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What is the tax benefit on home loan prepayment?
Harsh Roongta
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May 26, 2005
Have a query regarding your home loan? Maybe we can help.

Drop us a line and our expert, Harsh Roongta, will answer it.

ImageI've booked an apartment for which I took a loan. The stamp duty and registration has just been completed.

The property is under construction and disbursal of the loan will be in phases as the construction continues. Possession is expected in March 2008.

Is capital gains calculated from the date of stamp duty and registration or from the date of posession of the property?

- Deepak Bhatt

Capital gains is calculated from the date of possession of the property. To understand more of this read All you wanted to know about capital gain.

What you have bought is the right to get a flat. The right morphs into a  house property when possession is given.

Therefore, when you sell the house property the period has to be counted from the date of possession and not from date of registration.

However, if you sell the under-construction property itself (which means you are selling your right to acquire a house property) then the period of three years will be considered from the date of agreement with the builder.

If I make a part prepayment, in addition to the regular Equated Monthly Installments, will it be considered for tax benefit under Section 80C?

- Praveen Jangam  

Yes it will since it is a payment towards your home loan. To see what falls under the Rs 1,00,000 exemption limit, read All About Section 80C.

I am taking a home loan for an apartment under construction whose possession will be in August 2006. 

Option 1: Make the bank pay the builder as per the construction stage and pay pre-EMIs to the bank.

Option 2: Take full disbursement of the loan and pay the builder the entire amount and begin EMI payments right away.

- Aashish Kumar

In properties where the home loan company or bank has "pre-approved", some builders have a scheme whereby you could payoff the entire purchase price even though the property is still under construction. If you avail of this, you could get a significant discount to the market price.

If the bank is satisfied about the ability of the builder to complete the project on time then they will finance this payment.This scheme is called Advance Disbursement Facility. To understand various types of disbursement read, 10 home loan terms you must know.

However you should be careful when opting for such a scheme since any delay by the builder in handing over possession to you will result in a loss for you.

Let me now refer to the tax implications.

All interest payable during the year in which the construction is completed is deductible under Section 24. It does not make any difference whether the interest is paid as pre-EMI or an interest portion of an EMI payment.

Principal repayments, on the loan, if any, made in years in which the property remained under construction are not eligible for any tax deduction.

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Illustration: Dominic Xavier

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