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Tax benefits on a housing loan |
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Repaying a housing loan? There is a lot to look
forward to by way of deductions and rebate.
Interest paid on capital borrowed for the acquisition or construction
of property is entitled to a deduction. Initially, the maximum amount
eligible for deduction was Rs 15,000 (1997) and then got doubled to
Rs 30,000. Later, the amount got further enhanced to Rs 75,000 and
is now Rs 1 lakh. |
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So as the rules go, if you borrow money to acquire
or construct property on or after April 1, 1999, then you can get
an income tax exemption on the interest paid on a housing loan up
to a limit of Rs 1 lakh.
You also get a 20% rebate on repayment of principal of the housing
loan. While this was earlier subject to a maximum of Rs 10,000, it
is now Rs 20,000. |
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| Conditions |
| You should be residing in the home for which the
loan is taken. If you are residing in a city but buying property in
your home town to prepare for retirement, this will not be applicable.
The property has to be acquired or constructed before April 1, 2003.
The money should have been borrowed to construct or acquire property
on or after April 1, 1999. If it was prior to this date, the deduction
is only valid up to Rs 30,000. |
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| Points to note |
| You may find it more convenient and cheaper to finance
the property out of your own resources. But do remember, you would
be losing the tax shelter on account of the deduction available as
well as the tax rebate. You can claim a rebate for housing loan only
on producing the interest certificate from the lending institution.
Taking a loan from a family member or a friend may get a you a cheaper
rate of interest, or no interest at all, but will not qualify for
such deductions. Only loans taken and interest paid thereon, to specified
financial institutions which offer housing loans, qualify for deduction
under the Income Tax Act, 1961. |
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| If the loan is jointly taken by you and your spouse,
you both are entitled to tax benefits. Since both will be claiming
the deductions and rebate, you will have to approach the financial
institution and ask for a certificate. This certificate will state
how much of the loan is your responsibility and how much you are contributing
towards the repayment. Your tax deduction and rebate can be calculated
based on this amount. |
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