Frequently asked Questions on Housing Loan
Q.1. Why should you take home loan?
Ans: It would be wise to go for home loan even though you have enough money because it helps you to save taxes on income. Acquiring a home loan makes an individual owner of the house property as well as reduces the taxable liability of the individual. Interest paid on a housing loan is eligible for tax deduction for self-occupied property with a limit of Rs. 1,50,000 in a year. The loan amount should be spent on either acquisition or construction of the house property.
Q.2 Can a NRI (Non Resident Indian) avail a housing loan? Â
Ans: Yes, Non Resident Indians can avail a NRI housing loan to buy a property in India. However, the loan disbursement process as well as the terms & conditions for a loan taken by a NRI are different than regular home loans granted to Indian residents.
Q.3 What are the various kinds of loan extended?
a) Home Purchase Loans: This is the basic home loan for the purchase of a new home.
b) Home Improvement Loans: These loans are given for implementing repair works and renovations in a home that has already been purchased by you.
c) Home Construction Loans: This loan is available for the construction of a new home.
d) Home Extension Loans: This is given for expanding or extending an existing home. For example addition of an extra room etc.
Q.4 What is the maximum amount which I can borrow?
Ans: Home loans are generally provided for in the range of 75%-85% of the asset value. The income of the applicant plays an important role in determining the loan amount. Providing additional security like bonds, fixed deposits and LIC policies will help in enhancing the amount of loan.
Q.5 What are the charges other than interest that are levied by home loan lenders?
Most of all, lenders charge certain administrative or processing fees apart from interest for providing a home loan in India.
- Legal fees is payable to the lender or to the legal consultants of the lender
- Technical or Valuation charges – payable to the lender or to his technical consultant.
- Prepayment Charges – This is the biggest charge that most consumers miss taking into account. A loan can be prepaid either inÂ part or in full at any given point of time. You can also prepay a loan even when it is only partly disbursed. However, most banksÂ have an upper limit on the number of times a person can prepay his loan in a year as well as on the minimum amount you can prepay each time. Until recently, banks charged a penalty for part or full prepayment. Increased competition has forced most banks to allow repayment without any charges if it is funded from own sources. In case the borrower, is transferring the loan to another lender he will need to pay the full charges.
Q.6 What is Income tax benefits of repaying a housing loan under EMI Plan?
You will be eligible to claim both the interest and principal components of repayment during the year.
- Interest can be claimed as a deduction under Section 24(b). 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.
Incentives for home loan borrowers with a person taking a first time home loan up to Rs 25 lakh during the financial year 2013-14 will be allowed an additional tax deduction of interest of up to Rs 1 lakh under section 80EE.
Q.7 Can there be co-applicants for the home loan?
Ans: Yes, banks and financial institutions encourage having co-applicants for a loan.
– Your spouse
– Any of your blood relative (immediate family members)
can become co-applicants for a home loan. Having a co-applicant for home loans only adds to the benefit, by increasing the loan amount if required, and further the tax benefits can be claimed by both the co-applicants individually.
Q.8 If I buy a house jointly with my wife and take a joint home loan, Can we both claim income tax deduction?
Ans:-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.
Please Note: that the ownership ration in this case is crucial i.e. the benefit available to the co-owners depends on the ratio of ownership.
Q.9 Can you get Home Loan certificates in the name of both the applicant and co-applicant separately?
Ans: As per IT rules, only one certificate can be issued for a Home Loan hence one certificate will be issued in the name of both the applicant and co applicant. You can request for a provisional Home Loan certificate that can be issued any time during the course of the year.
Q. 10 Is Pre EMI or full EMI better for taking home loan for under construction house property in taxation point of view?
Ans:Â While applying for the loan the applicant has an option of opting for pay full, equated monthly installments (EMI) or pre-EMIs. In the first option, the amount he pays each month will be calculated on the basis of the total loan amount, while according to the second option, he would have to pay only the interest on the loan that will be disbursed at each stage of construction. The real EMIÂ payment will start after he gets possession of the house.
On the face of it, the second option looks more lucrative since you need to pay only the interest component for the first three years, which would be a lot less than paying the full EMI. However, from a conservative point of view opting for the full EMI payment is more beneficial in the long run as you start repaying the principal amount from the first day itself. “This reduces the outstanding principal amount before you actually get the possession,
The facility to make pre-EMI or PEMI is available only in case of housing property that are under construction as the loan is disbursed partly at each construction stage. There is no difference in the tax treatment under both the schemes and you will not be able to benefit from any kind of tax deduction until the project is completed. The tax benefits on the pre-EMI interest cannot be derived from the same year of payment.
In both the cases of repayment, the value of the total interest paid will be accumulated and divided into five equal parts. It will be considered for tax deduction for the first five years from the date of final disbursement. When it comes to the repayment of the principal amount, no deduction is allowed on the EMI repaid during the years that the property was under construction.
Q.11 What will be the tax benefits if house property is purchased by raising loans from friends and relatives?
Ans: â€“ Interest payment to friends and relatives can be claimed u/s 24(b) 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.
Q.12 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
The benefits to home loan are subject to the provisions explained earlier. But, HRA benefits would only be available if you actually stay in rented premises. Owning a house does not stop you from claiming HRA benefits. However, in such cases, the house you own would be considered as deemed to be let out.
Q.13 What will be the tax benefit in case two home loan taken for two properties respectively?
Ans: As mentioned earlier, you can enjoy the tax benefits after getting the possession of the properties. If the individual owns two house properties then one of the properties will be deemed to be let out i.e. even if you donâ€™t put any property on rent, the law assumes that one property has been let out.
Tax benefits u/s 80C for the principal component would be allowable for both home loans, subject to a maximum of Rs. 1 Lakh.
Tax benefit for the interest component-
a)Â Â Â Â Â Self-occupied property maximum interest allowed u/s 24(b) is of Rs. 1.5Lakh for each owner.
b)Â Â Â Â Â For let out property there is no limit for the benefit of the interest portion.
Q.14 Can I take a loan to buy a plot of land?
Ans: Yes. But you will get no tax benefits.
In fact, the conditions for giving out such loans are rather strict. The loan provider may insist that the plot only be bought from a state authority and the repayment tenure would generally not exceed seven years.
Q.15 Is it necessary to get property insurance, while availing a home loan ?
Ans: Most lenders do not insist on a property insurance when disbursing a loan. However, it is strongly advised to buy an insurance as your home would be one of your most valuable assets. The home insurance rates are very affordable especially when bought for a long duration say 10 years. It would cost close to Rs. 50 per lakh of property value per year.
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