Thanks for the information, its really simple to understand.

Somewhere I had read that for if benefit of Principal Repayment is taken under section 80c, there is binding from Gov. that the house cannot be sold for 5 years, otherwise recalculation of tax is needed for all last 5 years.

Can you please put the light on this topic?

Thanks and Regards,

- Dharmesh

Hi Dharmesh,

I am glad you liked the article.

And you have raised a very important point:

To avail the income tax benefit on the principal component of the home loan, you have to own the house at least for 5 years from the end of the financial year in which you bought it.

For example, let's say you have bought a house in October 2003. The end of that financial year is March 2004.

Thus, to avail the income tax benefit, you need to keep the house at least till March 2009.


If the house is sold before 5 years, all the deductions claimed for that house in the previous years are added back to your income for the year of sale, and are taxed as that year's income.

(The tax is not recalculated for the previous years).

Thus, in our example, let's say you claimed Rs. 10,000 in FY 03-04, Rs. 20,000 in FY 04-05, Rs. 25,000 in FY 05-06. You sell the house in November 2006.

In this case, all the deductions that you have claimed: Rs. 10,000 + Rs. 20,000 + Rs. 25,000 = Rs. 55,000 would be added to you income for the FY 06-07, and would be taxed as per the applicable income tax slabs / brackets - as if it is the income earned in that year itself!

So, it definitely makes sense to not sell the house before 5 years.

Hi,

Thanks for the explanation in the simplest way.
I have still few doubts which I think you will sure have answers.

1. Is it the 5 years calculated from the your first financial year of house purchase?
OR
2. Is 5 years calculated from the last claim of principal repayment for tax benefit?(my employer has by mistakenly shown random number in Form16 under this section, and I am in 5th year of my new house and now refusing to remove, I dont have plan to sell but next 5 yrs I can't predict either :) )

Again thanks for your answers, I really struggled a lot to get any info about this from anywhere else. This fact is never highlighted by builders or banks, its just by some flyby topic and than lock-in nature of investment declared under sec80C prompted me to investigate.

Thanks and Regards,

- Dharmesh

Hi Dharmesh,

Income tax is quite confusing, isn't it? I can understand your anxiety!

To answer your query, the 5 years are calculated starting from the first financial year of your house purchase, and not from the last claim of principal repayment for tax benefit.

To be precise, the 5 years are calculated from the end of the financial year in which the house was purchased (Please refer to the example I have given in the previous comment).

Hope that clarifies the confusion!

Hi,

It is very useful for me. I have aproblem with my pre emi for home loan. by the time of form16 generation deadline07-08, i dont have the proof of pre emi paid. i want to claim now is it possible. I have paid the pre emi for nearly two financial year--07-08 and 08-09.

when can i claim this pre emi.

Hi Karthik,

I am glad you liked the article.

Pre-EMI interest can be claimed in 5 equal instalments AFTER the construction of the house ends. That is, it can be claimed in 5 equal instalments after your actual EMI starts.

Thus, if your EMI has not started yet, you would not be able to claim the pre-EMI interest.

As I have mentioned, once your full EMI starts, please claim the total pre-EMI interest paid by you over the years in 5 equal instalments over the next 5 years.

For example, if you pay Rs. 20,000, Rs. 30,000 and Rs. 30,000 as pre-EMI interests in years 2003-04, 04-05 and 05-06 respectively.

Now, say your EMI starts in 2006-07. Then, you can claim Rs. 16,000 (A fifth - or 20% - of Rs. 80,000, which is the total pre-EMI interest paid by you) per year from 2006-07 to 2010-11.

Hi,

You are really superb and reply is simple to understand. Thank you.

Thanks, Karthik.

hi - wanted to know if we have to disclose the Pre EMI return in our earlier income tax returns.
also, if it needs to be disclosed (though claimed only after one gets possession of the house) - under which section of ITR 2 ?

Hi Manish,

That's a very interesting question!

As you are rightly aware, the pre-EMI interest can be claimed in 5 equal installments after the construction of the house is over (This is under section 24).

There is no need to indicate the pre-EMI interest in the income tax return (ITR) form for the years in which you are paying this pre-EMI interest.

Once the construction of the house is completed, and your EMIs start, you need to claim 20% of the total pre-EMI interest paid, every year for 5 years.

For this, you just need to add this pre-EMI interest to the interest component of your EMI that you are claiming.

This would come in the field "interest payable on borrowed capital". This would be in Schedule HP, field 1g on Page 3 of ITR2.

For example, let's say your total pre-EMI interest is Rs. 80,000, and your interest component of EMIs for this year is Rs. 50,000.

So, in the "interest payable on borrowed capital" field, instead of putting Rs. 50,000, you should put Rs. 66,000 (Rs. 50,000 + Rs. 16,000 which is 1/5th of your total pre-EMI interest of Rs. 80,000)

Hi,

I come to know about how to club EMI & Pre EMI.
But if it is crossing 1,50,000 limit, how to claim rest amount towards carry forward losses?

Should we attach any document with ITR2 while stating these carry forward losses.
Last year as well there was some housing loan intrest amount + Pre-Emi was crossing 1,50,000.
But I forgot to put exeeding amount in Carry forward loasses, should I revise my previous return?

Hi Nitin,

There is an entire article dedicated to set off and carry forward of losses: Set Off and Carry Forward of Losses – Capital Gains and House Property. I am sure you would find it useful.

I have also answered your question in the comments section of that article, as I thought it is more relevant there.

Please check out Set Off and Carry Forward of Losses – Capital Gains and House Property.

Dear Sir
I must congratulate you on such a nice article. With the amount of surfing I have done for getting the detail on tax benefit because of home loan this is the best article I have come across. I need few clarification

1. Can we claim the benefit only after the house is in our possession? I booked a house in July 2006 and will get the possession in october ,2008. I have paid Rs 57K towards principal and Rs 66K towards interest in fy 07-08
and 39k towards principal and 23k towards interest in Fy06-07. I have not claimed any tax benefit because of home loan. Can I claim any for assessment yaer 08-09? I will be filing the return in a day or two.

2. The interest part is clear but how to claim principal part ?

Dear Mr. Jha,

I am very glad that I could be of help. The idea is to share my knowledge with the readers, and to learn from my readers' experience at the same time!

1. The benefit of principal component of the loan can be claimed only after the construction of the house is completed - which roughly means when possession is given to you by the builder.

Therefore, you can not claim the tax benefit for the principal repayments that you have made before taking possession of the house.

2. As you understand correctly, you would have to claim the pre-possession interest paid by you over the next 5 years.

Where I am surprised in your case is the fact that you are paying EMIs even before the construction of the house has been completed.

Usually, banks disburse partial amounts to you (or your builder) depending on how much construction has been completed.

Only when the construction is over 100%, the banks disburse the full amount. And till the full amount is not disbursed, the EMI doesn't start, and you only pay a pre-EMI interest.

This procedure, in effect, takes care of the provision of the income tax rules as well!

But it looks like your EMI had already started even when the house was not constructed fully, which is a little different from the norm.

In any case, even if you can't claim the amount you paid for the principal, there are 2 benefits:

1. You can still claim the interest component

2. You have started paying the EMI early - which means that you have actually started repaying your loan rather than just paying a pre-EMI interest (which is a sunk cost). Therefore, you would also become debt free that much earlier. Now this is a big advantage!

Hi,

My question is very similar to Mr.Jha. I have started paying full EMI from now even though the posession of the house is in January-2009. Would i be able to claim the interest I am paying for home loan during the tenure when I am not in the posession of house as negative income?

There has been lots of confusion regarding this here. Many of my friends claim that the interest can be shown as negative income only after the posession of the house while a tax consultant has happily agreed to add that into the negative income.

Appreciate your time and help.

Thanks,

Dear Ullas,

Income tax can get really confusing at times!

You can start claiming interest and principal of your EMI from the year in which the construction of the house gets over - that is, from the year in which you get possession.

In your particular case, you are getting possession in January 2009 - which happens to be before the end of FY 2008-09.

Therefore, you would be able to claim both interest and principal of your EMI for FY 2008-09 (AY 2009-10 for Income Tax). That is, you can claim these in the income tax returns that you would file in June-July 2009.

hi, sir
myself and my wife both are salarised person. we want to take joint loan on a booked house from state bank of saurashtra. to take benifit of tax to both person what instruction we need to give bank regarding our emi payment.

Dear Dr. Alpesh,

A great question - and something that bothers most people taking a home loan in joint names.

The income tax benefits for principal repayment (u/s 80C) and interest on home loan (u/s 24) are available in proportion of the EMIs paid.

So, you and your wife should divide the EMI payment depending on the proportion in which both of you want to claim the benefits.

Thus, if you want to claim 75% of the benefits and your wife wants to claim 25%, you should pay 75% of the EMIs for a given year (for 9 months) and your wife should pay 30% of the EMIs (for 3 months).

Depending on this proportion, you should provide the bank with the post dated cheques (PDC) from your wife's and your account. Alternatively, give the instruction for direct withdrawal from your respective bank accounts based on this proportion.

As an aside - if both of you want to claim the tax benefits, the house has to be in joint names as well. I hope you have taken care of this.

I have got site in vijayawada and l have taken loan of Rs.14.4 lakhs from state bank, for which myself and my son are the joint borrowers. The house site is in my name. Can my son claim for income tax emption for house loan. Kindly clarify.

Hi,

Please see this question in "Your Queries" section for a similar situation.

hi raag,

First of all, let me thank you for your wonderful effort of creating this website on financial planning. I have recommended to many of my friends about this site because of the simple manner in which you explain the things. Understanding Financial planning has never been so simple for many..........

I have few doubts in my mind regarding home loan/home purchase......

1. I m a government servant and don't require my own house for next 30 years as i would be living in different parts of the country in government Quarters. Still, should i buy a house now and give it on rent or should i bought a plot now and construct house on it later?

2. Is Income tax benefit is also available in case i take a loan to purchase a plot for construction of House?

3. In the span of 30 years, value of flat will appreciate more or that of plat?

Or,

4. Should i invest monthly in Mutual fund for 30 years through SIP, and then buy a house 30 years later from returns?


Thanks and regards,
Manish

Hi Manish,

Thanks a lot for all the praise – it is really encouraging. I really appreciate you recommending the website to your friends.

1. I always recommend buying a house as early as possible. You would create a valuable asset that would appreciate very well over the long time frame of 30 years that you are considering. Also, you would get rentals which would also increase every couple of years.

Buying a plot is an option, but there are many negatives:

a. Its difficult to find a plat at a good location in any city – most of the good sites are already taken, and buildings have been constructed!

b. You would not earn anything from the plot over these 30 years.

c. You would always have to worry about its safety!

So, my advise would be to buy a house and give it on rent.

2. IT benefit is available only for a loan taken for purchase / construction of a house – not for purchase of a plot. So, if you take a loan to purchase a plot and do not construct a house on it, you would not get any income tax benefit.

