With Home Loan interest rates set to fall further in 2017, it’s time for all you home buyers out there to take further notice of tax exemptions that are by-products of your Home Loan. And we aren’t talking about the regular stuff you already know about either.
These 5 hidden Home Loan tax incentives should definitely make you sit up and take notice.
- Missed An EMI? You Can Still Claim Tax Deductions On Interest Payable
In case of a Home Loan tax exemption, being satisfied with what you get can spell disaster. Hunt for every tax benefit you can find.
Did you know you are eligible for tax deduction on your Home Loan interest on an accrual basis? This means that you can claim deduction on interest paid as well as interest payable in a year. Never mind if you missed a few EMIs. You can still apply for this deduction. Just have the documents ready in case the tax department asks.
For those who are confused, this benefit does not extend to tax benefits on principal repayment. With regards to principal repayment, you can only apply for deduction on the principal amount repaid, and not on amount to be repaid.
Additional Reading: Home Loan Interest Rate Guide
- Count In The Processing Fee For Tax Benefits
If you thought your Home Loan processing fee was just a burden, think again. Processing fees and many other charges related to your Home Loan fall under the category of interest. Hence, you can claim it under the Income Tax Act. We’re sure that cheered you up!
Additional Reading: Buying A House? Here Is A Fee Checklist
- Tax-Reversal on Principal Payment – This Doesn’t Sound Too Good
If you have purchased a house and know that even your great, great, great grandchildren will live in it some time in the future, then this point doesn’t apply to you.
This is for those who plan on selling their house within five years from the date of purchase or date of Loan disbursal. If you manage to get rid of your house within five years from the date of purchase, all the tax benefits on the principal amount repaid will stand redundant.
This means the amount saved in taxes on principal repayment will be added back to your taxable income. Yeah, we sulked too.
Real estate can be a great way to earn quick money from an Investment. But, there is one leeway. Interest makes up a bigger component of your EMIs during the initial years. The banks primarily have their own interest at heart. Therefore, the amount of principal repaid in the first five years is small, hence the tax-reversal amount is small as well. Go ahead and make a sale if you wish. You won’t lose much.
Additional Reading: Why Your Home Loan EMI Is Still High
- Can You Get A Loan Only From A Bank?
If you are seeking a Home Loan, banks are the first and foremost options. But did you know you can claim tax respite on loans taken from family and friends too? It’s a loan after all. Just keep in mind that the money borrowed must be used for purchasing or constructing a house.
If the loan is for house construction, make sure that your home is ready to move in within five years. This is one of the first and foremost conditions for claiming tax benefits on Home Loans borrowed from near and dear ones. Just make sure your in-house lender is charging you a fair rate of interest. Out of bounds interest rates might suggest fraud.
In the case mentioned above, your lender must submit details about interest earned from the loan when filing for returns, else they could be pulled up for evading tax payment.
Additional Reading: 6 Common Mistakes Made By First-Time Home Buyers
- Claim Even Before The Construction Is Over?
Not claim the house dummy! Claim tax benefits.
We know you can claim deductions only after the construction of your house is complete. But, this only applies to principal amount repayments. Since the initial part of your loan repayment is largely made of interest, claim it before you take possession. It’s allowed.
Additional Reading: Why You Should Get A Home Loan Now
Weren’t these tips useful? If you have been shying away from claiming tax sops, change your IT declarations now!