Home Loans

Home Loans from various banks are available for buying or constructing a home, refinance a home loan availed from other banks or to extend or improve an existing home or to finance purchase of loan to help you construct a home or to acquire a self-contained home or a bungalow.

The maximum loan which can be availed shall be 80% of the cost of the property including the cost of the land. This is however subject to a valuation of the property by the Home Loan Banker.

The home loan eligibility of an individual depends on his repayment capacity. The repayment capacity takes into consideration factors such as income, age, qualifications, number of dependents, spouse's income, assets, liabilities, stability and continuity of occupation and savings history in order to make sure that the borrower can comfortably repay the amount he borrows.

A home loan application can be made at any time after one has decided to buy / construct a property even if the property has not been selected or the construction has not commenced.

The loan repayment could be made over a maximum period of 20 years. The repayment will not ordinarily extend beyond one age of retirement or on reaching 65 years of age. However, the banks will determine the repayment period to suit ones convenience.

The loan repayment is made by EMIs (Equated Monthly Installments) comprising principal and interest. Repayment by way of EMI commences from the month following the month in which one avail full disbursement of the loan. Pending final disbursement, one has to pay interest on the portion of the loan disbursed. This interest is called pre -EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up-to the date of commencement of EMI.

Home loan is a credit facility where interest rates are cheaper and tenure is longer. Not only this, it comes with tax benefits which makes it even more attractive for the loan seeker.

A home loan servicing has two components - Interest repayment and principal repayment and both these entitle to tax benefits.

Deduction available under Section 80 C for Principal repayment of home loan:

As per section 80 C, an Individual can claim principal repayment component of a loan along with other eligible items like Life Insurance Premium, NSCs, EPF, ELSS and stamp duty and registration charges etc. The overall deduction is restricted to Rupees One Lakh in a year. The deduction is only for residential house property and not for commercial property. Also it is available only for purchase or construction of a house and not for renovation, additions or repairs on any existing house property.

However, in case one sells the house acquired with home loan, within five years from the end of the year in which possession of the house was taken, all the deduction allowed for Principal repayment in earlier years shall be withdrawn. This shall be treated as income of the year in which this property is sold. Moreover no deduction under Section 80 C shall be allowed for principal repayment made during the year.

Deduction available under Section 24(b) for Interest payment:

In addition to deduction for Principal, Section 24(b) of the Income Tax Act allows deduction for interest payable on loan taken to buy or construct a house property, or even for repair or reconstruction of an existing property. This benefit is available for residential and commercial property as well. Even processing fee paid in respect of home loan shall also be treated as interest and so can claim deduction in respect of processing fee paid for taking such loan.

The deduction is available for self-occupied as well as let-out properties too.

For self -occupied property, the deduction is restricted to Rupees One Lakh Fifty Thousand per annum. For let-out property, one could claim full interest. If one has more than one self- occupied houses, he would have to select one house as self-occupied and the other houses shall be treated as let-out. In this case he has to offer notional rent for taxation and could claim the full interest payable.

For under construction property, one could claim the interest deduction from the year construction is complete and possession taken. However in respect of interest paid for the period prior to the year for taking possession, one could claim aggregate of such interest in five equal installments from the year in which construction is completed. There is no reversal of interest benefit even if he sells the house before five years as is applicable for repayment benefits.

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