If you do construct a house on the plot, you would get the following income tax benefits:

a. Section 80C benefits from the year the construction gets over.

b. Section 24 benefit on interest paid from the year the construction gets over, provided that the construction gets over within 3 years of disbursal of the loan.

3. Normally, the value of land appreciates more than the value of a flat. But that is just capital appreciation – the flat would give you a rental yield as well during all these years.

Also, because of the other reasons sited above, it is better to go in for an apartment / house instead of a plot of land.

4. Investing in equity mutual funds through SIPs for 30 years and using that money to buy a house is an excellent idea. Stocks give a great return over the long term (and 30 years is a very long term by any standard!).

(Please read Equity Investment is Risk Free – Here's the Proof for a clear picture about long term returns that can be earned from investments made in shares)

Having said that, if you buy a house through a loan, you also get income tax benefits. Also, the prices of properties are expected to go down even further due to the financial problems going on these days.

So, for the current scenario, it might be better to buy a house today at a discounted price and earn rental from it.

How does one account for the loan taken for the plot while treating the LTCG. I had bought aland and had taken loan for it for % years. Have repayed the laon in full with interest and then sold the land. Kindly let me know whether interest paid will be counted in cost of acquistion.

Hi,

Interest paid on a loan taken for the purchase of a plot of land is not considered as an expense towards purchase.

Therefore, it can not be included in the cost of acquisition.

Hello sir,

Really a nice article and plenty of useful information. I have below question regarding tax exemtion under section 80C and 24.

I have taken a personal loan for pruchasing a house, can I claim tax exemption for principle and interest repayment under section 80C and 24? What proofs I need to produce while claiming?

Thanks in advance,
Naeem

Hi Naeem,

A very interesting question!

There is good news for you: The Income Tax Act doesn't differentiate between the type of loan taken. What the loan is called doesn't matter, as long as it is used to acquire a house.

The benefit of Sec 80C is available if the loan is taken from a financial institution. Since you would be taking the personal loan from a bank, you can claim benefit of principle repayment u/s 80C.

The benefit of Sec 24 is available irrespective of the entity from which the loan is taken. Thus, you can claim the benefit for interest paid u/s 24.

Remember, you can claim the benefit of interest paid u/s 24 even if the loan for buying the home is taken from a relative / friend. (In this case, benefit of principle repayment u/s 80C can not be claimed).

Documents needed: The basic necessity remains the same as a regular home loan - you would need a certificate from the bank stating the breakup of the interest paid and principle repaid during the year.

On top of it, you would need to establish that the money you received from the personal loan was used to purchase the house.

Dear Sir,
Thanks for your great article that clearly explains the IT on Home loans.

My case is peculiar. I booked a flat and started paying Pre EMI Since Dec 2006 and the house was completed in Aug 2008.

I understand that Pre EMI between Dec 2006 and Mar 2008, should be claimed in 5 installments starting from the year 2008-2009.All the interests paid in 2008-2009 can be claimed in the year 2008-2009.

But I travelled to US in Mar 2007 for a company assignment and will be here till Apr 2009. The salary paid in India is converted to US dollars and we pay tax to US govt and there is no tax liability to Indian govt for the years 2007-2008 and 2008-2009.

When I return to India in Apr 2009, Can I claim Pre Emi for next 5 years or Is it only for 4 years as the starting year should be 2008-2009? Assume that the total pre-emi I paid is Rs 1,00,000 between Dec 2006 and Mar 2008, Please let me know how I should handle this. Please let me know how much max I can claim tax benefits.

I booked an apartment in Dec 2005 by taking a loan. I am expecting to get the possession of the same in Jan 2009. If I sell the apartment before possession but after 3 years of booking it, will this be consisdered a long term capital asset. Also, if I invest the amount of capital gains in purchasing another house, will the capital gains tax be exempt to that extent.

Hi Sumit,

This is an interesting case, unfortunately with no clear-cut answer.

The date of acquisition of the house is a subject that is constantly debated - it can be the date when the sale deed / agreement is signed, or the date when the full payment is made or the date when you get the possession of the house.

This is something that has often been debated in the courts, and in the income tax tribunal.

How your case is treated largely depends on how the Assessing Officer (AO) interprets it. I would advise you to avail the services of a CA.

Capital gains exemption in case you invest in another house would also depend on this. For more on saving capital gains on sale of a house, please read "How to save / avoid Long Term Capital Gain (LTCG) Tax on Sale of a House".

Note: Hope you are aware that since you would be selling the house within 5 years of acquiring it, you would forego all the income tax benefits you received because of the home loan.

Hi Karthik,

Your case is definitely different!

I'm sorry but I am sure my answer is not something that you were hoping to hear: When you return to India in Apr 2009, you can claim pre-emi interest only for 4 years, as the starting year has to be 2008-2009.

Here is what you would do:

You would file returns even for the years when you are not in India, right?

For these years (2007-2008 and 2008-2009), you would have no income from salary.

For 2008-09, under the head "Income from house Property", you would claim the pre-EMI interest as well as the interest paid out by you during that year as part of the EMIs you paid.

Since there is no income to offset this against, you would have a LOSS under the head "Income from house Property".

You can carry this forward for upto 8 years. This means that if you have an income from house property in the next 8 years, it can get reduced by upto this carried-forward loss, and you would end up paying that much less tax during that year!

For more on set-off and carry-forward of losses, you can read "Set Off and Carry Forward of Losses – Capital Gains and House Property".

This is really a very nice initiative taken by you. In fact, one of my queries is already answered by you in one of the above posts (Your reply to Mr. Ullas) ( regarding claiming benefits on interest and principal components of EMI before posession.)
Thanks a lot again.

Hi Abhishek,

I am glad that I could be of help...

And thanks a lot for the appreciation... It keeps me going!

Dear Sir,

My EMI start just before 4 month, till March total amount will be 60,000 Rs,
In this amount Interest and principal will be 50,000 and 10,000 Rs approximately.

As I read hear that I can get tax benefit up to 1, 00,000 Rs,

I want to know that if I additionally pay 30,000 Rs to bank can I take tax benefit on 30,000 Rs (This is not part of EMI)

Example:
Total Interest paid: 50,000 (By EMI)
Total Principal paid: 10,000 (By EMI)

One time Repayment: 30,000 (One time: My plan to pay on January month)

Hi Dharmesh,

Yes, you can do this.

When you pay an amount over and above the EMI, it is called "partial pre-payment of the home loan". This goes towards payment of the outstanding principal.

Thus, the extra amount that you pay (Rs. 30,000 in your case) would be considered as principal repayment, and can be claimed as deduction u/s 80C. The bank would include this amount as principal repayment in its annual statement to you.

Note 1: When you make a partial pre-payment of the home loan, either the EMI or the tenure of the home loan goes down. Please check this with your bank.

Note 2: Some banks charge a fee, around 2% of the pre-paid amount, on any pre-payment of home loan. You might want to check this with your bank.

Hi,

I have availed 1800000 loan from my HFC. However, based on the completed construction %, only 1400000 was disbursed. 400000 is still pending for disbursement. I have paid the Pre-EMI only for 1 month. For the last 3 months, I have been paying full EMI even without full disbursement. Is there any different calculation for this from the HFC perspective? I heard that by paying full EMI, I will have an advantage of reducing the principle from the un-disbursed portion of the loan. But I don't seem getting any advantage from my HFC as the EMI and also the tenure still remains same. Can I ask for full calculation statement from my HFC? Can you please explain if I have any chance of getting any benefit from this apprach of paying full EMI before the final disbursement?

Thanks

Hi Ravi,

You have heard it right - by paying the full EMI, you have started reducing the principle from your home loan (not the un-disbursed portion of the loan).

EMI consists of teo portions - interest payment and principal repayment. Thus, with each EMI payment, your total outstanding towards the bank reduces.

The EMI or the tenure doesn't get reduced due to this.

Lets say you paid the pre-EMI in Aug 2008. Now that you have started paying the EMI from Sep 2008, your EMIs would stop in Aug 2028 if you have a 20 year home loan.

Had you paid pre-EMIs till the full disbursement (say upto Apr 2009), your EMI would have started in May 2009, and your EMIs would have stopped only in Apr 2029.

This is the advantage you get - this way, you are better off paying EMIs instead of pre-EMIs.

Hi,

I have taken a home loan jointly with my wife and we got it registered in both of our names. Now, the bank has provided a provisional tax certificate on both our names. The EMI is deducted from my wife's account only. We both want to claim exemption for 50% of the amount. But the bank statement does not specify any %. How do i go about this? Will a declaration from both of us saying each one is claiming only 50% will be enough? or something else needs to be done. Can you please help me in this regard?

Thanks,
Pandiaraj

Hi Pandiaraj,

IT benefit for a home loan is available in proportion of the EMIs paid. Thus, in your case, since all the EMIs have been paid from your wife's account, the entire tax benefit would also be available to your wife only.

If both of you want to claim the benefit 50% each, you would need to pay 6 EMIs each.

For the past year (for which the EMIs are already paid):

You can probably give your wife a cheque equivalent to 6 EMIs. This, in a way, would mean that although the EMIs were deducted from her account, it is you who has actually paid for them.

But please bear in mind that this is just a temporary work-around (ideally, 6 EMIs should have been paid from your account). Whether it works or not totally depends on whether the assessing officer (AO) is convinced about it or not.

Hi,
Thanks for This really Great Website!.

I have a small doubt.
I purchased a plot in april 2008 on a Home Loan from HDFC.I am Expected to get posession of the land by may 2009. The EMIs will start subsequently. Currently I am paying pre-EMIs.
But i have no plan of construction at the site by december 2009. Can i still claim tax benefits on the EMIs and pre-EMIs paid or i can claim them only after the construction is complete. In the second case if the construction is complete by mid 2010, will the EMIs paid in the financial yr 2009-2010 can be any help in getting tax benefits.

Thanks,
Jitendra

My father plans to take a mortgage loan against the house owned by him for which I will have to make the EMI payments. Will I get any tax benefits on the interest / principal payments?

Thanks, Arvind

Hi,
this is the great artical & solved my many doubs but i'm also some querry, pls suggest the appropriate idea for the same


I had purchase house in Jan 2006. But i was not claim deduction either Principal or interest. Now, in this FY 2008 -09 i want deduction. So, Sir, Please can u help me shall i claim deduction u/s 80C & U/s 24 & what will be the limit for Principal amount & for interest amount.

Hi Ragvamdutt,
Your web site is so informative. Thanks...and please continue services.
I have taken a medical treatment in a Registered Ayurvedic Hospital. It is called Panch karma Treatment.
Am I eligible for the Income tax benefit for Reimbursement.? Can I avail Tax benefit ?
Thanks again,
Girish Patel

I bought a house on sep 2003 , for 14.5 lacs , home loan 10 lacs and 4.5 lacs i had to avail the personal loan. The house was registered for 12 lacs and 2.5 lacs were pertainig to other expenses.

