Claim Tax Deductions on Home Loan

No matter how much we hate taxation, we have to live with it.

No matter how much we hate taxation, we have to live with it. We all hate the substantial amount of money that is deducted from our salary every month as tax. What we even hate more is the money deducted as home loan EMI. Thankfully, home loan allows you many substantial tax deduction. As per the financial year 2017-18, the upper limit on tax deductions on home loan is set at Rs 2,00,000.

If you are a working professional, you don’t directly need to submit any sort of documents to income tax departments. You can submit them to the employer who will adjust the TDS (Tax Deducted at Source) based on the documents you have provided. This gives you entire year’s time to know your tax liabilities.

In case you are hiring a charted accountant to file tax returns, you need to provide them with all the necessary documents.

List of Documents You Need to Claim Tax Deductions on Home Loan

You can also claim pre-construction interests, payable in five equal instalments starting from the year when the construction is completed.

Calculate your income from the house

The tax deduction for a self-occupied home has an upper limit of Rs 2,00,000. There is no upper limit on the deductions you are eligible on the interest, if you have rented your apartment. Here are the steps for calculating your tax deductions:

  • Gross Value of the property
  • (Less) Municipal Taxes- if paid during the year
  • (Less) Standard Deduction (30 percent of Net Annual Value= Gross value minus Municipal Taxes)
  • (Less) Deduction for Interest on Home Loan
  • You will arrive at the “Income from House Property” figure

Tax Deductions on Repayment of the Principal Amount

It is eligible for tax deductions under Section 80C, the upper limit on tax deductions of principal amount repayment is Rs 1,50,000. This limit the total of money also invested in Public Provident Fund (PPF) account, Senior Citizen’s Saving Scheme, equity-oriented mutual funds, tax-saving fixed deposits, and National Savings Certificate.

However, you can claim a tax deduction on this only after the construction is complete.

A checklist for first-time buyers

Buying one’s first home can be a trying experience for most first-time buyers. Getting confused or feeling lost at such times is only natural, unless you have a ready reckoner close at hand. Today we take you through all the information you need to have when you are buying your first home.

Get online

In this highly digitised world, the search for everything from groceries to gadgets happens online and real estate is no different.

Most buyers in the 25-35 age group begin their search online. The presence of a number of portals such as magicbricks.com, 99acres.com, housing.com, makaan.com has made it easy to filter searches according to your requirements, budget, and location preferences. It is a good idea to go through all of these portals and shortlist properties that you would like to see personally.

Once you have zeroed in on the properties that you would like to visit, probe further and read up on the developer, its reputation.

Check out things like delivery time, payments, and delays it has been responsible for.

Use your networking skills to reach out to recent home buyers in the properties that you are interested in and get their opinion as well.

Making the choice

While visiting the shortlisted properties do a thorough check of the neighbourhood.

If you have young children or hope to have a family in the near future, check out education facilities in the area.

Proximity to hospitals, schools and colleges, market areas, amusement and entertainment options should be considered.

The other important factor to consider is the distance from your workplace, railway stations, and airport.

Budget requirements

The first thing you need to remember while buying your first property is that you should not under any circumstances overshoot your budget. It’s human nature to be aspirational, but make sure that your loan does not become a burden for the rest of your life.

Ideally if you are planning to buy a house, you should have been saving up for its down payment at least three to five years ahead.

For young people who harbour dreams of owning a home, start investing in equities in order to get the best inflation adjusted returns.

If you do not have the time or expertise to invest in equities by yourself, it is best to take the mutual fund route and link your investments to a goal like down payment of your first home. This will keep you focussed on your goals and help you make disciplines investments towards reaching your aim fruitfully.

While saving or investing for a house, you also need to bear in mind that you need to maintain a good credit history as your credit score will be taken into consideration, when the lender assesses how credit-worthy you are.

Maintain a good track record of servicing your previous or current loans and make it a habit to repay all your credit card outstanding within the billing cycle.

Further, when you are taking a home loan, make sure that its EMI does not exceed 40-45 per cent of your monthly income.

Aim to increase your EMI repayment over the tenure of your loan as your capability rises with an annual increase in your salary.

 Maintain a contingency fund that will take care of your home loan EMI for at least 3-6 months in case your cash flow is interrupted by an emergency.

Necessary paperwork

Once your financing needs are taken care of, it is time to be aware of your rights as a prospective home buyer. The recently passed real estate Bill safeguards your rights as a consumer and ensures efficiencies in all property related transactions with the mandatory registration of all projects with local governing bodies and the establishment of the Real Estate Regulatory Authority (RERA) that is expected to ensure timely completion and hassle free handover to the end customer.

Ensure that the following documents are in order:

– Sale deed/title deed /Mmther deed/conveyance deed

– Building plan sanctioned by statutory authority

– Layout approval plan sanction

– NOC from electricity department/pollution control board/water works/ airport authority

– Supplementary agreement / ratification deed (if any)

– Allotment letter from the builder/co-operative society/housing board/BDA.

– Approved plan of construction/extension and license for construction.

– Detailed cost estimate/valuation report from chartered engineer/architect (if applicable)

Post-possession checklist

Storage: All documents related to your property purchase must be photocopied, watermarked, and digitised. It is advisable to keep at least three copies of the same at three different locations.

Transfer: Start the paperwork related to the transfer of name for electricity and water meters if applicable, transfer of society shares and finally transfer of name for property tax records in your local municipal body.

Update: Finally update all your official documents such as passport, bank documents and the likes with your new address.

While you enjoy your home and make memories in it, do not forget to live up to your commitment of making timely repayments on your home loan.

This article first appeared in The Hindu.

Reasons For Home Loan Rejection

A home loan is one of the best options, to arrange the funds needed for buying a home. Generally, it is easy to avail of a home loan, if the applicant has all the documents in place and has a good credit history. However, banks may still reject a home loan application. Some important reasons for rejection are:

  • A bad credit score: Credit score is a significant deciding factor in sanctioning home loan. Make sure you have a good credit score in place before applying for the loan.
  • Bad credit history, which may include a loan settlement in the past that is reflected in the credit report.
  • The project is not approved by the bank.
  • The home loan application, is made for a project that falls in a restricted area.