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Income tax norms on home loan eased
April, 15th 2016

Real estate delays are very common in India. As project delays dampen the finances of property buyers, the only relief they get is the tax sops on the home loan interest they pay, which, however, comes with a condition.
As the Budget announced an additional Rs 50,000 of tax sops, it gives one more reason to cheer for home buyers. The finance ministry has relaxed the conditions to avail tax benefit for home loan interest payment.

Possession norm for home loan tax deduction relaxed

As a home loan borrower, you had the option to avail tax benefit of Rs 2 lakh for the interest you have paid for the home loan, under Section 24 of the Income Tax Act. The tax deduction, however, come with a condition that the property in question was for self-use and that you get possession of completed project within three years from the end of the financial year in which you have taken the first loan disbursement.

Understanding Clause (B) of Section 24 :The tax deduction for home loan interest repayment comes under Section 24(b) of the Income Tax Act of 1961. What many people ignore is taking a look at Clause (B) of Section 24 which says the tax deduction is valid subjected to two conditions being met.

Condition 1: All tax deductions for home loan interest repayment is applicable only if you have taken your home loan on or after April 1, 1999

Condition 2: The deduction is available only if the construction is completed within three years, starting from the financial year in which you take the home loan.

So what has changed?

With many real estate projects getting delayed, the finance ministry has now extended the 3-year deadline to a 5-year period, making the tax deductions applicable even if your builder delays the completion. There is an urgent need to get the new rules implemented, but the finance ministry in its announcement has made it clear that the new regulations will become applicable from April 1, 2017.

What it means for you?

If you have taken up a home loan, you will be paying pre-EMI to the bank, which is simple interest for the amount disbursed. This amount will not reduce your principal outstanding. But you get tax relief up to R2 lakh for this amount paid, for three years. Now with new regulations in place, you will have five-year time period to continue availing tax deductions on home loan interest repayment.

One can make use of the five-year window for possession starting from financial year 2017-18.

Tax benefit on home loan repayment

Here is a look at home loan tax deduction benefits available currently and how they will change once the new regulations are applicable.

Tax benefits is available under Section 24 for interest paid and under Section 80C for principal paid. The tax deduction is R2 lakh for self-occupied property under Section 24 and R1.5 lakh under Section 80C. The construction or purchase must be completed within three years of taking the home and tax benefits is not applicable for loans taken before April 1, 1999 and tax deductions will reverse if property is sold before five years.
The new additional tax sops given are that under Section 24 (for interest paid) R2.5 lakh for first time home buyers with property cost not exceeding R50 lakh and loans not above R35 lakh. Also, under Section 80C, R1.5 lakh deduction for principal paid. Construction or purchase completion period extended to five years of taking the home loan and tax deductions would reverse if property is sold before five years.

With real estate projects getting delayed very common in India, this is sure to give a sigh of relief for those who paying home loan interest repayment, as they can avail this tax sops up to five years, even if the builder delays the project up to five years from the time they have taken up a housing loan.

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