January 30, 2023

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The tip of economic yr 2022-23 is a couple of months away and shortly, salaried taxpayers should submit income-tax deduction, rebate and investment-proof paperwork to their employers. Amongst these paperwork can be proof of loans taken for the acquisition of a house. Many taxpayers avail of tax-deduction advantages on house loans.

Your private home mortgage EMI consists of two parts — the principal and the curiosity on the principal. The principal part of your EMI qualifies for deduction underneath part 80C of the Earnings Tax Act, 1961, whereas the curiosity portion (in respect of a self-occupied property) will get you an extra deduction of Rs 2 lakh, underneath Part 24b of the Act.

Over and above this, it’s also possible to declare tax deduction underneath Part 80EEA in case you are  a first-time house purchaser, on compensation of curiosity as much as Rs 1.5 lakh for buy of a residential unit costing as much as Rs 45 lakh. The house mortgage ought to have been availed between April 1, 2019, and March 31, 2020. Finances 2019 had launched this new profit.

Thus, the entire deduction for compensation of curiosity on housing loans can go as much as Rs 3.5 lakh (Rs 2 lakh underneath Part 24 and Rs 1.5 lakh underneath the brand new Part 80EEA).

In Half 1 of this particular 2-part collection, we handled the fundamentals of house mortgage and income-tax advantages like how can co-borrowers declare tax deduction advantages, what occurs if you happen to skip an EMI and plenty of extra questions.

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Within the second and concluding a part of this particular collection, we proceed to bust your myths about house loans and taxation and provide you with extra particulars on tips on how to maximise the tax advantages on a house mortgage.

Can I declare a deduction for house loans taken for a number of homes or there’s a restrict on the variety of homes? 

Some folks purchase multiple home, at completely different factors of time, and pay the respective house loans simulatively. Underneath Part 80C, the place you declare income-tax deduction to the extent of the principal repaid, there isn’t a restrict on the variety of properties on which you repay your property mortgage principal.

However if you happen to declare a deduction underneath Part 80EE (the part launched in Finances 2016 to assist taxpayers purchase low-cost housing), and likewise Part 80 EEA, then the utmost variety of home properties that may be owned is one. It needs to be the one property owned by the taxpayer. Even when s/he has one other property that was inherited or bought with out a mortgage, s/he’s ineligible.

Additionally learn | Find out how to maximise your tax financial savings on your home property revenue

In different phrases, if a taxpayer owns multiple home property, deduction underneath Part 80EE or Part 80EEA shouldn’t be relevant, whereas deductions underneath Part 80C and 24(b) may be claimed.

Can I take a mortgage from a distinct financial institution, a financing agency or a mortgage app and declare the income-tax deduction? 

Banks do their very own due diligence earlier than sanctioning a mortgage or the quantity of a mortgage. In lots of circumstances house consumers strategy different sources once they don’t get a financial institution mortgage or there’s a shortfall. In such circumstances, there are ambiguities on whether or not they can nonetheless declare the deduction or not.

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Additionally learn | Do you know that your income-tax advantages as soon as claimed, may be taken away?

“For claiming deduction of curiosity underneath the home property revenue, one can take a mortgage from anybody. Nevertheless, deduction of the principal underneath Part 80C is allowed solely when the mortgage is taken from a financial institution or a monetary establishment,” stated Sandeep Sehgal, Accomplice-Tax, AKM World, a tax and consulting agency

Can I take a mortgage from an employer and declare the income-tax deductions?

Many house consumers additionally choose to take a mortgage from their employers to purchase a house. You’ll be able to declare income-tax deduction advantages on the house mortgage curiosity. Nevertheless, the principal is allowed as a deduction solely in a couple of circumstances, the place your employer is a publicly listed firm, a public sector firm, a college established by legislation or a university affiliated to such a college, an area authority, a co-operative society and so forth, as Sehgal elaborates.

Can I declare deduction for principal compensation towards an interest-free mortgage from mates and relations? And on curiosity if I’m paying curiosity on the mortgage to stated mates and relations?

To avoid wasting curiosity and to probably meet a shortfall in funding, some folks borrow from family and friends. The foundations, nonetheless, stay the identical.

You can not declare deduction by way of principal compensation. However the EMI portion that consists of curiosity compensation is eligible for tax deduction, supplied your paperwork are so as. The onus is on the taxpayer to show that the mortgage taken is real and that you’re repaying it. “Deduction shall be allowed provided that acceptable TDS has been deducted,” provides Sehgal.

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Can I declare a deduction towards compensation of top-up house loans?

Many banks supply top-up loans over present house loans. Usually, a top-up mortgage is supposed for renovation and home repairs. However you might additionally take a top-up mortgage for different functions.

The aim for which you utilize your top-up mortgage will decide whether it is eligible for a tax deduction. If the character of the mortgage is identical — that’s to purchase or assemble a house — you will get the deduction advantages. Nevertheless, if the mortgage is taken for repairs, reconstruction, and many others. the quantity of deduction for curiosity is capped at Rs 30,000. No deduction is accessible on the principal.

(That is the second and concluding a part of our primer on availing income-tax deductions on house loans. To learn Half 1, click on right here.)