In the union budget announced on 1st Feb 2017, the Finance Minister has made three significant changes with respect to tax benefit on home loan and sale.
Change in long term capital gains definition - Earlier, any property sold within 3 years of purchase used to attract short term capital gains tax at marginal tax rate (30%). Starting FY2017-18, a house property sale will qualify under long term capital gains if it is held for a minimum period of 2 years and hence be eligible for concessional tax rate of 20% (with indexation) or 10% (without indexation) in addition to tax exemption by way of investment under Section 54E. For more, refer to MyTaxCare Capital Gains on Property Guide 2017.
Capping of interest set off in case of rented property - Earlier, interest paid on capital borrowed to purchase a house for investment purpose (house that was not self occupied but was let out or lying vacant) was eligible to be set off from rental income without any limit. Further, loss as a result of interest expense being more than the rental income was eligible to be set off from income under any head such as salary, business or interest. From FY 2017-18, the maximum allowable deduction for interest has been capped at Rs. 200,000 (Rupees two lakhs only). For more details, refer to the latter part of this page under the heading "Deduction of interest paid on home loan taken to purchase a property that is either rented out or not self occupied"
TDS on rent paid by individuals – So far, only corporate entities were required to deduct TDS at 10% on rent paid in excess of Rs. 2,00,000 per annum. As per Budget 2017, effective 1st June 2017, individuals, professionals and businessmen will also be required to deduct TDS at the rate of 5% on rent paid in excess of Rs. 50,000 per month. For more details on TDS rates, refer to MyTaxCare TDS Guide 2017
There is no change in tax benefits on home loan as per 2016-2018 budget presented on Feb 1st 2017 applicable for financial year 2017-18 and assessment year 2018-19 as compared to previous year. Here are the practical tips to avail these to maximize your tax savings on home loans by MyLoanCare:
First time home buyers will get additional exemption of upto Rs. 50,000/- on interest paid for loans upto Rs. 35 lakhs with cost of home upto Rs. 50 lakhs.
For loans taken from the FY 2016-17, Up to Rs. Two Lakh if completed within 5 years from the end of the fin. year in which loan is taken, else Rs. 30,000.
No change – Upto Rs. One Lakh Fifty Thousand (Rs. Two Lakh for senior citizens)
Up to Rs. Two Lakh if completed within 3 years from the end of the financial year in which loan is taken, else Rs. 30,000. For loans taken from the FY 2016-17, Up to Rs. Two Lakh if completed within 5 years from the end of the financial year in which loan is taken, else Rs. 30,000. Additional exemption of upto Rs. 50,000/- on interest paid for loans upto Rs. 35 lakhs with cost of home upto Rs. 50 lakhs
First Home – Rented/ Vacant
No change – Upto Rs. One Lakh Fifty Thousand (Rs. Two Lakh for senior citizens) if staying in a different city for work
No change – On entire interest paid without any limit
No change – On entire interest paid without any limit
No change – The interest paid can be claimed in equal parts in five fin. years post completion or handing over.
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Income tax exemption on repayment of home loan principal amount up to Rs. 150,000 (Rs. 2,00,000 for senior citizens) annually under Section 80 C of the Income Tax Act:
Key Highlights/ Terms to avail this exemption
Principal repayment component of up to Rs. one lakh fifty thousand (Rs. two lakhs for senior citizens) can be clubbed under the overall limit for tax saving instruments eligible under Section 80C to claim benefit upto Rs. 50,985 per annum
Available only for purchase or construction of residential property
Deduction available only for self occupied property
Any amount paid towards partial or full prepayment of home loan is also eligible to be included for benefit under this section
Deduction of home loan interest paid for self occupied home up to Rs. 2,00,000 (Rs. 3,00,000 for senior citizens) annually under Section 24 of the Income Tax Act
Key Highlights/Terms to avail this exemption
Annual interest component of up to Rs. two lakh (Rs. three lakh for senior citizens) can be claimed as deduction against income and reduce the your tax liability by upto Rs. 67,980 depending upon your tax slab
Additional exemption of up to Rs. 50,000 can be claimed as deduction against income from FY 2016-17 and AY 2017-18 on first home provided the sanctioned loan amount is upto Rs. 35 lakhs and cost of house is upto Rs. 50 lakhs
Available for purchase/ construction/ repair/ renewal/ reconstruction of a residential house property
Benefit available only for self occupied property
Deduction is available on an accrual basis and not on a payment basis. Hence, deduction under Section 24 can be claimed on yearly basis even if no payment has been made during the year but interest has accrued
Tax benefit on home loan for under construction property before possession
If you have taken a home loan for buying under construction property, you can claim tax rebate on the interest paid during the construction year but not on principal repaid.
