Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: TDS :: VAT Audit :: due date for vat payment :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TAX RATES - GOODS TAXABLE @ 4% :: form 3cd :: ACCOUNTING STANDARDS :: VAT RATES :: ACCOUNTING STANDARD :: list of goods taxed at 4% :: ARTICLES ON INPUT TAX CREDIT IN VAT :: empanelment :: articles on VAT and GST in India :: cpt :: Central Excise rule to resale the machines to a new company
 
 
General »
 Top House tax writer suggests measures to mitigate the impact of the border tax
 Consumer goods distributors, wholesalers to bear the brunt of GST
 GST classification woes to continue
 There will be no tax on farm or agriculture income
 RBI, Income Tax Acts to be amended for electoral bonds, Jaitley says
  Clarifications on the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016
 I-T zeroes in on Mumbai trader in first crackdown after demonetisation
  Tax queries answered by Dilip Lakhani, Senior Chartered Accountant
 Income Tax Department Failed To Unearth Black Money Despite Information
 Govt filing twice as many cases as private cos in Supreme Court
 Taxes under GST 'to increase a bit', says CBEC Chairman

Tax treatment for loans
June, 01st 2010

The Income Tax Act, 1961 provides for tax benefits for assessees that have home loans. Typically a home loan is repaid to the bank / lender in monthly installments (EMIs). The installment consists of two parts interest and principal repayment.

The bank gives a detailed worksheet of the loan calculation and of the bifurcation of the EMIs paid by the borrowers. These monthly repayments are qualified for deductions from income tax.

Deduction under Section 80C of the Income Tax Act

The portion of the EMI paid towards repayment of principal amount of the loan can be deducted from income. The borrower can get a tax deduction for a maximum amount of Rs. 1 lakh each year under this section irrespective of his tax bracket.

The Act requires the home loan to be towards a property for self occupation. However if the assessees city of employment is different from the city where he has purchased a home, he is still eligible for this deduction.

So if Sunil works in Mumbai but has purchased a home in his hometown Nagpur, he can still claim a deduction under this section even if he is not actually staying in this home.

Deduction under Section 24(b) of the Income Tax Act

The interest paid towards home loan is treated as an expense under Income from house property and is deductible under Section 24(b) from the total income of the assessee. The maximum deduction permitted under this section is Rs.1.5 lakh per annum.

In case of partial disbursement of loan

In cases where some part of the loan is disbursed by the bank during construction stage of the property, the tax treatment is slightly different. This portion of the interest paid prior to completion of construction of property cannot be claimed as a deduction in the year in which it is paid.

However, upon completion of construction, the assessee can claim deduction for this interest under Section 24(b) in 5 equal installments, i.e., 1/5th for each of the five years after the end of construction period. Note that the upper limit on deduction each year remains Rs. 1.5 lakh.

Assume Mr. Sunil purchased a home from Suraksha Developers in FY. 2005-2006.The property was still under construction and was completed only in F.Y 2008-2009. Some amount of loan was disbursed by the bank in FY2005-2006 and Sunil made interest payments of Rs. 1 lakh between FY 2005-2006 and FY 2007-2008. Sunil can claim deduction of Rs. 0.2 lakh for 5 years starting from FY 2008-2009.

In case of total disbursement of loan

If Sunil received the entire loan money in FY 2005-2006, and started paying EMI immediately, he would lose on the principal repayment deduction under Section 80C for the 3 years until construction of the property ends. This is because deduction under Section 80C can be availed only after getting possession of the property.

In case of more than one home loan

If Sunil works in Mumbai and has a purchased a home in Mumbai for which he has taken home loan. Will he still get benefit under the Act for this second home in Nagpur? The answer is Yes. Benefits under Section 80C and Section 24(b) can be taken for more than one home if all these homes satisfy the requirements of the Act.

The home in Mumbai satisfies the condition of self occupancy while the home in Nagpur comes within the exception of the self occupancy rule that the city of work is different.

Irrespective of the number of homes the maximum limit of Rs.1 lakh for Section80C and Rs.1.5 lakh for Section 24(b) still apply. Note that it does not matter if Sunil gives one home on rent. He will still be able to get the tax break.

In case of joint home loan

What is the tax impact if Sunil has taken the home loan jointly with his father?

In this case both Sunil and his father can claim tax deduction on their return if the home too is jointly owned by them. Tax benefit can be availed in the same proportion as the burden of EMI borne by each.

If Sunil pays 80 per cent of the EMI and his father contributes towards the remaining 20 per cent, the tax deduction will be available in the same proportion.

So if principal repaid during a year is Rs.1L then Sunil can claim Rs. 0.8 lakh under section 80C and his father can claim Rs.0.2 lakh under the even section. If Sunils father does not co-own the home, then he will not get any tax deductions for EMIs paid on such loan.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Privacy Policy

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions