cannot be deemed as self occupied.

it also mention that loan should be availed, sanctioned and disbursed only during FY 2013-14 to avail the benefit. For under construction property, the loan disbursement is based on CLP (Construction Linked Plan) therefore if property possession is not scheduled for FY 2013-14 implies that complete loan disbursement is not done during FY 2013-14. In short loan is availed and sanctioned in FY 2013-14 but not disbursed fully in FY 2013-14.

Considering above 2 points reg self occupation & loan disbursement should be in FY 2013-14. In my opinion you are not eligible for deduction under sec 80EE for FY 2013-14.

Ankish Chaudhari
Ankish Chaudhari
9 years ago
Reply to  Nitin Bhatia

Thanks Nitin, still I am feeling I am eligible. I explored more and found following two articles mentioning that it is available even for under construction property.

I need to file my return and it is pending only for this issue. Do you still feel that I am not eligible for section 80EE even if I am satisfying all the conditions of 80EE but the the house is under construction.

Thanks..

Jitendra TYAGI
Jitendra TYAGI
9 years ago

Hello sir, 

I have purchased one two bhk flat at Noida in June 2009, still possession is awaited, 

Total value at the time of purchase 23 Lacs. 

Today resale value 32 lac. 
Capital gain 9 lac.

Interest paid to bank in past five years 7.5 lac. 

Do I need to Pay capital gain tax if I do not reinvest in new property.
Our I can deduct the interest paid during the time from total long term capital gain.

Thanks in advance.

Regards 
Jitendra 

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Jitendra TYAGI

Indexed cost of your property in current FY is 37.30 Lacs. If re-sale price is 33 Lacs then you are incurring a Long Term Capital Loss of 4.3 Lacs. There is no capital gain tax in your case therefore there is NO LTCG TAX liability, infact you can offset any other Long Term Capital Gain from shares or mutual funds against this Long Term Capital Loss of 4.3 Lacs.

Regarding inclusion of Home Loan interest in cost of acquisition of property. There is confusion on same. As per recent ruling of chennai tribunal, a tax payer can include Home Loan interest in cost of property but as per IT department double deduction is not allowed. You may check following article.
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Lists/Expired/india-dec14-2012no3.pdf

Jitendra TYAGI
Jitendra TYAGI
9 years ago
Reply to  Nitin Bhatia

Thanks Sir for your quick help, this has clarified my doubts,
Regarding claiming interest paid in past five years, I have not claimed anything in past years as property is still under construction. So no worries,
But can i only offset long term capital gain shares or mutual funds or I can also deduct this long term capital gain from my current taxable income.

Regards
Jitendra

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Jitendra TYAGI

Long Term Capital Loss can only be offset against Long Term Capital Gain. You cannot offset it against your taxable income.

Jitendra TYAGI
Jitendra TYAGI
9 years ago
Reply to  Nitin Bhatia

Thanks a lot sir,
Do I need to show this sale of the property and no capital gain in ITSM7, even there is a loss of capital gain,

Regards
Jitendra

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Jitendra TYAGI

Mention it in “Losses of current year to be carried forward”

Santosh
Santosh
9 years ago

Dear Mr. Nitin, at the outset thank you very much for posting so much good to know info on a variety of home loan aspects. Deep respect.

I am a fellow home loan borrower as well with a couple of questions.

(i) I paid for a property in Dec 2013 and got the agreement (stamp duty of 2.9%) paid in the same month. Did not claim for deduction under 80C since property was still under construction.

Occupancy certificate received 4th April 2014 and Sale deed done in June by paying (Stamp duty of 0.1% and registration 2%). What income tax benefits can I claim for this year and why?

(ii) Aggregate Pre EMI is deductible across 5 equals portions in 5 successive years. So is this subject to the 2L sec 24B limit (as per new budget) or can exceed it?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Santosh

1. You will not get any income tax benefit on stamp duty paid in Dec’13. Deduction on stamp duty and registration charges can be availed only for FY in which property is registered. As the property is registered in current FY therefore any stamp duty or registration charges paid in current FY can be availed as deduction u/s 80C for FY 2014-15.
2. As you rightly mentioned, Pre-EMI component is subject to 2 Lakh limit u/s 24(b) for self occupied property. In current FY you can club one fifth Pre-EMI interest along with Full EMI interest component for FY 2014-15 u/s 24(b) with capping of 2 lakh.

