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What
tax benefits
can one avail
on a home loan?
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Tax
benefits can
be claimed
on both the
principal
and interest
components
of the home
loan as per
the Income
Tax Act, 1961.
These deductions
are available
to assesses,
who have taken
a loan to
either buy
or build a
house, under
Section 24(b).
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Interest
on borrowed
capital is deductible
as follows:
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If
the following
conditions are
satisfied, interest
on borrowed
capital is deductible
upto Rs. 1,50,000.
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Capital
is borrowed
on or after
April 1, 1999
for acquiring
or constructing
a property.
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The
acquisition/construction
should be completed
within 3 years
from the end
of the financial
year in which
capital was
borrowed. |
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The
person, extending
the loan, certifies
that such interest
is payable in
respect of the
amount advanced
for acquisition
or construction
of the house
or as refinance
of the principle
amount outstanding
under an earlier
loan taken for
such acquisition
or construction.
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If
the conditions
stated above
are not satisfied,
then the interest
on borrowed
capital is deductible
up to Rs 30,000.
However, the
following conditions
have to be fulfilled.
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Capital
is borrowed
before April
1, 1999 for
purchase, construction,
reconstruction
repairs or renewal
of a house property.
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Capital
should be borrowed
on or after
April 1, 1999
for reconstruction,
repairs or renewals
of a house property.
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If
the capital
is borrowed
on or after
April 1, 1999,
but construction
is not completed
within 3 years
from the end
of the year,
in which capital
is borrowed. |
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In
addition to
the above, principal
repayment of
the loan/capital
borrowed is
eligible for
a deduction
of upto Rs 1,00,000
under Section
80C from assessment
year 2006-07.
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Is it necessary
to obtain any
permission,
from the Income
Tax authorities
if I want to
purchase any
immovable property? |
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Under
Section 269UC
of the Income
Tax Act, there
is no restriction
on transfer
of immovable
property. |
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Does
the Indian Income
Tax Act offer
any special
incentives for
purchase of
residential
property by
obtaining finance
either from
banks or other
financial institutions?
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Yes,
under Section
88 of the
Income Tax
Act, you can
claim benefit
for the principle
repayment,
interest on
the loan is
deductible
u/s 24 from
income from
House Property. |
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What
are the formalities
specified under
the Indian Income
Tax Law, if
any, that one
has to complete
before or after
selling any
house property,
commercial or
residential?
Is it necessary
to obtain any
permission,
from the Income
Tax authorities
if I want to
purchase any
immovable property?
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There
is restriction
on transfer
of immovable
property under
Section 269UC
of the Income
Tax act. You
have to obtain
Permission u/s
230A of the
Income Tax Act
if the value
of the property
to be sold is
more than Rupees
5 lakhs. |
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What
are the tax
implications
of the sale
of any house
/property, commercial
or residential?
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You
are liable
to pay Tax
on profit
arising from
sale of a
house/property
under the
heading of
Capital Gains. |
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Is
there any way
by which I can
claim exemption
from tax on
capital gain?
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The
Income Tax
act has made
provision
u/s 54 &
54A--G of
the act whereby
you can claim
exemption
from tax on
capital gains.
Sec.
54:
Purchase or
construct
another residential
house worth
the amount
of capital
gains. Sec.
54 protects
capital gains
arising out
of sale (or
transfer)
of a residential
house whether
self-occupied
or not, provided
the assessee
has purchased
within 1 year
before or
2 years after
the date of
sale of the
original asset
or has constructed
within 3 years
after that
date, a residential
house. The
only condition
is that the
newly acquired
property should
not be sold
within 3 years
from the date
of its purchase
or construction.
If this condition
is not satisfied,
the cost of
the new asset
is to be reduced
by the amount
of long-term
capital gains
exempted from
tax on the
original asset
and the difference
between its
sale price
and the reduced
cost will
be chargeable
as short-term
(yes, short-term!)
capital gain
earned during
the year in
which the
new asset
is sold.
Sec.
54EA & 54EB:
Invest within
6 months the
amount of
capital gains
in avenues
covered by
Sec. 54EB,
which locks
in the funds
for 7 years,
or invest
the sale proceeds
in avenues
covered by
Sec. 54EA,
which locks
in the funds
for 3 years.
Sometimes
the same avenue
also attracts
tax rebate
u/s 88. However,
if the assessee
has availed
of the Sec.
54EA/EB exemption
from capital
gains by contributing
a certain
amount, the
rebate u/s
88 will not
be allowed
on the same
amount and
vice versa.
