Revealed: Lesser Known Ways Of Saving Taxes
Buying a house is a big step for anyone. Searching for a house that comes within their budget is nothing short of a struggle. The next step after the search is over is applying for a loan for buying the house. Finally, when one has settled into the new house, there comes the major concern of repayment of loan amount. The borrower wants to get the best deal for the loan availed by the banks, regarding the payment of equated monthly instalment (EMI). Despite getting the best deals on housing loans and monthly EMI's the tax deductions can burn your pockets.
There are some unknown facts relating to tax benefits which would help you if you have home loans to repay. We bring you those unknown facts that would let you get the often missed tax benefits.
Missed an EMI, you need not worry about the tax benefits. You can claim tax benefit even on your missed EMI. It means, in a given financial year if you have missed payment of an instalment, you are still eligible to claim tax benefits for the same financial year. Section 24 of I-T Act, clearly states the word “paid or payable” which means the payment of interest is still a liability.
As per rules, no deduction against the principal amount will be allowed for the pre – construction period. The interest paid during the pre-construction period can be claimed by you for a period of five years starting the year after taking possession of the new house.
Are you worried about tax, while thinking about returning the money you borrowed from your relatives and friends, then it is time you stop worrying. Under the section 24 of I-T Act tax deduction can be made on the loan taken from relatives and friends, but it would be applicable on the interest payment. You lose out on the principal repayment unless you have borrowed from a scheduled bank or employer. If one can satisfy the tax authorities that the loan had been for the renovation, reconstruction or buying a new residential property the nature of the loan doesn't matter. Also, the lender must also be able to produce documents regarding I-T return reporting the interest income. The additional benefit of Rs 50,000 under Section 80EE would also be not available.
Are you just a co-borrower and not a co-owner? In such a case you may not be eligible for tax benefits. If you have bought a property for your parents and you are paying the monthly EMI, and your name doesn't figure on the ownership paper or if you are the co-owner and not a co-borrower, in both the cases you cannot claim tax benefits. You have to be both co-owner and co-borrower for availing tax benefits.
The processing fee is also tax deductible. Many are not aware of the fact that the processing fee paid during the loan processing in the bank is eligible for tax deduction. Section 2 (28a) defines the term 'interest' as “interest payable in any manner in respect of money borrowed or debt incurred, including deposit, claim or other similar right or obligation. It refers to any kind of service fee or other charges with respect to the loan amount.