Now i want to sell the house for 35 lacs. can you tell me what will be my tax liabilty.

If you consider the date of purchase 5 years are over

require your help

Hi,

I have taken plot + construction loan. Initially bank has given amount only for plot. I havent taken remaining amount for construction because iam going to construct later.

Now, i pay emi for the money given initially.

Could you please tell me, can I show or the emi that iam paying will be tax exempted or not.

Thanks

Hi

I have a peculiar situation.

I have taken a Property whose possession I will get in January,2011.

The property exists in a different state from my current working Location.

I have got the Full Disbursement of the Entire Loan Amount from the Bank which has been paid to the Builder.
It happened in June 2008, and the sale agreement,tripartite etc for the Property in my name has been made.

Since July 2008, I am paying the Full EMI ( ie. Principal Amount + Interest , please note that it is not Pre-EMI ).

I have taken the Loan at Fixed Rates for 10 years and it has started in July,2008 and shall end in June,2018.

For the financial Year 2008 - 2009 and the year 2009-2010 , Can you please let me know the tax exemptions that I can avail of.

Thanks

Rishi

hello sir- i was looking for a page like this for some time. i am glad that i found it. i have the following questions (please forgive if it is a repeat)-

I have two questions pertaining to deductions on interest/principle payment on home loan taken for my first house:

1. I own a house in Bangalore but stay in a rented house in the same city and rent out my house. In this case can you let me know the following –

a. What are the deductions that I can avail for the principle & interest payment towards the home loan.

b. What would happen with the HRA? Can I still claim IT relief under HRA?

2. I own a house in Bangalore but currently stay in a rented property in Chennai and rent out my Bangalore house. In this case can you let me know the following

a. What are the deductions that I can avail for the principle & interest payments towards the home loan.

b. What would happen with the HRA? Can I still claim IT relief under HRA?

I have two questions pertaining to deductions on interest/principle payment on home loan taken for my second house:

1. I own my first house in Bangalore & have bought a second house in Bangalore & I stay in my first house. I have rented out my second house. In this case can you let me the following –

a. What are the deductions that I can avail for the principle & interest payment towards the home loan.

b. Also what would happen with the HRA? Can I still claim IT relief under HRA?

2. I own my first house in Chennai & have bought another house in Bangalore & I stay in my first house at Chennai. I have rented out my second house i.e. the house in Bangalore. In this case can you let me know the following –

a. What are the deductions that I can avail for the principle & interest payments towards the home loan.

b. What would happen with the HRA? Can I still claim IT relief under HRA?

I have two more questions wrt to the interest/principle payment towards a home loan (for the first house) if the loan is taken three years prior to the acquisition of the home-

1. Can I start claiming deductions for the principle payment from the year on which the loan is taken? If not then can I start claiming deductions from the year of acquisition? If yes then would it be above allowed limit for that year. i.e. let's say the allowed limit for principle repayment is 1 lakh and it is allowed only from the year of acquisition. Then what happened to principle repayment from the date of taking the loan to date of acquisition. Can this be claimed from the year of acquisition? If yes then would that be above the 1 lakh limit allowed for the year of acquisition.

2. Same question for interest paid.

Thanks for your response.

Hi Jitendra,

The income tax benefit of a home loan can be claimed starting from the financial year in which you get possession of the house.

Thus, if you complete the construction before 31 March 2010, you can claim the benefit for FY 2009-10. But if the construction ends on or after 1 April 2010, you would be able to claim tax benefit of the home loan only from FY 2010-11.

You can not get tax benefit on EMIs paid while you do not have possession of the house. You can claim the pre-EMI interest paid in 5 equal instalments, though, once you get the possession.

Hi Arvind,

Income tax benefit is available only for purchase / construction of a house.

If a loan is taken against a house, no income tax benefit is available.

Hello Naik,

Thanks for the compliments...

For this year, you can definitely claim both principal and interest components, u/s 80C and 24 respectively. The limits remian the same - Rs. 1 Lakh and Rs. 1.5 Lakhs respectively.

For the previous years, you can not claim the deductions in this year. You can file a revised income tax return for these past years, and claim deduction for the principal and interest amounts paid by you. Thus, you shoud get an income tax refund for these past years.

Dear PP,

Since you have held the house for 5 years, any gain would be a long term gain.

The cost price would be Rs. 12 Lakhs, and you would get the benefit of indexation. The sale price would be Rs. 35 Lakhs.

The difference between the sale price and the indexed cost of acquition would be your long term capital gain.

Please read the following to know all about capital gains on sale of a house, and how you can save the income tax on it:

- "Long Term and Short Term Capital Gain - Income Tax Calculation"



- "Long Term Capital Gains (LTCG) on Sale of a House – Calculation and Income Tax"



- "How to save / avoid Long Term Capital Gain (LTCG) Tax on Sale of a House"



- "Set Off and Carry Forward of Losses – Capital Gains and House Property"

Hi,

My situatiion is somewhat similar to Mr Jha & Ullas.
Even I have been paying full EMI for an under-construction house whose possession is expected before March 2009.
The home loan was taken in the month of July 2008 & I have have the provisional statement from the lender showing breakup of interest & principal repayment in the FY 08-09.
However till I get the possession, I will continue to stay in a rented house.

Given this scenario in addition to tax benefit on home loan interest & principal repayment, can I also avail HRA exemption for the rent that I paid in the current financial year?

Hi Shiva,

The income tax benefits are available to encourage people to buy their own houses. Therefore, the benefit is available only if the EMI is being paid to acquire a house.

Since you are paying the EMI only for the land / plot, you would not get tax benefit on this EMI paid.

Hi Rishi,

The income tax exemption on a home loan are available only if the house is in your possession.

Since you are getting possession of the house only in January 2011, you would be able to claim deductions of principal and interest paid only from FY 2010-11.

For FY 2008-09 and 2009-10, you would not get any income tax benefit.

But please don't lose heart - by paying the EMIs, at least you are partially repaying your debt (home loan) every month.

If you had been paying the pre-EMI interest, you would get tax deduction, but the entire money would be a sunk-cost anyway.

So, in my opinion, you are doing a very wise thing by paying the EMI right away.

Hi Venkat,

Thanks for the compliments - I am glad that I am being of help.

About your questions - you have asked about 4-5 different scenarios, many of which are mutually exclusive. All of them can't be applicable to you at the same time.

Therefore, I request you to ask about your current situation, and I would be glad to answer.

For your last question: You can only claim the EMI paid in the particulay FY in that year's IT return. You can not claim previous years' EMIs. Also, the limit u/s 80C and u/s 24 does not go up in this case.

Dear Girish,

Thanks a ton for the compliments...

Yes, you would be able to claim tax benefit for the reimbursement for an amount upto Rs. 15,000 - this benefit can be claimed for Ayurvedic treatment as well.

Hello Sir,

I have a mortgage loan on my home. Can I get the income tax benefit on this?
I am paying approx. 15000 per month as EMI. Or there is any other way I can transfer this to home loan through which I can get the benefit for IT.

Regards
Ganesh.

A & b are joint owners and joint borrowers of home loan of rs. 40 lakhs. interest on home loan comes to rs.4,60,000 per year. pl inform me, whether A can claim Rs. 1300000 and B can claim Rs.1300000. Both are paying 50% share of repayment through their joint account. And for principal repayment whether A and B can claim Rs.30000/- each separately under section 24 . total repayment of principal come to Rs.60000/- for the home loan takne by them.

Dear pbaldi,

Yes, you can claim both HRA exemption and income tax benefit for EMIs paid simultaneously.

Dear Ganesh,

A mortgage loan and a home loan are not treated separately - you can claim IT benefits for either of them.

Your bank / financial institution should be giving you a breakup of the interest and principal amount paid during the year through the EMIs - please use these amounts to claim the income tax benefits.

Hi thayanandam,

The IT benefits of a home loan can be claimed in proportion of the EMIs repaid.

In your example, a & b are paying the EMIs equally. Therefore, yes, both a & b can claim the benefits 50-50.

Note: Principal repayment is claimed under section 80C - interest is claimed u/s 24.

Hi I have question regarding partial let out of house. I have built Ground floor and first floor. I am staying in G foor and will let out Ist floor for rent this month(Jan , 2009) . In this case can I claim full interest as rebate ( without cap of 1,50,000) for the year 2008-09 since I am renting partial house ?.

dear sir, i have the following questions wrt interest & principal component benefits-

in cases where the entire loan amount is disbursed then i believe that the emi will have a principal & interest component. in this the benefits for the principal & interest gets lost for the financial years in which the house is under construction. is this correct?

ok now let me explain my question with an eg-

the bank pays the complete loan amount in jan 09. the emi starts from the month of jan 09.
the rule says that i can start claiming benefits (both 80c & 24) from the year the house is completed or acquired. what does completed or acquired mean? does that mean the house has to be registered in that financial year?

Dear GKS Rao,

Yes, you can claim the full interest amount as deductible from tax, without the cap of Rs. 1.5 Lakhs.

Hi Venkat,

The entire benefit of the EMIs is not lost.

The benefit of principal repayment is lost.

But you can still claim tax benefit for all the pre-EMI interest paid, and the interest component of the EMIs paid. This needs to be done in 5 equal instalments starting from the year in which you get possession of the house. The cap for deduction of interest u/s 24 remains Rs. 1.5 Lakhs in this case.

By "completed", it means that the construction of the house is over. This is usually when the builder hands you the possession of the house.

dear sir, i didnt expect such a quick response. thanks & wish u a happy new year.

btw, i need some clarification on long term capital gain tax on house.

i sell my house after 3 years on a profit say 10 L. i understand that there are three ways of off setting the LTCG.
1. buy another house within 2 years of sale of the current house. so if i sell on jan 09, then does the 2 years end on jan 11 or mar 11 (ie end of FY)?

2. construct a house within 3 years of sale of current house. so if i sell on jan 09, then does the 3 years end on jan 12 or mar 12 (ie end of FY)?

3. a house that i bought in the previous yr. so if i sell on jan 09 then does the previous year means jan 08 or apr 07 (start of the FY)

important question wrt tax filing - at the time of sale i dont how i will offset because i dont know which of the first 2 options will i opt for. then in that case how should i be filing the return?

thanks.

Hi Venkat,

Wish you too a very happy new year.

I try to respond as soon as I can. I was away for a few days, and replies took time. but now I have cought up, and should be responding quickly.

Now about your queries:

The time limit depends on the date of sale, not end of the financial year. So, it would not be March, but Jan in your case.

When you don't know how you would be investing the amount, but have decided that you would want to do one of the possible things, you put the money in an escrow account - this means that you are earmarking the amount for future tax-saving investment.

You can get all the details for saving income tax on sale of house in the article "How to save / avoid Long Term Capital Gain (LTCG) Tax on Sale of a House".