Santosh
Santosh
9 years ago
Reply to  Nitin Bhatia

Would you be able to throw some light on the Goan portuguese law that strictly entails sharing of Home Loan benefits with spouse?

(i) Does the Stamp Duty and Registration charges comply with the same?

(ii) I have gotten the stamp duty and registration franking papers under my wife’s name but its a joint property and a joint loan has been taken. Can I take the benefits?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Santosh

This law is called Portuguese Civil Code. To answer your queries it is important to know source of income of both the spouses and other details. The salary income is exempted from Portuguese Civil Code

Santosh Balakrishnan
Santosh Balakrishnan
9 years ago
Reply to  Nitin Bhatia

Both of us are working in a Pvt Ltd Company/ Service. Does this help or do we need more info?

Nitin Bhatia
Nitin Bhatia
9 years ago

I suggest you to hire a CA who can help as more details required, which you can share with CA

dixit
dixit
9 years ago
Reply to  Nitin Bhatia

DEAR SIR
i want to know whether is it possible for child to claim deduction of interest and principal amount in respect of loan taken by parents and transfered to their child.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  dixit

I have already answered this query.

sorabh chawla
sorabh chawla
9 years ago

Hello Sir,

Claim of Home Loan interest paid during pre-possesion period is over and above the 1.5Lac – Home loan interest limit or it is within this 1.5Lac.

For example – I got my house possesion on 29th March,2014

Loan was running from August -2011 so this year i can claim –

Rs1.5Lac + 1/5 {Interest paid till 31st March,2013} or Only 1.5Lac

Considering my current year interest component is 2Lac and Interest paid over previuous 2 years is 5Lacs . So can i claim 1.5Lacs+5lac/5 = 2.5Lac or I can claim only 1.5Lac.

Regards
Sorabh

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  sorabh chawla

For self occupied property the limit of 1.5 lakh is now revised to 2 lakh in budget for FY 2014-15. The Pre-EMI interest paid before possession is included in max limit of 2 lakh. As you received possession during FY 2013-14 therefore 1st installment of Pre-EMI can be claimed for last FY and this FY assuming interest is 2 lakh and Pre-EMI is 1 lakh then you can claim only 2 Lakh as interest deduction for interest u/s 24(b).

For last FY i.e. 2013-14, your Pre-EMI is 1 Lac and assuming interest from 29th Mar to 31st Mar as Rs 5000. You can claim interest deduction of Rs 1 lakh and 5 thousand for FY 2013-14.

sorabh chawla
sorabh chawla
9 years ago
Reply to  Nitin Bhatia

Hello Sir,

Thanks. I get that the Pre-Possesion interest is within limit of 1.5Lac for FY-ended 31st Mar,2014.
I have got the possesion on 29th March, So why i cannot claim complete Interest Paid during FY-ended 31st March.

I have Paid Rs 2,80 as interest During FY-ended 31st March,2014 and
around 4.2Lac by 31st March,2013. I

So why i cannot claim 1.5Lac why only 1/5 of interest paid till 29th March + Interest paid from 29th to 31st March?? Please help, i am not able to understand fully.

Thanks and Regards
Sorabh

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  sorabh chawla

Its a Income Tax Rule. Any interest paid before Possession i.e. during under construction period is deemed as Pre-EMI interest which can only be claimed in 5 equal installment. Financial Year is just a time period for claiming dedcution.

Janani
Janani
9 years ago

hello Nitin,

HDFC/ SBI/ LIC which can I go for home loan? Please advice

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Janani

My vote for SBI

Nitin Bhatia
Nitin Bhatia
9 years ago

A law can be interpreted differently or can be viewed in isolation. I have shared my opinion along with reasoning and stand by same.

Another simple logic is that as per income tax act, interest for under construction property cannot be claimed as income tax deduction under section 24(b) till possession is handed over by the builder therefore how come interest deduction be claimed in isolation u/s 80EE.

Raja
Raja
9 years ago
Reply to  Nitin Bhatia

Hi Nitin,

I have got a query based on Ankish filing.

