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Your home loans and saving tax

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February 10, 2009

Have a query regarding your home loan? Maybe we can help.

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

Please help me to clarify a doubt. I am planning to go for a home loan. I have a CTC of Rs 4.5 lakh/annum. I am working in Bangalore in an MNC. I am planning to construct a house in native Kerala [Images]. For the tax benefit, is it required that the property has to be in my name? I am planning to register the property in my mother's name and my name or my mother's name. Please advise.

                                                                                                                                                                    Zamsheer

You can claim tax deduction benefits either when,

~ You are the sole owner of the property as well as a borrower to the loan.
~ You can also claim tax deduction benefits if you are a co-owner to the said property as well as a co-borrower to the loan with your mother.

In both the cases, being an owner or a co-owner is an absolute must to be able to get any tax benefits.  

In case of a joint loan, you can claim tax deduction benefits to the extent of your respective shares in the loan. If you wish to claim 100 per cent tax deduction benefits on the joint loan, you can enter into a share agreement with your mother. Get the draft of the share agreement on Apnaloan.com (http://www.apnaloan.com/home-loan-india/shareagreement.html).

I wanted to know if this is the right time for buying flat for living purposes (not investment). I have seen a 3BHK flat for Rs 47 lakh which I want to buy. If I take this my net yearly saving would be only around Rs 1 lakh till next 15 months after which I would get the possession and can rent it. Also it would eat away all my savings to date. I am very confused if I should go for this property from a long term perspective and take a risk today. My job is though secured for now and should not get into trouble in next 1 year. Please advice. I am married and aged 31 yrs.

                                                                                                                                                              Vivek Dhagat

Normally, our advice to consumers is to try and time their purchase of residential property meant for their own use. However, given the widespread expectations that property prices will fall further, it may be worthwhile waiting for a couple of months, (say till April 2009) to see where property prices are going.

Please begin looking now as property transactions in any case, take a long time to finalise and make sure to negotiate very hard.

Also, unless you are completely certain about the concerned builder, you should try and purchase a ready-to-move-in (or at least almost ready-to-move-in) property as quiet a few builders/developers are in financial difficulty and may have difficulty completing the project in time.

We had taken home loan from Diwan Housing Finance amounting to Rs 5.75 lakh in December 2005 and we started paying our installments from January, 2006.

When there was increase in interest rates of all banks for  all loans, DHFL also increased the interest twice, as per the finance minister directive, later at both times, he announced reduction in the interest rates, but DHFL has not reduced the interest rates and even today they are collecting EMIs as per the increased interest rates.

Kindly advice, on these interest rates, to speak to DHFL. Your response will be very much appreciated.

                                                                                                                                                                 Vishwanath 

Interest rate increases/decreases are not based on the finance minister or for that matter, even what the Reserve Bank of India [Get Quote] (RBI) says or does.

Of course, the policy laid down by them has an impact on all interest rates (including home loan rates). But, what you are saying is absolutely right. Most lenders are quick to take signals for increase in interest rates but not quick when signals are for rate decrease.

As a consumer, if you have maintained a good track record of payment, you should consider shifting your loan to another lender who might give you a lower rate.

You can also check the 'Should I switch my loan' calculator (http://www.apnaloan.com/loan-advice-india/switch-my-loan.html) on Apnaloan.com to check whether it makes sense to change the lender.

You may want to consider the prepayment fee payable to the existing lender and the processing fee to the new lender.   

purchased an apartment in September 2007 for Rs 21 lakh in which I took a home loan of Rs 18.5 lakh for 20 years. I am paying Rs 18,850 as premium and paid for 18 months (approx Rs 3,39,000). My flat is ready for possession from March.

When can I sell the apartment? What is the capital gains implication? Please guide me.

You can sell the property at any time. The only thing you need to consider is the income tax implications. If you sell the property within 36 months of possession of the property, short-term capital gains (STCG) tax will be payable. If you sell the property after 36 months of possession, long-term capital gains tax (LTCG) will be applicable. If you invest the gains from the sales of property in buying another residential property equal to or more than the long term capital gains, you can save on capital gains tax.      

Got your reference from Get Ahead.  Wanted to get over some of my queries on home loan and tax exemption.
I have some queries (might be very basic) :).

1) What amount of home loan is exempted from tax and from which section?
2) What are the guidelines that one should follow so that he/she can get maximum tax benefit out of taking the home loan?
3) Is there any limit for EMI/principal amount being tax exempted? 

                                                                                                                                                          Vinay Ghanekar

1. You can claim tax deduction benefits on the interest portion of the loan under section 24 (b) of the income tax act and the principal portion of the loan paid is eligible for deduction under section 80 C.

2. Not clear.

3. You can claim tax deduction benefits on the principal under section 80 C up to the limit of Rs 1 lakh of the income tax act along with other eligible instruments/ expenditure covered under that section. The deduction for interest payable is limited to Rs 1.5 lakh if the property is self-occupied.  

Harsh Roongta is CEO ApnaLoan, a price comparison site that allows consumers in India the ability to compare the EMI (http://www.apnaloan.com/loan-advice-india/emi-rates-calculator.html), interest rates and other fees for home loans (http://www.apnaloan.com/home-loan-india/index.html), car loans (http://www.apnaloan.com/car-loan-india/index.html), personal loans (http://www.apnaloan.com/personal-loan-india/index.html), business loans (http://www.apnaloan.com/loan-against-property-india/index.html) and credit cards (http://www.apnaloan.com/credit-card-india/index.html).


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