Dr. Sanjiv Agarwal
With liberal sops announced in recent Reserve Bank’s credit policy stance, most of the banks and housing finance companies shall reduce the interest rates on housing loans. This would help house aspirers to go in for housing loans which were a bit costlier till now. Taking loans for housing needs also makes an economic sense as it offers income tax incentives and exemptions.
Any person can claim both – interest payment and principal component of repayment in EMI. Interest can be claimed as a deduction under Section 24. one can claim up to Rs. 150,000 or the actual interest paid whichever is lower but one can claim this interest only when such person is in possession of the house.
Principal amount can be claimed up to the maximum of Rs. 100,000 under Section 80C. This is subject to the maximum level of Rs 100,000 across all eligible 80C investments.
In case of personal loans from friends or relatives, Interest payment to friends and relatives can be claimed u/s 24 but only against a certificate received from them. In the absence of the certificate, one would not be eligible for the deduction. The recipient of interest income who issues the certificate is liable to pay tax on the interest income that he receives. As far as the principal payments are concerned, they would not qualify for tax benefit as loans only from notified institutions and banks are eligible for such deductions.
In case of joint loans, say in names of both the spouses, if the wife is working and has a separate source of income, both husband and wife can claim separate deductions in respective income tax returns. The repayment of principal amount of the loan can be claimed as a deduction under section 80C up to a maximum amount of Rs.1 lakh individually by each co-owner.
In cases where the house is owned by more than one person and is also self-occupied by each co-owner, each co-owner shall be entitled to the deduction individually on account of interest on borrowed money up to a maximum amount of Rs. 1.5 lakh. If the house is given on rent, there is no restriction on this amount. All co-owners can claim deductions in the ratio of ownership.
According to the Income-tax Act, 1961, where the property has been acquired or constructed with borrowed capital, the interest payable on such capital for the period prior to the year in which the property has been acquired shall be allowed as deduction in five equal installments beginning from the year in which the property is acquired. Thus, the interest included in the loan installment paid by the borrower during the construction period shall be eligible for deduction from the year in which the flat is acquired/construction is completed.
The principal amount of the loan repaid shall not be available as a deduction under section 80C till the time the construction of the flat gets completed. Once the flat is completed and the possession is handed over, one is eligible to claim deduction for interest paid on the loan under section 24(b) and principal amount of loan under section 80C. However, the total amount of deduction available under section 80C shall be limited to Rs. 1 lakh.