Housing Loan Income Tax Banefits

Indian real estate industry has witnesses a boom with the growing trend of economy. The investors are showing interest in investing for housing finance or home loans as the tax benefits obtained from them is highly lucrative. Customers who are availing Home Loans are allowed to claim a certain fraction of the interest and principal that they have to pay as loan installments for dropping tax liability. Under the Income Tax Act, 1961, the Indian residents are eligible for the tax benefits on principal and interest components of the loan. An extra tax benefits can be availed under the Sec 80 C on repayment of principal amount up to Rs. 1, 00,000 p.a. which can reduce your tax liability by about Rs. 30,000 p.a.

Under the Section 24(b), those people can be facilitated by the tax benefits who have taken loan buy or build a home property. Interest on loan capital can be relaxed up to Rs. 150,000 provided some conditions are followed.

The capital is not borrowed before April 1, 1999, for buying or constructing a property. The acquisition/construction must be accomplished within three years from the end of the financial year in which the loan was granted. Tax relaxation can be attained on housing loan interest payments, up to an upper limit of Rs. 150,000 for a financial year.

If husband and wife take loan together and both of them pay tax, then both of them will get tax benefits up to extent each of them has taken in their respective names.

After buying the house through loans, if a person sells it within the same year/after 3 years, and profit is made, then a capital gains tax liability arises on the same for which the individual is liable to pay short-term capital gains tax since the sale took place in the same year. But, if the sale had taken place after 3 years, then a long-term capital gains tax liability would have arisen.

If there is any duplicity is proved like an arrangement between the loan-taker and the builder or with any other third party just simply for getting tax benefits, then no benefit will be given and if benefit is already claimed then it will be clubbed to the original income and taxed accordingly.

Tax benefits on the interest of the housing loans are applicable on the original loan and the second loan that is taken to repay the original loan. More precisely, if a person takes a loan to buy or construct a home and after that he has to take another loan to repay the loan due to his incapability to pay the original one, he will be granted tax benefit on the second loan as well. But, the limit is up to that extent only. If he again borrows money for the third time to repay the second loan, he will be devoid of tax benefits. The Section 24 (1) of Income Tax Act talks about the second loan only and there is no provision of the third loan. Even if, the second loan is taken at a higher interest rate, the eligibility of loan does not end up.

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