According to Section 24 of IT Act, you can claim deduction against the interest amount that you have paid on your housing property during the pre construction period. The total interest paid during the pre construction period is allowed for tax deduction in five equal installments during five successive years from the year in which construction is completed and property possession is handed over to you. The total interest allowable during these five years will still be capped at Rs. 2 Lakh per year for self occupied house. There is no limit in case of let out property and deemed to be let out property. It is important to note that tax deduction during construction period is not allowed for loan taken for repair or renewal.
According to section 80C, no deduction against the principal amount will be allowed for the pre – construction period
Tax benefit on home loan for co-applicant, co-borrower and joint owner
If the home loan that you have taken is in joint names then you can save more tax as compared to when you have taken home loan individually. In this case, each of the applicant and the co-applicants (any number) can avail tax benefit individually. To be eligible for the tax benefit, all the borrowers and the co–borrowers must be joint owners of the property.
Each applicant and co-applicant can separately claim a maximum tax deduction of Rs. 1.50 lakh per annum for principal repayment under Section 80C and Rs. 2 lakh per annum for interest payment, under Section 24.
Deduction of interest paid on home loan taken to purchase a property that is either rented out or not self occupied
Key Highlights/ Terms to avail this exemption
In case you own more than one property, one of which self occupied and others are rented out or lying vacant, upto FY2016-17 (AY 2017-18), you can claim income tax benefit on entire interest paid on such property and set it off from rent for rented out property received or deemed rent on vacant property
In case the interest on home loan together with other deductible expenses (such as repairs, house tax, standard deduction of 30% on rented property etc) is higher than rental income/ deemed rental income, the loss can be adjusted against other income heads including salary income, business o=income, interest income, thus reducing overall tax liability. In case there is unabsorbed loss even after these adjustments, same can be carried forward for up to 8 years to be adjusted against taxable income in future years
Starting FY2017-18 (AY 2018-19), the maximum set off for interest paid on such property has been capped at Rs. 200,000.
Tax Saving tips
You can increase your tax benefit by buying property and availing home loan in joint name with your family members. In such as case all borrowers and co-borrowers are eligible to separately claim tax benefit under Sections 80C (on principal) and 24 (on interest paid). So, in case a property has three co-owners who jointly take a home loan and pay EMI’s jointly, the maximum tax benefit available is thrice that available to a single applicant. However, the total tax benefit cannot exceed the actual principal and interest paid
This income tax benefit is available on any type of property (except land) including residential, commercial and industrial property
Tax Benefit under following cases
Property is vacant -
As per Income Tax rule (Section 24), you will be required to account for deemed rent on the property as taxable income. Deemed rent is notional rent based on market rental values. You can claim 100% of the interest payable against the rental income or deemed rental income
Property not self occupied for reason of employment , business or profession in different place or other city -
As per Income Tax Rule ( Section 24) tax deduction allowed will be Rs. 2 Lakh only
Property sold before 5 years from taking possession -
The tax deduction already claimed in previous financial years under Section 80C & Section 24 will be reversed and must be added as taxable income for the financial year in which you have sold the property
Property is self occupied and part is rented out -
The interest must be spilt in proportion of the size of the two parts and tax benefit shall be split proportionately
Citibank India decision to introduce zero processing fees has brought in good news for borrowers. The bank has revised its loan processing fees to nil from 0.50 percent earlier for its home loan and loan against property borrowers. Loan segments including home loan and loan against property.
Real estate developers are hopeful to see an increase in the purchase of new house units post demonetization as the banks are flushed with funds and likely to push home loans aggressively. According to a senior ICCI Bank representative, the bank has witnessed a healthy growth in home loan queries after demonetization. Real Estate experts expect the housing sector in India to witness a strong growth in FY18.
Axis Bank has kept its marginal cost of lending rate unchanged for the month of March 2017. The bank has kept its overnight and six month MCLR unchanged at 7.90 and 8.15 percent respectively. Similarly, Axis Bank did not change its one year MCLR that stands at 8.25 percent. With the unchanged MCLR, interest rate for home loans continues to be at 8.65 percent.
Banking industry is getting increasingly burdened with the rising quantum of bad loans. As per statistics released by Finance Ministry, stressed loans of Indian banks have reached Rs. 9.64 trillion during December, 2016 as compared to Rs. 8.97 trillion in September, 2016.
Chairman of State Bank of India has stated that the merger of SBI with its associate banks may lead to marginal increase in the costs for the bank, especially till the third quarter of FY18. Post merger, the bank expects to report higher growth in its business across all loan segments including home loan and personal loans.
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