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Tax Benefits

Housing Loan Income tax benefit

1. What are Income tax benefits of taking and repaying a housing loan under EMI Plan?

You will be eligible to claim both the interest and principal components of your repayment during the year.

Interest can be claimed as a deduction under Section 24. You can claim up to Rs. 150,000 or the actual interest repaid whichever is lower. (You can claim this interest only when you are in possession of the house)

Principal can be claimed up to the maximum of Rs. 100,000 under Section 80C. This is subject to the maximum level of Rs 100,000 across all 80C investments.

You will need to show the statement provided by the lender showing the repayment for the year as well as the interest & principal components of the same.

2. If I buy a house jointly with my wife and take a joint home loan, Can we both claim income tax deduction?

Yes, if your wife is working and has a separate source of income, both of you can claim separate deductions in your income tax returns.The repayment of principal amount of the loan can be claimed as a deduction under section 80C up to a maximum amount of Rs.1 lakh individually by each co-owner.

In cases where the house is owned by more than one person and is also self-occupied by each co-owner, each co-owner shall be entitled to the deduction individually on account of interest on borrowed money up to a maximum amount of Rs. 1.5 lakh. If the house is given on rent, there is no restriction on this amount. Both co-owners can claim deductions in the ratio of ownership.

3. My husband and I have jointly taken a home loan. He pays 75 percent of the EMI. What will be our individual tax benefits?

As you have taken a joint home loan, both of you are eligible for tax exemption for your share of the EMI paid. For claiming income tax deduction, the EMI amount is divided into the principal and interest components. The repayment of the principal amount of loan is claimed as a deduction under section 80C of the Income Tax Act up to a maximum amount of Rs. 1lakh individually by each co-owner. The repayment of the interest portion of the EMI is also allowed as a deduction under section 24 of the Act, which is given under the head “income from house property”. In case you are living in the house for which home loan is taken, both of you shall be entitled to deduction in the ratio (3:1) on account of interest on borrowed money up to a maximum of Rs. 1.5 lakh individually. If the house is given on rent, there is no restriction on this amount and both co-owners can claim deduction in the ratio of ownership- 3:1 in your case.

4. Plan to buy a house by raising loans from friends and relatives. Will I be eligible for tax benefit from all sources?

Interest payment to friends and relatives can be claimed u/s 24 but only against a certificate received from them. In the absence of the certificate, you would not be eligible for the deduction. The recipient of interest income who issues the certificate is liable to pay tax on the interest income that he receives. As far as the principal payments are concerned, they would not qualify for tax benefit as loans only from notified institutions and banks are eligible for such deductions.

5. What are the tax benefits that I can avail of for repaying a home loan ?

You will be eligible to claim both the interest and principal components of your repayment during the year.

Interest can be claimed as a deduction under Section 24. You can claim up to Rs. 150,000 or the actual interest repaid whichever is lower. (You can claim this interest only when you are in possession of the house)

Principal can be claimed up to the maximum of Rs. 100,000 under Section 80C. This is subject to the maximum level of Rs 100,000 across all 80C investments.

You will need to show the statement provided by the lender showing the repayment for the year as well as the interest & principal components of the same.

6. Can I take advantage of tax benefits from a home loan as well as claim House Rent Allowance (HRA) ?

If you took a home loan and are still living in a rented place, you will be entitled to:

Tax benefit on principal repayment under Section 80C

Tax benefit on interest payment under Section 24

HRA benefit

Of course, you can claim tax benefits on the home loan only if your home is ready to live in during that financial year. Once the construction on your home is complete, the HRA benefit stops. If you took a home loan, got possession of the house, have rented it out and stay in a rented accommodation, you will be entitled to all the three benefits mentioned above. However, in this case, the rent you receive would be considered as your taxable income.

7. I have a home loan in which I am a co-applicant. However, the total EMI amount is paid by me. What is the total income tax exemption that I can avail of ?

Yes, you can claim income tax exemption if you are a co applicant in a housing loan as long as you are also the owner or co owner of the property in question. If you are only person repaying the loan, you can claim the entire tax benefit for yourself (provided you are an owner or co-owner). You should enter into a simple agreement with the other borrowers stating that you will be repaying the entire loan. If you are paying part of the EMI, you will get tax benefits in the proportion to your share in the loan.

8. I have two housing loans on two different properties. Can I get tax rebate under sec 80 C of both the loans?

Yes, you can get the 80C benefit on both loans. However, the total amount that you will be entitled to will be a total of Rs 100,000 across both the homes.

The interest paid on a home loan is not directly deductible from your salary income for either of your flat loans. Income from house property will be calculated for each flat you own. If either of theses calculations shows a loss, this loss can be set off against your income from other heads.