Hi Sir,

I have one clarification required with regard to EMI exemption. I have taken a home loan for which i am paying EMIs from May 2008. I am getting the possession of the house this month i.e. Jan 2009. So is it that only the EMIs from Jan,Feb,March 2009 are eligible for exemption, or all the EMIs that I have paid in the financial year uptil now are exempted?

Thanks,
Apekshit.

Hi Apekshit,

If you are paying EMIs before getting the possession, you can start claiming the full income tax benefit from the FY in which you get the possession.

Since you are getting the possession in Jan 2009, which FY 2008-09, all EMIs paid during this FY would qualify for sec 80C and sec 24 benefits.

Raag,

You are really Gr8 in your domain !!!!!!!!!!!! "Hats off"

I have a question regarding my House Loan Pre-EMI that I have taken in July 08.

My ammount sanctioned Rs 25,71,250.00/
Ammount Disbursed Rs 21,28,250.00/

So till now I have paid Rs 90,000.00 (July 08 to Dec 08).

1.Now my question is how can I get Tax benifits on Pre EMI ammount ?

2.When I asked to the bank they said, you can go for EMI under construction, so you can get the TAX benfits on Pre-EMI ammount (Under 80cc if your company accepts, because few comanies do's & few not) as well as Jan/Feb/March month EMI under construction ammount. We can give you the Statement letter within few days of this conversion.

So should I go for the conversion from my bank ? i.e. from Pre-EMI to EMI under construction for getting the Tax benfits for the ammount which I paid (Pre-EMI) + (EMI underconstroction).

I can even get the possesion letter from the builder if needed.

Plsss help me / guide me with your expert suggestions.

If possible you can suggest me any good consultants in Bangalore.

Amarendra Singh
Bangalore.

Dear Sir,
Very good articles and a very informative website to refer for tax/finance related stuff.
I have recommended it to many of my friends...Thanks.

I have question related two house loans.

I have taken the first home loan in Feb. 2005 (self occupied); the principal component for this home loan in current year is 45000/- and interest part is 60000/-.

I have purchased second home loan in dec 2007 which I will be getting possession in next month (feb 2009)...Here still I have to pay full disbursement to Builder in next month.
The interest for this home loan in this financial year will be 2,50,000.
I will be getting possession letter also in next month and after possession I have no plan to rent it out.

Now question is

Whether I am able to claim interest for both the properties i.e 63,000 + 250000 + 5000 (20000/4 – as PEMI in last FY) and principal component of 45,000/- in this FY.

Thanks

Hello Sir,

Thanks a lot fpr all the information.It was really really helpful.

I can now understand that I caanot avail the benefits for the home loan antil i get the possesion which I am going to get in April(hopefully) but can i get the stamp duty & registration benefit under sction 80 CCwhich i have paid for my property?

Hello Sir,

I have a home home which I have rented out.However, I myself stay in a rented house since my own house is far from office. In this case, can I claim both for both HRA & home loan tax benefits?

Hi Amarendra,

Thanks for all the praise. I am just trying to help as much as I can...

For an under construction house - from the income tax point of view - it doesn't matter if you are paying an EMI or a pre-EMI.

In both the cases, you would be able to claim the interest only from the year in which the construction gets over.

Even then, you would be able to claim 1/5th of the interest paid (before the construction got over) every year for 5 years.

Also, if the construction is not over, you can not claim the principal repaid under section 80C.

Thus, from income tax point of view, the situation is the same.

However, since you are saying that you can obtain a possession letter from your builder, I believe you can substantially benefit from paying the EMI instead of the pre-EMI interest.

Paying EMI instead of pre-EMI has another big benefit - you start repaying your loan (dur to the principal component of the EMI) right away, instead of paying just the interest.

Hello Mr. Kulkarni,

Thanks for the kind words, and thanks for recommending my website to your friends. I really appreciate it.

Yes, you can claim interest for both the properties i.e. 63,000 + 2,50,000 + 5000 under section 24.

The only problem is that there is an upper limit of Rs. 1.5 Lakhs. So, instead of the full Rs. 3,18,000 you would be able to claim only Rs. 1,50,000.

However, if you give out the new house on rent, there would be no limit to the amount you can claim for the rented house. In that case, you can claim the full Rs. 3.18 Lakhs.

You can also claim the principal component of Rs. 45,000 in this FY u/s 80C, as it is your self-occupied house. You would NOT be able to claim the principal component for the new house, as it is not self occupied.

Hi Partha,

Unfortunately, you would not be able to claim this.

Stamp duty and registration charges can be deducted from your income u/s 80C only if you get the possession of the house in the year in which you paid the stamp duty and registration.

Hi Ani,

Yes, you can claim both home loan income tax benefits and HRA together.

For more details on this, please read "Income Tax (IT) treatment of House Rent Allowance (HRA)".

Hello sir,

Please let me know what should be there in CCC. My house will get completed by March of this year but I have to give all the proofs to my office by Feb.

Thanks,
Sridhar

Hi Sridhar,

I do not believe that a Construction Completion Certificate is a very detailed document. It has to state that the construction is over, and you can take possession of the house and can start staying in it.

If you are getting the house from a builder, the possession letter would suffice.

Any builder or construction contractor should have a standard format CCC available with him.

Dear Sir,

We ( my father & me ) have availed home loan to construct home at my fathers plot. Bank sanctioned loan based on my income since my father have no source of income iam repaying the entire EMI. Can i claim tax benifit for priciple & intrest repayment ??

thanks & Regards,
thilagarbabu

Dear Sir,
Good to see your valuable advise on financial queries. Thanks.

Sir, I have taken a home loan in 2004 ( plot + construction ) and built a house ( only ground floor ) and it is self occupied. Now I want to build 1st floor for which I would need to take additional loan. My query is
a) To go for Top up loan. But I am aware that this will not help in claiming tax.
b) Can I take 2nd home loan to construct first floor?
c) Whether banks will give home loan on such property ( ground floor ).
Please advise.
Thanks
Arun.

Hi Thilagarbabu,

Income tax benefit of a home loan is available in proportion of the payment of the EMIs.

Since you are paying all the EMIs, the entire benefit of principal and interest can be claimed by you.

Dear Arun,

Looks like you are mistaken - income tax benefit is indeed available for top-up loans, subject to some conditions.

Interest paid on a top-up loan or a home improvement loan is eligible for tax benefits under section 24 (just like the interest paid on a home loan), provided that the top-up loan in used for construction / repairing / extending a property.

The principal repayment does not have any tax benefit.

Thus, in your case, if you take a top up loan to construct the 1st floor, you would be able to enjoy the tax benefit due to the interest repaid.

Please preserve any receipts, etc from the contractor / shops that you buy materials from - this is needed because you might need to prove that you used the funds for construction and not for something else.

Dear Sir,

First of all a big Thank You for answering every one's query in detail and leading an initiative to educate people in one of the most complex aspect of an idividual in day to day life.

I have bought a house around six month ago in my native and I am working in Bangalore. I have got the pocession of the house and I have municipality's Completion Certificate. Since the house is purely for investment purpose it is locked (meaning nobody is staying there). Hence we have not taken an electricity or water connection. When I submitted the completion certificate along with bank documents for tax benefit my company is saying that they need at least one water/electricity bill as a proof that I have occupied the house. Does the company have an authority to ask for such document? Couldn't they rely on municipality's certificate?

Thanks,
Amar

Hi amar,

Thanks for the kind words...

The relevant sections do require that the house be meant for your occupation - but I am not sure if that necessarily means you need to have a water or electricity bill.

If your company doesn't agree, you can always claim the deduction while filing your IT return and claim a refund.

Dear Sir

Please guide me in the following situation:

A person is a salaried employee working in Noida, Uttar Pradesh.

- He owns 2 house one in Noida, UP and other in Faridabad, Haryana.
- Live in Noida on rent.
- Claim HRA from Employer
- Taken a housing loan for Noida property
- Receiving rental income from Faridabad property,

Kindly guide me about the tax treatment of the interest and principal payments. He is paying interest of Rs. 2,00,000 p.a, can he claims higher interest

Hi Shailesh,

The tax benefit for principal repayment can not be claimed for more than Rs. 1 Lakh repaid. This limit is applicable irrespective of the number of houses / home loans and irrespective of whether the houses are given on rent or not.

However, there tax benefit of interest paid would be different. You can claim interest without any upper limit if the house for which you are repaying a loan is given out on rent.

your situation is different, though. You have taken a houseing loan for one property, and have given out another house on rent. Therefore, in your case, the interest amount that you can claim as an expense (that is, deduct from your income) would be capped at Rs. 1.5 Lakhs.

I read your article 121 on issues related to Income from House property. Your views and clarifications are very nice. You have discussed in lucid way.

I have noted the following two views from your article:

1. You have said that claim of deduction U/s.80 C for principal repayment is possible only in case of self occupied house property.

2. Also you have said that instalments of principal repayments cannot be claimed before taking possession of the building.

I do not find any of the above restrictions in Sec.80C. Can you tell me how you have given this opinion.

Hi Velu,

1. Here, the meaning of "self occupied" is to be considered as per section 23(2) of the IT Act. This means that the house should be "meant for self occupation", and not necessarily be self occupied.

2. Yes, section 80C doesn't mention anything directly anout "taking possession of the building". However, section 80C says that the benefit is available for "a residential house property, the income from which is chargeable to tax under the head Income from House Property".

An income from a house is chargeable to tax under the head Income from House Property only if you possess the house, and hence the conclusion that principal repayment cannot be claimed before taking possession of the building.

Hope that clarifies.

Hi RaagVamDatt,

This query is regarding Income tax benefit for a second house home loan.

1) I work and stay in mumbai. I have a house in mumbai which is rented out and I stay with my brother in his house.

2) Now I would like to purchase another house in mumbai.

Wish to know if I would get tax benefit for home loan principal and interest that I will pay for the second home house loan.

Thanks in advance...

Best Regards
Dheeraj

Hi Dheeraj,

Yes, you would be able to get income tax benefits of a home loan taken for your second house.

Hi,

I have two questions regarding deduction of interet on HP:

1)I have purchased a house and can I give it to my father on rent and get full deduction of interest as there is no limit of 1.5lacs applicable to letout property.

2)If the purchased property is not in the city of living then will this house be treated as selfoccupied or let out. If let our then I need to show some rented income.

Regards

Hi,

1. Yes, you can. You would need to have a lease agreement in place. Your father would be paying you rent every month, and you would issue rent receipts to him. This rent would be added to your "Income from house property".

2. If your house is not in a city you are living in, it would still be considered as self occupied if you have not let it out AND you do not own any other house. If you have multiple houses, only one would be treated as self occupied and the remaining would be treated as let out.

dear,
i foreclosed a home loan by taking money from my parents in April 2008. my questions are:-

1. what are the formalities to be followed so that the money i took from parents becomes a valid home loan from them for purpose of availing relief in income tax?

2. how much interest i can show i am paying to them (off course within limit of Rs 1.5 Lakhs) on lian of Rs 4 lakhs? what are the formalities?

your comments are very helpful and ilustrative. Its a very good website. thanks for the facility.

