Tax benefits on a housing loan

Tax benefits on a housing loan

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.

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.

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.

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.

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.