As for Section 24 deduction, on your self occupied house you can take advantage of interest payments up to Rs.1,50,000. For the other property, you can claim actual interest repaid, there is no limit for the same.

What can an NRI be taxed on while in India?

Since the earnings made abroad do not come under the Indian Income Tax acts, NRIs cannot be taxed for the same. Your earningswhile abroad are completely tax free considering that you do maintain the non-resident status. However if any income or capital gains arise from within Indian shores, you are liable to pay taxes for the same.

Taxable incomes for NRIs include:

Salary: Income earned from your salary in India or income received on your behalf is taxable.

Property and Assets: Any income or capital gain that you generate from the sale/ rent or lease of a valued property or an asset based in India will be taxed as per the Income Tax rules.

Securities and Investments: Income or capital gains from long-term or short term investments are liable to be taxed.

Non-Residential Indians are liable to pay taxes to the government on their income from salaries, assets or from investments or securities held in India. If you are an NRI with your income sourced in India, you have to file your tax returns. Presently, as per Income Tax Act,1961 and Foreign Exchange Management Act (FEMA), you qualify to pay taxes in case you fulfill either of the following conditions:

Your taxable income in India during a particular financial year is more than the exemption limit of Rs 2 lakh.

You have earned short-term or long term capital gains from sale of any investment or property, even if the gains are less than the exemption limit.

NRIs are taxed as per the tax rate and slabs prescribed for resident Indians below 60 years irrespective of whether he is a senior citizen or not. All NRIs are required to pay taxes in order to avail credit of TDS.

As far as Tax Returns are concerned, NRIs cannot file for tax returns under the following circumstances:

If taxable income consists of only investment income or long term capital gains.

When the tax has already been deducted at source, on such income.

If you are a Non-Resident Indian, these taxation basics are good to know so that you are aware of when you are liable to pay taxes, how taxes are levied on your income earned in India, what are the tax deductions that you get as well as how tax returns work. Most importantly, it is the right thing to do if you pay taxes (when liable) diligently as they enable the government to meet their expenses as well as fund the country’s development.

TDS on purchase of property above Rs. 50 lakhs

The Central Board of Direct Taxes had notified the new provision of Tax Deducted at Source [“TDS”] on immovable property. The amendment is effective from June 1, 2013. With developers, builders, residential societies and associations starting up with the process, this article aims to provide you with procedure that is to be followed to pay the TDS.

The Amendment: Under the Finance Act 2013, the purchaser of an immovable property (any land or apartment or flat or building other than agricultural land) costing Rs. 50 lakhs or more is required to pay a withholding tax. The rate at which the tax is to be deducted is 1% of the amount paid. The new provision has been introduced by adding Section 194IA. The major objective behind the introduction of the new section is to track real estate transactions that are not being registered.

Tax Benefits from Car and Personal Loans

For salaried individuals, no tax benefits are available if you have taken a car loan. Deductions from payable tax can be availed only if you are self-employed or a businessman and you declare the profit or capital gains earned from your work or business or you purchase a vehicle for business use. In that case, you get exemption on the interest as well as depreciation of the vehicle.

Tax Benefits for Educational Loans

Unlike home loans, only the interest on repayments is applicable for deduction and not the principal amount. As defined in Section 80E of Income Tax Act,1961, this deduction is applicable only for an individual for higher education with no fixed upper limit.

Here, higher education can be defined as any course that you pursue after Senior Secondary School Level in India or abroad.

It is important to understand that the education loan should be taken from a financial or approved charitable institution to be eligible for tax benefits and you can avail this tax benefit for a maximum period of 8 years or full loan repayment period, whichever is applicable. For e.g., if you have paid off your education loan within 5 years of the course completion, deduction benefit can be availed only for that time frame and not beyond that.

For example – Borrower A, who works in a private software company, has bought a brand new car to commute to and fro from home and work. He might be reaping the convenience of owning a four wheeler but he will not get any tax benefit for taking a loan to purchase it. On the other hand, a small time businessman who has a textile store has also bought a new car. Now if he declares his earnings as deductible under section 80C, he will be able to include the interest paid for his car loan for tax exemption.

Another way of getting tax exemption for your vehicle is by financing it through a home loan. However, this umbrella loan puts your property at the highest risk in case of any payment defaults.

For personal loans, deductions are applicable only for a declared business and its earnings; or for the interest on loan repayments used for property construction.

While this is a broad overview, it is useful to be informed about loan tax benefits if you are going to take a loan, or if you are already repaying one.Being aware can be beneficial in saving on your taxes.