Hi Neeraj,

Thanks for the kind words...

1. There are no specific formalities to formalize a loan as a "home loan"

2. There is no restriction on the interest a relative can charge for a home loan.

I would however advise you to remain reasonable. That means the interest can be anywhere between zero (interest free loan) to the prevailing interest rate.

Tax Implications:

I hope you know that the tax benefit of principal repayment u/s 80C is available only on home loans taken from financial institutions.

So, for a home loan taken from your father, you would not get any tax benefit u/s 80C.

There is no such restriction for interest paid - so, you would be able to claim interest paid u/s 24 as usual upto Rs. 1.5 Lakhs per year.

Of course, this interest would be taxable in the hands of the receiver - your father in this case.

dear sir,
My home loan account No. is LBSRA0000018375.Please sent me my under address income tax proviginal certificate 2008-09 and detail prinicple and interest
shri Mahadev Dhondiram Khilare,
188 Yodogopal Peth, F-17 Gurukul residency, near samarth Hospital satara city At.Po.Satara, Tal./Dist. Satara, maharashtra.

dear sir,
My home loan account No. is LBSRA0000018375.Please sent me my under address income tax proviginal certificate 2008-09 and detail prinicple and interest and change my old address. my new address is as under.
shri Mahadev Dhondiram Khilare,
188 Yodogopal Peth, F-17 Gurukul residency, near samarth Hospital satara city At.Po.Satara, Tal./Dist. Satara, maharashtra.

Hello Mr. Mahadev,

Only your bank would be able to give you financial details like this - please approach your bank for the same.

Issuing a provisional certificate should not be an issue - it is usually issued at the beginning of a financial year. The bank would also provide a final certificate after the financial year ends.

Owned a house property share @50% each on joint names of spouses. I pay EMI to the joint loan. The lease rent is paid separately 50% each to me and my wife. Shall I be chargeable to lease rent paid to my wife. Am I entitled to claim total deduction of interest and principal on the total EMI paid by me.

Please reply.

Thanks

D.V.Subba Rao

Hi,

The income tax benefits of a home loan are available in proportion of the repayment. Thus, if you are making all the EMI payments, all the income tax benefits would be available only to you. This includes both principal and interest.

Similarly, all income arising out of the property would also be considered yours. Thus, even if 50% of lease is paid to your wife, it would be considered your income and would be taxed in your hands.

Hi raag,

I had taken a personal loan 10 months back. Iam paying EMI regularly. Shall i show this payment of Principle and interest for Income tax deduction.

Hi Kishore,

Unlike a home loan, no income tax benefit (for principal or interest) is available for a personal loan.

Hi Raag,

I have taken home loan in March-08 for purchasing a plot and constructing a house on that. The bank has been giving me the loan amount in installments and the final installment is expected by March15-09. Connstruction is also expected to be completed by March15-09.

Till date I was paying PreEMI. My question is, for this financial year, can I avail the tax benifits of PreEMI payed. If I can get the tax benifit, what kind of documents are required to be submitted.

Thanks In Advance,
Dinesh.

Hi Raag,

Great to see such a nice article. you had kept things really simple and easy to understand.

I need a few clarifications on the tax exemption on HRA and Housing Loans.

I own a house for which the housing loan was taken and i am paying the EMI's. But my parents are staying in the house and i am statying in a rented house, but in the same city.

In this case whether i am eligible to claim exemptions on HRA, Interest and Principle on housing loan??

Thanks in Advance,
Regards
Suresh

Hi Dinesh,

Yes, you can avail the benefits of the pre-EMI. However, it can be even better for you. Let me explain.

Since the construction is getting over this year (before 31st March), you would be able to claim the pre-EMI interest paid in this year as the interest paid.

That is, instead of claiming it in 5 equal parts over 5 years, you would be able to claim all the interest paid by you between 1st April 2008 to 31st March 2009 in this year's IT return itself!

You would also be able to start claiming any pre EMI interest paid in the previous years (before 1st April 2008).

You would be able to claim 1/5th (20%) of this interest paid over 5 years, starting this year.

The documents you would need are:

- A certificate from the bank stating the interest (and principal, if any) paid by you during the year.

- Certificates from the bank stating the interest paid in the past years (if applicable) (certificates issued in those years are valid - no need to get a fresh certificate)

- Proof of completion of construction

Hi Suresh,

Thanks for the kind words... I am glad that I am being of help.

You would be able to claim the tax benefit of housing loan. So, you can claim benefit for both the interest and principal components.

As far as HRA is concerned, you can claim HRA exemption if you have a reason for staying in a different house in spite of naving your own house.

This can be because your own house is inconvenient for your job (commute, etc.), it is given out on rent, because parents are staying in it, etc.

Since your parents are staying in your house, you should be able to claim HRA exemption.

Hi Raag,

Thanks a lot for your reply. Really i have no words to describe about this site. i was googling yesterday for details about hosuing loan and found your site. I think i can find details on any financial matters here. Great Going Raag. You are really rocking !!!!

Regards
Suresh r

Hi Suresh,

Thanks a lot for these very kind words... I am really happy that I am being of help...

Hi,

I have taken 8lakhs loan in 2004 and i have so far payed principla of 2,22,620 and interest of 3,12,781

my payment tenure is 10 and i am paying 9,343 as monthly instalment. I think the tenure has incereased for somemore year but i dont know how many

My question is i was to pay Rs. 3 or 4 Lakhs now as a lumsum amount to HDFC back.
how much remaining i need to pay to back if order to close the account

And if i want to completely close the account then how much do i need to pay towards final settlement

Pls help me understand this concept

Thanks
nadeem

Hi Nadeem,

It is actually quite simple.

Your loan amount = Rs. 8,00,000.
Principal repaid till now = Rs. 2,22,620

Principal outstanding = Loan amount - Principal repaid till now

= Rs. 8,00,000 - Rs. 2,22,620

Thus,

Principal outstanding = Rs. 5,77,380.

Therefore, if you want to close your account now, you would need to pay Rs. 5,77,380 (plus any prepayment panelty, if applicable).

If you pay Rs. 4 Lakhs now, your outstanding balance would be:

Rs. 5,77,380 - Rs. 4,00,000 = Rs. 1,77,380.

The bank would either reduce your EMI amount or the number of remianing EMIs (tenure of the loan) to accommodate this.

Hi,

I've taken loan in my & dad's name jointly but all EMIs are paid by me only. Am i elegible to claim IT exemption on repaid principal amt & Interest? Also give IT act reference to this clarification.

Thanks

Dear sir,
i am a bussiness man and my wife is a govt. school teacher. we have taken house in joint names and registry & houseloan are in joint names. 50-50% and i am having current account in the same bank.
what has been done is cheque is given by my wife in the current a/c and bank debit the EMI from the current a/c ,in this case can we both of us take rebate in income tax.
but the school official are not aggree though we have shown the evidence also they say amount has not been difectly paid in the EMI,can we give the income tax return and show in this way that we have paid 50-50% amount of the EMI.
regards,
atul gupta.

Hi Bina,

The IT benefits of a home loan are available in proportion of the EMIs paid.

Since you are paying all the EMIs, the entire benefit would be available only to you.

The relevane sections as Section 80C and Section 24.

Hi Atul,

I believe you should be able to claim the benefits 50% each.

Although the EMI is not directly paid out of your wife's account, if asked by the assessing officer (AO), you should be able to prove that 50% is indeed paid by your wife.

Hi,

First of all I want to thank you for creating such a wonderful site having wide range of articles related to investments. The good part of it is, the articles are designed to understand a layman; no fancy words, no clutters.

I feel unfortunate for being alienated from such a wonderful creation ;) I wish you all the success in your future endeavors’.

My query is:

I availed a housing loan of 14 lacks in 2005 with floating rate of interest from HDFC. I am paying 14,451 rupees towards a EMI.

Now I got some surplus amount with me (@ 13 lacks). Following is my investment plan:

1. I am planning to buy one more house (1BHK). My budget is @ 11 lacks and can be stretched to 14 lacks. I will put 7 lacks from my pocket and my father is ready to contribute 2 to 3 lacks and rest 3 lacks can be arranged from Bank.

2.From remaining 6 lacks (13 – 7 (for house)) I want to pay @ 4 lacks towards my housing loan, 2 lacks I want to invest into equity and mutual funds.

My age is 27 years and I am unmarried. My annual income is @ 7 lacks. My parents are independent.

Considering all above, am I making right choices or something needs to be corrected? Could you please guide on this?

Hi Swapnil,

Thanks a lot for all the praise. It is really very encouraging. I try to keep it simple so that everyone can understand the concepts - and I am glad that you think I am succeeding!

Let's come to your query.

You are 27, unmarried, and your parents are not dependent on you. Therefore, you can take fairly large risks in order to gain more returns.

Paying back housing loan:

In your case, this might not be a very good idea. You are young, and have adequate income to support the EMIs. Also, the EMIs give you income tax benefits. Your home loan is also a floating rate loan, and the interest rates are coming down these days.

So, it would be better if you continue with the regular EMIs instead of prepaying the loan partially.

Buying another house:

Since your income is Rs. 7 Lakhs per year, taking care of the additional EMI for the second loan shouldn't be a problem (the extra EMI would be rather small anyway).

I believe this house would be for investment, as you already have one house. There are a few things to consider in this case: One, the property prices are expected to go down even further (around 10-15%) in most cities in India. So, you need to decide if this is a good time to buy a house for investment purpose.

Secondly, you might be thinking of earning from the house by giving it out on rent. When house prices fall, the rentals would also fall somewhat (though not much). Please consider this in your calculations as well.

So, if you think the timing and price are appropriate for the area in which you are planning to buy the property, go ahead.

Instead of borrowing from your father, you can consider borrowing more from the bank. Your current income (plus any additional income in the form of the rent that you receive) can support the extra EMI amount, and you would get additional tax breaks.

How to utilize the remaining Rs. 6 Lakhs:

You have suggested that you repay Rs. 4 Lakhs of your housing loan, and invest Rs. 2 Lakhs in shares / MFs. I have advised against repaying the loan. I also advise against investing Rs. 2 Lakhs in stocks / MFs in a lump sum.

This is what you can do instead: Put the Rs. 6 Lakhs in a bank FD, with a monthly interest payment option. Use this interest to invest in SIPs of 2-3 good diversified equity MFs. This way, you would be investing in stocks gradually.

If you are able to keep the FD at say 8.5%, the Rs. 6 Lakhs would yield Rs. 51,000 per year = Rs. 4,250 per month. Even if you consider income tax at 30%, you would get Rs. 2,975 to invest every month.

At the same time, you would be preserving your capital of Rs. 6 Lakhs. This capital can be used at any time to prepay the home loan if you feel the circumstances have changed.

Hope this helps. Let me know if you need any clarifications.

