BANGALORE: The reduction you can declare against the payment
of interest on a home loan from your taxable income is a major saving. It is specifically
so as the interest component is higher than the principle amount in the initial
years of the house loan tenure. The amount of awareness paid can be availed as
a reduction under Section 24 of the Income Tax Act under the head ‘Income from
House Property' while assessing the total earnings for the year.
The interest paid on a home loan is deductible from the lease income of the
property too. When the house is let out, the complete interest on the home loan
may be deducted from the rent received without any ceiling on the amount.
However, in case of a self-occupied property, the amount of interest deductible
is restricted to Rs 1.50 lakhs or the exact interest paid, whichever is decrease.
This can be set-off against other incomes – salary, earnings from business etc,
whereby the tax liability decreases.
When the house is self-occupied, the interest reduction can be claimed only after the home is completely constructed. Further, interest pay in the pre-construction period can be claimed as a deduction in 5 equal premiums, in succeeding assessment years after completion of construction.
Apart from reduction of interest paid from the taxable earnings, repayment of the home loan (principal amount) can also be claimed as a reduction under Section 80C of the Income Tax Act subject to some conditions.
They are:
• the building of the house should be completed in the earlier year.
• Income should be generated from a property that is taxable under the head ‘Income from House Property’ or it is deemed income from a house property as per Section 23(2) of the Income Tax Act.
• The amount of benefit is restricted to Rs 1 lakh (as the maximum deduction under Section 80C to Section 80CCE cannot exceed Rs 1 lakh). The other amounts which also qualify under this Section are payment of life insurance premium, contribution to Provident Fund, purchase of NSC etc, the overall limit for all these including repayment of home loan is Rs 1 lakh.
‘Loss from property’ can be written off
Loss from a home property arises due to claiming deduction against maintenance charges, and interest on the home loan from the rental income. If the sum of the two elements is higher than the rent received, it results in a loss. This amount may be set-off against other earnings – salary, income from business etc.
The loss from house property can be set-off against any income (salary, business income, other sources of income like interest on FD or capital gains) of the present assessment year. If the entire loss cannot be set-off in the same assessment year it can be carried forwards to the next 8 assessment years. However, the amount of loss carried forward can then be set-off only against ‘Income from House Property’ and not against any other income in the subsequent years.
When the house is self-occupied, the interest reduction can be claimed only after the home is completely constructed. Further, interest pay in the pre-construction period can be claimed as a deduction in 5 equal premiums, in succeeding assessment years after completion of construction.
Apart from reduction of interest paid from the taxable earnings, repayment of the home loan (principal amount) can also be claimed as a reduction under Section 80C of the Income Tax Act subject to some conditions.
They are:
• the building of the house should be completed in the earlier year.
• Income should be generated from a property that is taxable under the head ‘Income from House Property’ or it is deemed income from a house property as per Section 23(2) of the Income Tax Act.
• The amount of benefit is restricted to Rs 1 lakh (as the maximum deduction under Section 80C to Section 80CCE cannot exceed Rs 1 lakh). The other amounts which also qualify under this Section are payment of life insurance premium, contribution to Provident Fund, purchase of NSC etc, the overall limit for all these including repayment of home loan is Rs 1 lakh.
‘Loss from property’ can be written off
Loss from a home property arises due to claiming deduction against maintenance charges, and interest on the home loan from the rental income. If the sum of the two elements is higher than the rent received, it results in a loss. This amount may be set-off against other earnings – salary, income from business etc.
The loss from house property can be set-off against any income (salary, business income, other sources of income like interest on FD or capital gains) of the present assessment year. If the entire loss cannot be set-off in the same assessment year it can be carried forwards to the next 8 assessment years. However, the amount of loss carried forward can then be set-off only against ‘Income from House Property’ and not against any other income in the subsequent years.
Some aspects to judge for prospective borrowers
Apart from considering the tax advantage while taking a house loan, these factors also have to be borne in mind:
• Identification of the home
• Title to the house
• Earning and pay back capacity
• Initial margin money which is has to be paid
It is desirable and advantageous to think of buying a house at a younger age as the repayment capability will be better as there will not be any other biggest commitments such as children’s education, main healthcare expenses etc. Availing a home loan at a young age will also inculcate economic discipline and you can become debt-free sooner, well before retirement life.
Making a financial plan
A financial plan varies from for everyone – needs, commitments , returns on savings, insurance cover (both life and medical), the availability of funds/resources (investible money) etc. A financial plan and investments must be made keeping in view various factors. The investments should have a mix. They should be both long-term and short-term, and should also bring you the advantage of capital appreciation. Short-term investments are needed for liquidity – in case of immediate need or an emergency. The long-term investments you plan can comprise real-estate.
How it works
Rent received: Rs 2 lakhs
less: 30 percent standard reduction – maintenance charges: Rs 60,000 Interest paid: Rs 1, 50,000
total: Rs 2, 10, 000.
Loss from house property: Rs 10, 000
Discounted Flats
www.discountedflats.com
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