Lesser Known Tax Benefits That the Buyer Should Know About
Apr 14, 2017 Legal Guidance
With more tax benefits, reduction in interest rates, fewer fluctuations in property prices and more launches of affordable projects, it is needless to say that 2016 has been a good year for the property buyers. Many buyers have taken the advantage of the same and brought the property whilst negotiating the right price for the property of their dreams. Even though after getting a discount on loan and property price, the tax amount can burn the hole in the buyer’s pocket.
Here are some of the lesser known and often overlooked or missed tax benefits on home loans:
1.Even if you missed the EMI of a month, you can claim tax benefit for the month:
The deduction on the interest is based on the accrual basis rather than the paid basis like deduction on the property taxes. Meaning, even if the buyer has missed few EMIs during the year, he can claim tax benefit on the interest for the entire year. The words ‘paid or payable’ are clearly mentioned in section 24, which can be used to claim the interest benefit. It is advised to keep the related document safe if in future tax authorities question the same.
2.The processing fee is deductible:
Most people are unaware of this fact, but the processing charges incurred during the process of buying a property is tax deductible. According to the section 2(28a) the interest payable in any manner in respect of any money borrowed or debt incurred (including a deposit, payment or claim). This also includes any service fee or processing fee incurred during the process.
3.The principal repayment tax benefit is reversed of the property is sold before five years:
If the property is sold within five years from the date of purchase or the date of taking the home loan, whatever amount you have saved becomes taxable at the current rate. It is not treated as your saving but your income.
4.Loan taken from relatives and friends are eligible for tax benefit:
If you have taken the loan from friends and family then according to Section 24, you are eligible to claim tax benefit provided you mention that the purpose of the loan is either the construction or reconstruction or renovation of the property.
However, this rule is only applicable for the interest benefit, not the principal repayment. For the tax benefit on the principal amount, the buyer has to take the loan from the loan financing company.
5.Tax break is not for the co-borrowers:
You may not enjoy the benefits of the tax break if you are the loan co-borrower. The tax benefits are not given until you co-own the property.
6.Pre-construction interest claims can be taken up to 5 years:
Once you have received the possession of your property, you can claim the home loan benefits. You are eligible to claim the tax benefit for the interest you paid for the property while it was under construction.
Here are some of the lesser known and often overlooked or missed tax benefits on home loans:
1.Even if you missed the EMI of a month, you can claim tax benefit for the month:
The deduction on the interest is based on the accrual basis rather than the paid basis like deduction on the property taxes. Meaning, even if the buyer has missed few EMIs during the year, he can claim tax benefit on the interest for the entire year. The words ‘paid or payable’ are clearly mentioned in section 24, which can be used to claim the interest benefit. It is advised to keep the related document safe if in future tax authorities question the same.
2.The processing fee is deductible:
Most people are unaware of this fact, but the processing charges incurred during the process of buying a property is tax deductible. According to the section 2(28a) the interest payable in any manner in respect of any money borrowed or debt incurred (including a deposit, payment or claim). This also includes any service fee or processing fee incurred during the process.
3.The principal repayment tax benefit is reversed of the property is sold before five years:
If the property is sold within five years from the date of purchase or the date of taking the home loan, whatever amount you have saved becomes taxable at the current rate. It is not treated as your saving but your income.
4.Loan taken from relatives and friends are eligible for tax benefit:
If you have taken the loan from friends and family then according to Section 24, you are eligible to claim tax benefit provided you mention that the purpose of the loan is either the construction or reconstruction or renovation of the property.
However, this rule is only applicable for the interest benefit, not the principal repayment. For the tax benefit on the principal amount, the buyer has to take the loan from the loan financing company.
5.Tax break is not for the co-borrowers:
You may not enjoy the benefits of the tax break if you are the loan co-borrower. The tax benefits are not given until you co-own the property.
6.Pre-construction interest claims can be taken up to 5 years:
Once you have received the possession of your property, you can claim the home loan benefits. You are eligible to claim the tax benefit for the interest you paid for the property while it was under construction.
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