I read all your answers..but I am still not clear about my query.So i m writing you.
I have 1.50 lacs of LTCG from sale of a plot, which i reinvested in some other plot costing app 40 lacs. the Possession of my new plot will be given by the builder after one year and i have the obligation to complete the construction on new plot within 3 year of possession.

Am i elligile for tax rebate u/s 54

Hi Rajesh,

Section 54 applies for saving income tax on LTCG from sale of a house. Sale of land is not covered there.

If you have long term capital gain from sale of land, you can save tax on LTCG using section 54F. Here too, you need to buy a house, but the main difference is that you need to invest the entire sale amount (and not just the amount of capital gain).

In your situation, yes, you would be able to claim income tax benefit under section 54F.

By the way, thanks for checking the other asnwers befor posting yours - most people do not do that!

Hi ,

I want to construct a shops for commercial use on site which is in my fathers name.

i want to take a home loan for this, can you suggest me the best options for the loans.

I heard PSU's are always better, but i want to know about the LIC's housing finance in comparision with Nationalise banks. I am looking for a loan of 10-15 lacks with ten years of tenure.

Thanks in advance
Santosh

Hi Santosh,

A home loan is available only for the contruction of a house.

For building a commercial property / shops, you would need to take a regular loan from the bank.

A housing finance company would not be able to provide you a loan in this case.

Hi,

Would like to know if the EMI of a Housing Loan can start once the House is Registered in the Buyers name?..(or) will it start only after the handover of the keys by the Builder. Does this have any relation to the completion of the entire Project i.e if the Project is a 9 storied Project and if the first two floors are in a stage for Registration, can these be registered in the Buyers name so that they start paying the EMI and there by get IT rebates

Thanx..Sajeev

Hi Sanjeev,

When the full EMI starts depends on the bank and its risk-assessment.

When construction is still going on, there is alsways some risk that the completion of the building would be delayed due to some reason.

Due to this, some banks do not release the full loan amount until the construction is over.

However, many banks do pay out the full loan amount even if the construction is underway.

A full EMI starts once the full loan amount is disbursed. Thus, whether you pay an EMI or just pre-EMI interest depends on your bank.

(Registration can be done at any stage of construction, and the EMI doesn't depend on registration)

Thank you for the response. Would like to know one more thing. When will I be eligible for IT Rebates on the EMI's paid. Can it happen after the Registration of the House (or) can it happen only after the Possession of the House?..

Thanx..Sajeev

Hi,

Can you tell me that, when somebody is paying Lease Rent, is that can be treated as HRA exemption??

Kindly guide me.

Hi Sanjeev,

The tax benefits of a home loan are only availabe after the possession of the house.

The interest paid before getting the possession still gives you tax benefits, but not any principal amount paid.

The details can be found in this article itself (and in the comments).

Hi Prosenjit,

Yes, lease rental paid is treated similar to regular rent paid. So, it can be considered for HRA exemption.

Please read "Income Tax (IT) treatment of House Rent Allowance (HRA)" for more on HRA exemption.

Thank you for the responses to both my queries.

Cheers..Sajeev

sir, i have taken housing loan and took a insurance against the hsg loan. let me know the premium paid for that hsg loan is totally non-taxable. during income from property calculation, total insurance premium paid should me deducted from income from that property. if this deduction is there, then let me know under which section of income tax it comes.
i am giving below the article received from ur website:

Deductions / Exemptions: The following can be deducted from the rental income before calculating income tax on it:

Repairs and collection charges (25% of the rent less municipal taxes – also called the Net Annual Value)
Any interest paid on amount borrowed to fund the property purchase
Any insurance premiums paid to insure the property
Any tax paid to the state government in respect to the property.

plz let me know under which IT section
regards,
bmandal

Hi,

We are presently residing in a flat that is in my father's name.

We wish to sell this property and take a home loan in my name to buy a bigger flat for residential purpose.

Please advise what shall be the tax liability on my father on the proceeds from sale of his flat that we reside in, the same proceeds shall be used to buy another flat for residential purpose but in my name or in a joint name.

Regards

Manas

Hello Bhishmadev,

I think there is some confusion - when you take a home loan, you usually buy life insurance for an amount equal to the home loan amount. (And not property insurance).

This amount is deductible as per section 80C of the income tax act. For more on this, please read "Saving Income Tax – Understanding Section 80C Deductions".

Hi Manas,

Please read "Long Term Capital Gains (LTCG) on Sale of a House – Calculation" and "How to save / avoid Long Term Capital Gain (LTCG) Tax on Sale of a house" for calculating tax liability on sale of a house, and for ways to save the income tax on the long term capital gain from it.

However, let me mention that if the old house is in your father's name, to save tax, the new house has to be in his name too. He can be a joint owner investing his LTCG amount.

If it is in just your name, he would not be able to save any income tax.

I am having house at Chennai constructed (where my family staying now)out of my banks staff housing loan and availing IT exemption. This year I purhased a plot at my work place at Hosur(availed under public scheme). Can I get housing loan instalments and interest benefit for the both the loans or can I get exemption benefit of my choice by using latest loan

Hi Jinendiran,

You can get tax benefits on two housing loans simultaneously, within the limits specified in this article.

But please bear in mind that you would be able to get income tax benefit of housing loan for the Hosur plot only after you construst a house there - no tax benefit is available for a loan taken for buying a plot.

Hi Raag,

Thank you very much for your valuable suggestions and quick response. I guess apart from investment you can guide us on another front: social concern and time management.

I really appreciate your passion to educate the people without charging even a single penny. I would definitely like to recommend this site to my family and friends!! In fact I recommended to most of them…

Your suggestions would be of great help for my financial decision. However I have still few more queries.

Query1:

1.First of all there was mistake from my side @ mentioning the year of availing the loan. I availed loan in 2007 and not 2005. I did following approximate calculations.

a) First calculation: With paying back 6 Lakhs
First instead of paying back 4 Lakhs if I pay 6 Lakhs towards my housing loan then my loan will be finished by 2015 and hence I will be saving @ 20 Lakhs (I assumed average interest rate of 10% for 20 years) which I would have paid cumulatively at the end of 2027.

b) Second calculation: Without paying back 6 lakhs
Now I did second calculation assuming I am putting 6 Lakhs in FD which will yield me 35700 Rs @ 8.5% annually negating the income tax (30%). And I assume I will start putting this money in SIP from 2009, which will yield me @ 10 Lakhs considering average returns of 20% at the end of 2027.

c) Again after paying back 6 lakhs I will lose @ 66,000 Rs interest per year (very conservative assumption, actual value will be varying per year) for tax calculations. Hence for second calculations I will be saving 66000*30/100=20000 per year. Suppose this money also I will invest into SIP then @ 20% return rate I will earn @ 5.3 Lakhs at the end of 2027.

d) And thirdly I will be having 6 Lakhs safe in FD at the end of 2027.

Adding all above i.e. 10+5.3+6≈ 21 Lakhs, which is comparable to first calculation? Then effectively I will be gaining only 1 Lakhs assuming 20% returns on SIP investment. And to get that, I need to invest the earnings from FD and tax benefit in SIP. Considering current prevailing situation, do you see 20% or more returns are quite possible?

I don’t know if above calculations are correct or not! Could you please correct me if I am wrong and guide me further.

Query2:

This is regarding tax applicability in case of let out property:

My present property is in Pune and I work in Bangalore. Previously it was occupied by my family, but from last month I gave it on rent. Now Second property also I want to buy in Pune .And this property also I will let out.
Considering above situation what and all I can claim for Tax benefit: Only interest component of loan for both properties?

Query3:

Could you please suggest few good SIP funds?

Hi Swapnil,

Again, thanks a ton for all the very kind words... You telling your friends and family about the website is the best payment for me!

Query 1:

I think the calculations are not correct....

Here is what you should compare:

A. Post-tax interest saved after amount repaid

B. Amount generated from investing less interest paid on loan

If A is more than B, repay the loan. If B is more than A, do not repay, and instead, invest the amount.

To find A, find out the interest that you would have paid without repaying the loan. From this, subtract the amount of interest you would pay after repaying the loan.

This is the amount of interest saved.

Since you would anyway have saved tax due to this interest, multiply this amount by 0.7 - this gives you the post-tax interest saved after amount repaid (A).

(This can be found out by tweaking various amounts in the home loan amortization calculator - you can download the home loan amortization calculator here - you need to be logged in)

Unfortunately, your calculation of returns from stock market investment is also incorrect.

First of all, expecting a 20% return is very unreasonable. Stocks give 12-15% returns in the long run. So, assuming say a 13.5% return is more reasonable (and much more probable as well!).

Also, looks like you have calculated simple return instead of compound return - after all, you would plow back all your stock market earnings into stock market again.

Thus, investing Rs. 37500 into stocks every year till the year 2027 would give you Rs. 26.32 Lakhs if we assume a rate of return of 13.5%. (This is B)

So, to get the answer to your dilemma, just compare A and B for your case, and decide accordingly.

Query 2:

You can claim the full interest repaid for both the properties (and not limited to Rs. 1.5 Lakhs).

You would also be able to claim tax benefit on the principal amount repaid for both properties, subject to the upper limit of Rs. 1 Lakh of section 80C.

Query 3:

Unfortunately, at this stage I do not recommend particular stocks or funds on the website.

Please choose an equity diversified fund with a good long term track record.

Hi RaagVamdatt,

It is a very informative and active portal what you maintain. congrats.

My question to you is i live in bangalore and i am renting out. I would like to buy a apartment and rent it out. This will be my first property and what i would like to know is that can i under section 24 of income tax act claim this first property and get tax deduction benefits (which would not be capped at 1.5L).

thanks

Hi Purav,

Thanks a lot!

As per section 24 of the IT Act, there is no cap on the interest paid (that can be claimed for income tax benefit) if the house is given out on rent.

This is irrespective of whether the house is your first house or not.

Thus, in your case, you would get the tax benefit without the upper limit of Rs. 1.5 lakhs.

Hi,

I am very glad to have found your site. It is in deed the best income tax site that I have seen so far.

I have a query:

I have booked a flat in a big apartment complex that is being built by a reputed builder in Chennai. The total cost of the flat is 34 lacks, and I had applied for Rs 28 lacks loan from HDFC, which was approved.

HDFC had been disbursing partial money to the builder based on the stage of the construction. The disbursement started in May 2008. Still some 5 lacks is expected from HDFC to be disbursed in the coming months to the builder.

According to the original estimate, the Builder promised to give posession of the flat by March 2010, but now he has declared that he will give posession by December 2009 itself.

So far I have been paying Pre-EMI to HDFC on a monthly basis. The Pre-EMI amout I paid varied everytime there was a disbursement from HDFC to the builder.

So far I have not been claiming any income tax benefit.

So the actual EMI for the entire house loan will start in December 2009 (due to the possession being given in December 2009). Now, since the possession is going to be in December 2009, how can I start claiming the income tax for it from 2009-10 financial year?

