Less known facts to save on taxes

To buy a house and creating an asset is a big step for everyone. Again to b a surprise, searching for a house that fits within the budget is not short of a struggle. The next step after searching the right property is to choose the right loan and apply for a home loan for buying the property. Finally, after all the hazardous process when the borrower settles in the new house, there comes the major concern for all the family members – repayment of loan amount. The borrower always wants to avail the best deal for the loan borrowed from the Banks/ NBFC’s in terms of equated monthly installment (EMI), interest rates, tenor and other terms and conditions. Even after availing the best deals on home loans and monthly EMI’s, the tax deductions can put a big hole in your pockets.

There are some unknown facts related to tax benefits that can help you to be at ease if you have to repay a home loan. We have come forward to disclose those unknown facts that will let you avail you those tax benefits which you often miss.

If you move ahead and take the actions to avail the tax benefits it is important to understand that no deduction is allowed against the principal amount during the pre–construction period. Even if in case you have paid the interest during the pre-construction period, it can be claimed by you for the period of five years which starts after taking the possession of the new house.

Following are the other situations in which you can avail the tax benefits:

• To avoid higher interest rates and borrowing higher amount from the lender we often borrow money from our friends and relatives. In this situation also you need not worry about availing the tax benefits while returning the money borrowed from your friends and relatives. Under section 24 of IT Act, tax deduction can not be made on the loan taken from friends and relatives, but it would be applicable on the interest payment. You lose out a big amount as a tax benefit on the principal repayment unless you have borrowed from a scheduled Bank/ NBFC. If one can provide the documentation to satisfy the tax authorities that the loan had been borrowed for the renovation, reconstruction or buying a new residential property, the tax benefits can be availed on the interest paid on that amount. The additional benefit of ₹50,000 under Section 80EE will also be not available.
• Due to any uncertainty if you have missed an EMI, do not worry about the tax benefits. You can still claim a tax benefit on your missed EMI.  This means that in a particular financial year even if you have missed payment of an installment of your home loan you are still eligible to claim tax benefits for the same financial year. Section 24 of IT Act clearly states the word “paid or payable” which means the payment of interest is a liability for the borrower.
• It has come up as a surprise that the processing fee that you pay towards applying for the home loan is also tax deductible. Many of us are not aware of the fact that the initial amount given to the lender along with the application form and the required documents as a processing fee for the further processing of the loan in the Bank/ NBFC is also eligible for tax deduction. Section 2 (28a) defines the term ‘interest’ as “interest payable in any manner with respect to money borrowed or debt incurred, including deposit, claim or other similar right or obligation. The section also refers to any kind of service fee or the other charges given to the Bank/ NBFC with respect to the loan amount.
• You will not be eligible for tax benefits in case when you are just a co-borrower and not a co-owner? Suppose you bought a property for your parents and you are responsible for paying the monthly EMI’s, and your name doesn’t figure on the ownership paper. The above fact will also be applicable if you are a co-owner of the property and not a co-borrower.In both the cases you cannot claim tax benefits as you have to be both co-owner and co-borrower for to avail tax benefits.