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Are
the benefits
attached to
a residential
property also
available to
a commercial
property? |
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No,
such benefits
are not available
for commercial
properties. |
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What
is the current
ceiling on Wealth-tax?
Does the exemption
include a portion
of the house
in the case
of joint-owners
of property
and rented house?
Please clarify.
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The
ceiling continues
to be Rs 1.5
million and
Wealth tax
is payable
by a resident
as well as
non-resident
on the net
taxable wealth
exceeding
Rs. 15 lakh
at one per
cent. One
residential
house is exempt
from wealth
tax without
any upper
limit. This
exemption
also applies
to one house
or a portion
of the house.
In the case
of joint owners
of property,
each co-owner
will be in
a position
to avail the
wealth tax
exemption
in respect
of the portion
of ownership
held in the
property.
If a house
is let out
for at least
300 days in
India in a
year, then
also the entire
value of such
residential
house property
is fully exempt
from Wealth
tax. |
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A
person avails
deductions allowed
under Section
24 in respect
of his self-occupied
house property
and he takes
an additional
loan for extension/addition
to the same
house; can he
claim benefits
from the interest
deduction on
the additional
loan taken? |
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The
maximum deduction
permissible
in a financial
year for the
original loan
(if any) plus
for any additional
loans taken
is Rs 1,50,000.
Hence if the
person's deductions
on the existing
loan are less
than Rs 1,50,000,
then he can
claim further
benefits from
the additional
loan taken,
subject to the
upper limit
of Rs 1,50,000
for a financial
year. |
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If
a person fails
to make EMI
payments on
his home loan,
can he claim
tax benefits
on the interest
payable, under
Section 24 and
deduction under
Section 80C
of the Income
Tax Act? |
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Tax
benefits under
Section 24 and
deduction under
section 80C
of the Income
Tax Act can
be claimed only
when the payment
is made. If
a person fails
to make EMI
payments, he
cannot claim
tax benefits
for the same.
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If a home loan
is taken by
the father and
the loan has
been sanctioned
on the basis
of the son's
salary, can
the son claim
the tax rebate
and deduction
in respect of
the interest
payments? |
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According
to the Income
Tax Act, only
the person who
has taken the
loan can claim
tax rebates.
Hence, in this
case only the
father will
be eligible
for the tax
rebate. |
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If
a fresh loan
is taken to
repay an existing
loan, which
was taken for
constructing
a house, can
the interest
on the fresh
loan be claimed
as a deduction? |
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Tax
deductions can
be claimed on
home loan interest
payments, subject
to an upper
limit of Rs
1,50,000 for
a financial
year. Interest
on the fresh
loan can be
claimed as a
deduction, subject
to the stated
upper limit.
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Does
interest on
loan taken for
repairs, renewals
or reconstruction
also qualify
for the deduction
of Rs 1,50,000? |
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Yes,
the interest
on a loan, taken
for repairs,
renewals or
reconstruction,
also qualifies
for the deduction
of Rs 1,50,000.
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Can
a husband and
wife, both of
whom are tax-payers
with independent
income sources,
get tax deduction
benefits, with
respect to the
same housing
loan? |
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Yes,
in this case,
the husband
and wife (being
tax-payers with
independent
sources of income)
can get tax
deduction benefits
with respect
to the same
housing loan
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In the above
case, in what
proportion will
the tax benefits
be shared? |
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To
the extent of
the amount of
loan taken in
their own respective
name. |
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What
are the tax
implications
if a person
buys a house
with a loan
and sells it
(a) within the
same year, (b)
after three
years? Further,
what is the
impact on benefits
related to interest
and capital
repayment? |
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If
a person buys
a house and
sells it within
the same year/after
3 years, and
if any profit
is made, then
a capital gains
tax liability
arises on the
same.
Let us take
an example to
better understand
the same. For
example, if
you purchase
a house for
Rs 5,00,000
by taking a
loan and you
sell it in the
same year for
Rs 7,00,000,
then you make
a profit of
Rs 2,00,000.
On this profit,
you will be
liable to pay
short-term capital
gains tax since
the sale took
place in the
same year. But,
if the sale
had taken place
after 3 years,
then a long-term
capital gains
tax liability
would have arisen.
The long-term
capital gains
will be exempt
from tax if
the profit amount
(after factoring
in the indexation
benefits) is
invested in
capital gains
tax saving bonds
or in a house
property as
specified under
Section 54.
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Under
what circumstances
can the tax
benefit for
taking a home
loan towards
purchase of
a property be
denied? |
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Buyers
/ Sellers 