‘I filed my return by claiming section 80EE deduction. I have not yet sent my ITRV, so it will take time to know the response from IT officers.

Thanks,
Ankish’

Is there any harm in claiming exemption if I am in doubt or not eligible according to the law.? Do I have any problems because of it? I went to the local I-T office were no has got any clue about the sec 80EE :(.

Thanks in advance…!

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Raja

IT department will not assess your IT return till they receive ITR V acknowledgement.

IT department may reverse the exemption claimed and impose penalty on tax payable.

Nitin Bhatia
Nitin Bhatia
9 years ago

I have already answered this query.

Amit Gupta
Amit Gupta
9 years ago

Dear Mr Bhatia,

I have bought a 2nd house jointly with my wife. I understand that we can take
exemption for interest paid on 2nd home loan only after the construction
is over & the benefit is available in 5 installments starting the
year when the construction is complete.

My
question is that during the period when the house is under
construction, do we have to
mention the amount of interest anywhere (Schedule CFL) in ITR form. I
am filing ITR 2. If not then how do we take exemption at a later date
when the construction is complete.

Please advise.

Thank you
Amit

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Amit Gupta

You need not to mention any details in your ITR till you get the possession of the house. Just retain the Certificate of Interest issued by the bank annually for claiming interest dedcution in future.

Amit Gupta
Amit Gupta
9 years ago
Reply to  Nitin Bhatia

Thank you so much Sir

Chandrakant Chavda
Chandrakant Chavda
9 years ago

Sir..
I had purchased a flat in Ahmedabad in the year May-2013 and it is under construction.The construction will be over by August and I will register it in the month of Oct-2014.I have a Home Loan from HDFC Ltd. for Rs. 16,00,00o/- @ 10.50% interest. The loan amount disbursed in May,Dec and March-13 and June-14. I had paid Pre-EMI interest from May-2013 to March-2014 is Rs. 85316/- and from April-2014 to June-2014 is Rs.35,415/- . The full EMI was started from July-2014 ( 9 months up to March-2015) and the interest to be paid for that Rs.1,26,000. Now, Kindly suggest me how much Tax Exemption I can availed in FY-2014-15 on Home Loan Interest Paid ( Pre-EMI + EMI Interest Paid)…Thanking You.

Nitin Bhatia
Nitin Bhatia
9 years ago

The interest rate deduction will depend whether property will be self occupied or let out. Kindly let me know the same.

Chandrakant Chavda
Chandrakant Chavda
9 years ago
Reply to  Nitin Bhatia

Self Occupied..

Nitin Bhatia
Nitin Bhatia
9 years ago

You can claim interest deduction of Rs 150146.2 under section 24(b) for FY 2014-15.
1. Interest paid before possession will clubbed in Pre-EMI interest and Interest paid after receiving the possession will be clubbed under Home Loan Interest deduction.
2. Up to June, 2014
3. The PPF and 80C exemptions are separately increased from 1 lac to 1.5 lac. The 50k increase in 80C exemption can be utilized under any savings instrument permitted u/s 80C including PPF.
4. PPF is part of 80C. You may utilize entire exemption of 1.5lac under 80C by investing in PPF or by dividing your savings in other 80C savings instruments. Total exemption will be subject to capping of 1.5 lacs.

Chandrakant Chavda
Chandrakant Chavda
9 years ago

Sir… Pre-EMI Interest paid from May-2013 to June-2014. and EMI start from July-2014.
1. Tax exemption on Home Loan Interest paid for FY-2014-15 shall include from April-2014 onwards or July-2014 onwards?
2. Pre-EMI Interest paid from May-2013 to June-2014 can be included up to June-2014 or March-2014?
3. As per Budget-2014 announcement for 80C Savings..it increased from 1Lk. to 1.5 Lk.
The increased 50,000 only for PPF Saving or other savings also?
If a person don’t have PPF Savings but total savings more than 1.5 Lk then what is maximum 80C exemption?
Thanking You

Nitin Bhatia
Nitin Bhatia
9 years ago

You have not mentioned whether property will be self occupied or let out. Tax treatment will depend on this parameter.

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