Also, since the disbursement from HDFC is going to vary (some 5 lacks is still due at various stages in the coming months), how to declare it for claiming income tax benefit? How can I declare this during April 2009 so that it will be considered for TDS?

I work for a private software firm. My age: 32; I have 2 kids.

Your response will greatly help.

Hi Harikrishna,

Thanks a lot for the kind words - I am glad that you think I am being able to help.

Coming to your query.

The full income tax benefit of a home loan starts from the financial year in which you get the possession of the house.

Since you are getting poossession in Dec 2009, you can claim full tax benefit for all the amounts paid in FY2009-10 - that is, between Apr 09 to Mar 2010.

This includes the principal component of the EMI paid from Dec 2009 to Mar 2010 under section 80C and the interest component of the EMI paid from Dec 2009 to Mar 2010 under section 24.

IMPORTANT: You would also be able to fully claim the pre-EMI interest paid from Apr 2009 to Dec 2009 under section 24.

The pre-EMI interest paid before Apr 2009 can be claimed under section 24 in 5 equal installments as explained in this article.

As far as including this in TDS is concerned, you can get a provisional certificate from the bank that would show the likely pre-EMI interest, interest and principal you would pay during the year.

Also try to get a letter from the builder that the possession would be given in Dec 2009.

Both these should be sufficient for your employer to consider the principal, interest and pre-EMI interest in your TDS calculation.

Dear sir,

I was going through your article about saving of income tax by buying a flat. The article is a superb piece and clarifies most of the doubts.

But i have a query to bother you.

I have bought a flat worth 23 lakhs and i m taking a home loan of Rs 19 lakhs form a PSU bank. The flat construction is almost ready but the possession by the builder shall be given to me only in October this year (2009).

However since the outer construction is fully complete the bank shall release the complete loan in this month end ( Apr end). so the EMI of the bank shall commence in May 09.

So the query is as follows:

You have said in your article that till the time I get the possession of the house I cannot ask for rebate from the Principal repayment.

However I suppose I shall be given the Tax benefit on the Interest payment till i take the possession of the house.

Am i correct or Not? What should be shown to my paying authority so that they do the adjustment of the Interest payment part?

Thank you in anticipation.

Regards,
Sourav

Hi Sourav,

Thanks a lot for the praise! I am glad you think the article is useful.

Please note that the full income tax benefit of a home loan starts from the financial year in which you get the possession of the house (and not from the time you get possession of the house).

Since you would be getting possession in Oct 09, you can get full tax benefit (principal and interest) for the EMIs paid between Apr 2009 and Mar 2010.

If you have paid any pre-EMI interest before Apr 2009, it can be claimed under section 24 in 5 equal installments as explained in this article.

As far as giving documentation to your employer is concerned, please get a provisional certificate from the bank that would show the likely interest and principal you would pay during the year.

Also try to get a letter from the builder that the possession would be given in Dec 2009 (Optional but preferable).

These documents should be enough for your employer to consider the principal and interest in your TDS calculation.

hi,
am very happy to see a simple yet comprehensive explanation on an imp topic - house loan.
i have a query though... i purchased an already constructed house in kurnool (AP) in june 2008 for 1900000.i have rented out a part of the house ( only ground floor exists) .. the rent am earning is Rs 1200 per month ... since am posted to some other locaton i've also claimed HRA. can ya please tell me if i can claim all the interest on the loan for IT rebate and HRA simultaneoulsy... if so, what's the procedure to be followed if tax is deducted at the source..

Hi. I wanted to know if I would be eligible for tax exemption on interest and principal if I purchase a house on cash and then take a mortagage loan for the same property.

Hi Rajani Kanth,

Since the house is rented out, you can claim the full interest under section 24 (without an upper limit of Rs. 1.5 Lakhs)

You can also claim HRA exemption simultaneously.

You would need to give the provisional statement from bank (principal + interest to be paid during the year), proof that your house is given out on rent, and your rent receipts to your employer to claim these tax benefits at the time of TDS calculation.

Hi Navush,

I don't think there is any restriction on income tax benefit depending on when you take the loan.

But I am trying to understand how a bank would give you a mortgage loan when you have bought the house using your own money.

If you are talking about loan based on your house (and not a housing loan), no tax benefit is available for such loans.

Thanks a lot raghav.

Dear Sir,

Thank you for such an informative article. The concepts are indeed very clearly spelt out.

I am posting a question on behalf of my sister. She has asold some ancestral land and wishes to deploy it to buy a flat in Bangalore. While the amount (received from the sale of land) makes up for a part of the purchase price (of the house), the rest will be arranged by way of loan by her husband. The house is being purchased in their joint names and the loan is also being applied jointly.

Given that will my sister get the total benefit of the long term captal gains tax? And if so then will her husband be entitled to the tax exemptions (for the loan that he will now avaail)?

Thanks again for maintaining such a brilliant platform!

Hi Bibhu,

Many thanks for the compliments - it is a great encouragement!

If your sister invests the entire sale proceed for purchasing the house, she would not have to pay any LTCG tax.

Both your sister and her husband would get the tax benefit of the home loan. The tax benefit would start as soon as they get the possession of the house.

I have purchased a flat which is under construction & i have applied for loan during the month of April 09. Now my bank is requesting me to pay the interest part even before possission of flat, for my benefit.

Kindly let me know whether i will be get the income tax exemption on interest paid to bank even though i have not got the possission. If yes, under what section.

Regards

Hello Vishnu Kumar,

For this pre-EMI interest paid, you can get tax benefit in 5 equal parts (spread across 5 years) after you get possession. Please check out the details in the article and in some of the comments.

Dear Sir,

I have a home loan whcih was taken last year, however at the time of booking somehow I had not booked the garage, however now the promoter is offering the garage at a discounted price and I am interested to buy the garage.

Pls guide as to how should I go about doing the same. I can't afford the down payment, in that case do I have to take a new home loan, or can I attach it to my existing home loan?

Pls help.

Regards
Arup

Hi Arup,

You would not be able to take a home loan for purchasing a garage. You can try talking to your bank to add this amount in your existing home loan. If that is not possible, you would have to go in for a personal loan to fund this purchase.

Dear Sir,

Thanks so much for the clarification. It is very nice of you to spare your time.

Had one follow up query:

If my sister invests part of the sale proceeds into 'house development expenses' then will she still be eligible for the exemption from long term capital gains tax? In the alternative, if her husband uses a part of the loan (that he is taking) for house development purpose, then will be entitled to benefits under IT Act?

Would be very greatful if you could answer these. Thanks again for taking out time to address queries. It is very rare.

Hi
Really nice and descriptive article on Tax rebate on Home Loan.
I had one query in regards to rebate on Interest payment when the house is rented out.
You mentioned " if you have rented out the house, and the rent you receive is more than Rs. 1.5 Lakhs per year, ALL interest paid (even if it is more than Rs. 1.5 Lakhs) is deductible from the rent received – provided that the interest paid is not more than the rent received. ".
E.g
1. If my annual rental income from house is 1,44,000 and my annual Interest payment is 2,50,000. Can I claim deduction on full 2,50,000 from my Income from House Property (0.7 * 1,44,000).
2. In case next year my rental income increased to 1,56,000 (greater than 1,50,000) and my annual interest payment becomes 2,40,000. Can I claim deduction on full 2,40,000 from my Income from House Property (0.7 * 1,56,000).

I got a bit confused from your statement "provided that the interest paid is not more than the rent received. "
Could you please clarify with the examples provided.
Thanks

Hi Bibhu,

I am glad I could be of help.

If your sister invests part of the sale proceeds into 'house development expenses', she would not get the long term capital gains tax exemption for that much amount - the investment has to be for purchase of a house.

If her husband uses a part of the loan for house development purpose, he will be able to claim tax benefits provided the bank is willing to club such expenses with the home loan and gives out one single home loan.

If it is a separate "home improvement" loan, there would be no income tax benefit.

Hi Ankush,

Let me rephrase that for easier understanding:

If you have rented out your house, the lower of the following can be claimed under section 24:

1. The rent received.

2. The interest paid.

This is because in case of a rented out house, the interest paid is deducted from the rent received.

Coming to your questions:

1. Rs. 1,44,000.

2. Rs. 1,56,000.

A third case:

Rental income is Rs. 1,75,000 and interest paid is Rs. 1,60,000. In this case, amout to be claimed u/s 24 is Rs. 1,60,000.

Hi sir
Considering your statement that
If you have rented out your house, the lower of the following can be claimed under section 24:

1. The rent received.

2. The interest paid.

This implies that if my income is only from House Property, I can never have a loss (since deductions <=Rental income) Deduction can be either rental income hence 0 profit/loss or deduction can be Interest paid which according to you should be less than Rental Income, hence always a profit here.
I am not sure if this is true as i read somewhere that you can have a loss in interest income by offsetting the whole interest paid against rent recieved.
Please clarify.

Eg
1. Rental Income 2,00,000
2. Interest paid 2,50,000

What would be the taxable income for this person.
As per me
Income = 2,00,000 - 30% of 2,00,000 (as maintenance)
= 1,40,000

Deduction allowed as per sec 24
= 2,50,000

Net Loss = 1,10,000 which can be offset against other income if any

Hi Ankush,

You are right - any amount of interest can be deducted from the rent received, resulting in a loss under the head "income from house property".

Your example is also correct.

Thanks a lot for pointing this out - I would make the text in the main article more clear so that there is no confusion.

Thanks again...

Hi RaagVamdatt,

I've never seen such an informative blog. Excellent work. This gave me a lot of insight on the intricacies of housing loan.

Now, I've a doubt on whether to go for a housing loan or take loan against FD of my relative.

* Need 15 lakhs
* I have 50k investments under 80c
* I'm getting loan against FD for ~5%
* Housing loan(SBI) I'm getting for
1st year 8%
2nd-5th year 9.75%
6th-15th year floating(10%?)

My doubts are
1) Can I claim tax exemption under 24 U if I take loan against FD?
2) If yes, how it can be done?
3) Is it beneficial to take loan against FD rather than taking housing loan.

Thanks for a soon response

Hi Varghese,

Thanks a lot for the liberal praise!! It is really encouraging...

1. Yes, you can.

2. You would need a certificate mentioning the amount of interest paid.

3. No!! I would strongly advise against this. It wouldn't be a good deal for you to take loan against FD for a long term purpose like buying a house.

Please note that when you take a loan against an FD, the bank always charges you more than the rate you get on that FD - usually 1% more.

It would be better if you take a home loan for a lesser amount (giving more down payment using the FD money), or,

You should take the full home loan, and repay some of the EMIs from the interest earned from the FDs.

Dear Sir,
I am planing to take a home loan. in this connection please clarify the following:

1) How much loan i should take to avoid incometax of Rs 9000 per month?
pls note that i have savings for 1 lakh under 80 cc.

