The Union Government has introduced some new rules regarding home loans, some of which have been welcomed whereas others have been subjected to criticism. Let’s take a look at how you can utilize your home loan for maximum tax benefits.
Tax Benefits on missed EMI – Sometimes, due to financial problems or any other reason, you might have missed your monthly home loan EMI. However, you can claim tax benefits on the missed EMI in the same year. Since interest liability still exists, you can claim deduction, even if you might have missed paying the EMI in a year. To ensure there are no issues with the tax department, keep a copy of the interest certificate issued by the bank or home loan company.
Wait 5 years before you sell – If you are planning to sell your property, make sure you sell it after 5 years. If you sell before 5 years, from the date of purchasing the property or from the date you took the home loan, then the tax benefits will get reversed. All the deduction you might have claimed in previous years will get added to your income in the year you sold the property.
Make sure you are the co-borrower – Tax benefits are available only for borrowers and co-borrowers. Sometimes, you might be sharing the burden of home loan EMIs, but you may not be the owner or co-owner, for example, in case of your parents or spouse. If you plan ahead, you can ensure that you become the co-borrower at the time of applying for a home loan.
Interest on pre-construction period – You are eligible to claim tax deduction for interest paid on your home loan during the time when the property was under construction. However, this tax deduction can be claimed only after getting the completion certificate. You can claim the tax deduction for pre-construction period interest in five equal installments, starting from the year in which you received the completion certificate.
Section 80EE is back – The government has reintroduced Section 80EE, which is effective from April 1, 2017. You can claim tax deduction up to Rs 50,000 under Section 80EE. To avail benefits under Section 80EE, you need to be a first-time home buyer, the loan value should be less than Rs 35 lakh, property value should be less than Rs 50 lakh and the loan should have been taken between April 1, 2016 and March 31, 2017.
Money borrowed from friends, relatives – If you have borrowed money from friends or relatives for your home, you can claim tax deduction for the interest paid on these loans. This deduction is available under Section 24. However, principal repayments to your friend or relative will not qualify for tax deduction. Moreover, your friend or relative needs to show the interest paid by you as income in their tax returns, or else it will be disallowed.
Other fees and charges – You can claim tax deduction on any fees or charges paid for your home loan such as processing fees, prepayment charges, etc. These tax deductions can be claimed under Section 2(28A) of I-T Act. Expenses on stamp duty and registration fee can also be claimed for tax deduction under Section 80C (2) (xviii) (d) of the I-T act.