The Union Budget 2017 has been the talk of the town since the time it came out. The taxpayers got some advantages and disadvantages. On one hand, section 80E was introduced again and holding period was also reduced which made the taxpayers delighted. While on the other hand, the people who used to claim losses on let out property were disheartened.
All those people who have a second home or are planning to buy a new home, should know the rules properly so that they do not miss out on the benefits –
1. If the property is sold before 5 years, there’s a reversal of principal repayment tax benefit
Although the finance minister has lowered the holding period to just 24 months for the property to come under long-term capital gains, but if the house is sold in 5 years from the date of buying, the reversal of tax benefit takes place.
The amount of deduction which he has claimed will be included back in the taxpayer’s income of that particular year in which he is selling the property.
But, the computation of loan repayment is done in such a way that the lower elements of repayment lie in the early years and the rule of tax benefit getting reversed is applicable to Section 80C.
2. Tax benefit can be claimed on interest paid even after a skipped EMI
According to the section 24, if an EMI is missed in a year, the tax benefit can still be claimed on it. Till the interest liability is alive, the benefit can be claimed.
The copy of interest certificate should be kept safely, which is issued by the lender, mentioning very clearly the loan amount and interest etc. as it will clarify and explain any questions raised by the tax department.
The deduction of principal repayment under Section 80C will only be applied to genuine repayments.
3. Interest on Pre-construction period can be claimed for 5 years
While the construction of a house is going on, interest paid on the lending will qualify to get tax relief when the Occupation Certificate is received. Interest paid can be claimed as a tax deduction in the phase of construction in five equated installments initiating from the year of completion of the property.
When the returns are being filed for the Annual Year 2017-18, the limit of the self-occupied property is restricted at Rs.2 lakh, while there is no limit on let out property. The union budget of 2017 has eliminated this rule and the let out property is also restricted at Rs.2 lakh.
Know the tax benefits on ready houses over under-construction houses
4. Tax break can be qualified only on the condition that the person is a co-owner and co-borrower.
Even if you are paying the EMI, it is not mandatory that you will qualify for the tax break. Only if the property is in the joint name (you being one of them) and is financed by both the parties, both can claim the deduction on principal amount and interest payments. You can save tax when selling a house too.
5. Processing fee is deductible by tax
Many taxpayers have no knowledge about the fact that all the charges which are related to the loan like the prepayment charge and processing fee can be claimed for tax deduction. This is because these charges come under interest and thus are qualified as deduction against income from house property. Only penal charges do not fall under this category.
6. Introduction of the Section 80EE again
The section 80EE has been introduced again to give some relief to the buyers. The highest deduction has been reduced to Rs.1 lakh now.
But, this provision comes with certain terms and conditions which have to be fulfilled if you want to enjoy the deduction. These terms and conditions are –
• The value of the loan should not be more than Rs.35 lakh and the value of the property should not be more than Rs.50 lakh.
• The sanctioning of the loan must be done by a financial institution, between 1st April 2016 and 31st March 2017.
• The homebuyer should be a first time buyer.
7. Even the loans from friends and relatives also qualify for tax deduction
If you have borrowed the loan from relatives or friends to buy a house, then the deductions can be claimed on repayment of interest under Section 24.
A certificate would have to be obtained from the concerned friend or relative which will have all the necessary details like value of loan, interest payable and the specifications of the property for which the loan is borrowed.
But, this provision is applicable for only interest repayment. Benefits of tax cannot be claimed on the principal amount on the part of loan taken from friends and relatives.
Moreover, an NRI can also claim tax benefits while applying home loan in India