2) Which type of Home loan is better fixed/floating?


thanks for giving time
Regards
Ramesh

Hi Sir,
Thanks for this article.
I've taken an home loan for construction purpose on an property that is owned by my mother.
Loan is currently in Pre-EMI stage

Kindly let me know if i can claim the Pre-EMI and EMI once the construction is complete even though the property is not in my name?

Thanks again
Rajesh

Hi Ramesh,

1. Since you have full Rs. 1 Lakh invested for Sec 80C, you would not get any benefit of principal component of the EMI.

So, you have to rely on the interest component.

Your income tax = Rs. 9,000 per month = Rs. 1,08,000.

You can claim deduction of interest paid. Supposing you fall in 30% tax bracket, to get benefit of Rs. 1,08,000, you would need to pay interest of Rs. 3,60,000.

However, since there is a cap of Rs. 1.5 Lakhs u/s 24, any interest paid over that amount would not save you any income tax.

Thus, in order to maximize your tax savings, choose a loan amount where yearly interest payment is Rs. 1.5 Lakhs in the first year.

You would save Rs. 45,000 in tax in the first year, which is Rs. 3,750 per month.

A word of advise: Please do not take a home loan to save tax. Take it because you need it - tax saving is a side benefit.

There are many other avenues to save tax. Check out Reached Section 80C limit? You can still save more income tax for more.

2. I personally prefer fixed rates - they bring predictability to your cash flows.

However, currently, rates are still high, and are coming down. So, it would be better to opt for a floating rate loan.

You can switch to a fixed rate loan after interest rates come down by 2%-3%.

Hi Rajesh,

For getting the tax benefits, the property needs to be in your name. Therefore, you would not be able to claim any tax benefit in this case.

Can the land in question be transferred in your name, and the house registered in your name? Then, you would be able to claim all tax benefits.

Dear Sir,
The site & articles are really interesting & I have drawn a lot of insight from them.

I have a question for you where I am a bit unclear:
Can I rent out my flat while staying on rent in the same city so that I can claim HRA from my employer as well as claim Income/Loss from House Property?

I am a Salaried employee residing in Mumbai. Can I, from the taxation perspective, claim the entire interest amount as Loss from House Property if I rent out my purchased flat & also claim my HRA benefit if I stay in a rented accommodation. My work place is Mumbai.

Request your response on the same.

Regards,
Yash

Dear RaagVamdatt,

I have shortlisted one property in Bhiwadi. Possession is likely in the month of January I am staying in Gurgaon on rent. My wife is housewife.

If I register that property in my wife's name, will I get the tax benefit?

Can I avail exemption in HRA and tax benefit of housing loan together, since I am staying in Gurgaon?

Thanks

Hi,I am really impressed with your uptodate answers on queries.
I have one basic question regarding house purchase.
I want to purchase a house and gift it to my wife.All EMI will be paid by me(from my salary bank account).
Please advise how will it benefit me in Tax saving.will I get tax benefit in this scenario?

Is there rebate under 80 c for loan taken for modification/improvement of an existing house

I have taken a home loan from a PSU Bank for a Flat in Delhi. Presently I am living in Delhi and working with a PSU. I have been allotted an office accommodation and I have no desire to move out to my Flat. My query is that can I claim the tax rebate benefits for home loan in respect of interest and principal component. I have read in some websites that I cannot claim tax rebate for none of the components as the property has to be self occupied. Presently have no desire to move out from my office accommodation and want to let out my newly acquired Flat. Please clarify in which component of home loan I can claim the tax rebate.

Hi Yash,

Thanks - I am glad you are finding the website useful.

I have written a dedicated article on HRA. Please see the article and the comments below it for all your answers.

Here is the article: Income Tax (IT) treatment of House Rent Allowance (HRA)

Hi Deepak,

You would not get tax benefit if the property is in your wife's name and you are paying the EMIs. (In fact, the bank may not even allow you to take the loan).

The best way for you to take the property in joint names. Then, you can singly or jointly apply for loan. Even for a joint loan, if you are paying all the EMIs, you would get all the tax benefits.

For more, please read "Advantages and disadvantages of home loan in joint names".

For HRA and home loan, please see "Income Tax (IT) treatment of House Rent Allowance (HRA)" and the comments below it.

Hi Kishor Kumar,

Thanks a lot - I am glad I am being of help.

For tax benefit on home loan, you need to have the house in your name.

So, if you gift the house to your wife, you would not be able to claim the tax benefit.

Please check out "Advantages and disadvantages of home loan in joint names".

Hi Joseph,

No. The 80C deduction is available only for a home loan taken for purchase or construction of a home.

Hi Shyam Sunder,

You should be able to claim income tax benefits for both the principal repaid (under section 80C) and the interest paid (under section 24).

I have a house built with home loan , completed pay back of EMI and staying in this house. Can I get a fresh loan for another house and avail 80C tax deduction

It helped me to clear all my basic doubts.

On this same thread I would like to ask you one more basic question.

After full payment of EMI Can I transfer/gift the same house to my spouse?If yes what is the procedure? Will it attract any Capital gain as I would have possesed the house for more than a year(s)?

Dear Sir,

If i have forclosed a loan, and as i read earlier on the page that i can claim tax dedcuctions for the interest component, what documents would i have to then submit?

As in do i have to take a document from my parents stating that i am paying them such and so interest amount? And which document would that be?

Dear Sir,
Read some of your posts and realized that you might be the person who would have answer to most of my queries. So first of all thank you for your all contribution to people in community like me.

Situation: I am in Mumbai and I have one house in Delhi for which home loan is already over and I claimed full tax benefit till last year. I recently have another house in Mumbai ( Thane) but unfortunately (office location moved away to Bandra..very unfortunate and can't mention my regret ) I am not staying in it and it is rented. Loan amount is 30 lacs hence interest would be around 3 lacs per anum. The rent I am receiving is 10,000 per month. The maintenance to society ( that should be paid by me as owner) is 3,000 per month. Both house are on my name.

Now the real question considering above: Can I claim tax benefit on my Mumbai house? if yes, how much?


Thanks,
Manish

Hi K C Joseph,

Yes, you can.

Hi Kishor Kumar,

Thanks - I am glad I could be of help!

Yes, you can transfer the house to your spouse. The procedure would be the same as any other transfer (by sale).

You would not have to pay any gain tax on this. However, when your spouse sells it, for calculation of capital gains on the sale, the cost price would be taken as the price at which you bought the house, and not the market price at the time of transferring the house in your spouse's name.

Hi Vinay,

I am not sure if I understand your question right.

Are you saying that you are foreclosing a bank home loan by taking a loan from your parents? And that you want to claim interest benefit by paying interest to your paretns?

If that is the case, you can not claim tax benefit on the interest paid, as the tax benefit is available only for loans taken from financial institutions like banks.

You can still claim tax benefit for the pricipal repaid under section 80C.

Hi Manish,

Thanks a lot for all the praise - I am glad that I could be of help.

Yes, you can claim tax benefit for the home loan on your Mumbai house. Here, Rs. 1,20,000 would be your income form the house, and Rs. 3,00,000 would be your expenses. Also, the standard deduction would be available to you.

Thus, you would have a loss under the head "income from house property", which you can carry forward for upto 7 years.

Do check out "Set Off and Carry Forward of Losses – Capital Gains and House Property" for more on this.

Dear Sir,

This is in continuation to my earlier query.

Things are pretty clean to me after reading this reply. It clarifies my one main doubt: Though my Mumbai
house is second house, I can still claim tax benefit on interest loss.

I read your Article on set off and carry forward losses as well. Though that also mentions things clearly
, following query would help me to clarify or double check my understanding.

1] Since my salary income is high, can I claim full loss ( even more than 1.5 lacs since it is rented
) in same year instead of carry forward? i.e.

( Interest Paid = loss = 3,00,000 )
-
( Rent Received = profit = 1,20,000)
+
( Standard Deduction = I believe 30% of interest ..though not sure = Approx 40000)

-----------------------------------------------------------------
2,20,000.

Can I claim full 2,20,000 in same year sir?

Thanks,
Manish

Dear Sir,

Thank you very much for continuing such an informative column. This helps us immensly in clarifying doubts regarding IT returns.

Myself, brother and our spouses purchased a house jointly ( Rs 60 lacs). Can we split the EMI of the house in the ratio say 35,35,15,15 % each? If yes, do we need to create some sort of documentation amongst ourselves to justify this to Assessing Officer?

The 35% interest component of EMI comes to Rs 1 Lac.

My brother owns another house and repays Interest of ~ Rs 1.2 Lac on that house but no one stays there and is likely to remain vacant owing to some unavoidable reasons. In such a scenario, how much section 24 benefit can we claim?

If it is only Rs 1.5 Lacs, what happens to the remaining component ( Rs 1.2+1 - 1.5) = Rs 0.7 Lacs? DO we have to forgo it?

Your guidance will be very helpful.

Regards
Rushabh.

Apologies for being a bit unclear. I am aware that each of us can claim Section 24 benefit to the tune of Rs 1.5 Lacs. I am trying to udnerstand what benefit can my brother claim? can he claim only Rs 1 Lac or Rs 1.2 Lac or Rs 1.5 Lac or entire Rs 2.2 Lac?

Thanks,

Hi Manish,

Yes, that should be possible.

Hi Rushabh,

Yes, you can pay the EMIs in the ratio 35,35,15,15%. Either the cheque payments should go from individual accounts in this proportion, or, each of you can deposit this proportionate amount in a bank account and the EMI cheques can go from there.

The limit of section 24 is Rs. 1.5 Lakhs per person, and the same limit is applicable to your brother too. If the other house is given out on rent, entire interest amount (without any upper limit) can be claimed.

Hi,

What is the distance limit to get exampted on Home loan and enjoy HRA at a time.

Thanks
Subrata

Hi,

What is the distance limit to get exampted on Home loan and enjoy HRA at a time means if I am staying in Anderi and purchase a home in Mira road then can I get HRA or not.

Thanks
Subrata

Dear RV
Honestly speaking your answers are really helpful and clearing my doubts.
On the same note I would like to ask you that If I buy the House now (say. 20L) And I gift it to my spouse at Re 1. (Rupee 1) after 5 years.She will be sole owner of the house.

What will be the cost of house in the future if she wants to sell the same after that?Will the cost not depend on market ?will it be 20L as the original cost or Re 1 at the time of selling by my spouse?

Hi Subrata,

There is no specific distance limit - it depends on your circumstances.

Please check the comments of this article. Also, please read "Income Tax (IT) treatment of House Rent Allowance (HRA)" and its comments.

Hi Kishor Kumar,

Thanks - I am glad I am being able to help.

The transaction that you have described is flawed.

If you give the house to your wife for Re. 1, it is not a gift. A gift has to be free.

If you sell it to your wife for Re. 1, the assessing officer (AO) wouls surely conclude that it has been done to circumvent the income tax laws, and would not accept this.

I would advise you to not look for any loopholes in the law that can be exploited. instead, you should plan your taxes so that you minimize them while adhering to the spirit of the law.