According to most financial experts, getting a Home Loan to purchase a property is the best way to make an investment. Although most people tend to save their money in SIP or other savings options to use later to purchase property, a Home Loan is a better option as you have several tax benefits along with it.
Federal Bank Home Loan gives you the option of getting Home Loans even on a jointly owned property. This gives you several tax benefits and is one of the best options available for investments in a new property.
Conditions to be fulfilled for tax benefits
It is possible for all joint owners who have applied for a Federal Bank Home Loan or any other Home Loan to avail the several tax benefits associated with it. However, there are some conditions that need to be fulfilled for you to be eligible for these tax benefits. The conditions that you need to meet are as follows:
• You must be a co-owner of the property: Even if the Home Loan has been acquired jointly, the tax benefits are not applicable unless you are a co-owner of the property as well. There are some instances such as a property owned by the parent or the child where the Home Loan has been taken jointly by both the parent and the child. Even if the loan amount is paid back fully by either party, be it the child or the parent, they are not eligible for the tax benefits associated with the loan. It is mandatory for an individual to be a co-owner of the property as per the legal property documents.
• You must also be a co-borrower of the loan in question: There are also chances that an individual is the owner of the property that the loan has been availed for. However, if the individual does not appear as a co-borrower in the loan documents, the tax benefits will not apply. Any property owner who does not appear as a co-owner and does not pay the installments on the loan cannot be eligible to avail the tax benefits.
• Your property must be complete: Home Loans are also available for construction of property along with purchase of a new property that is already complete. If you are borrowing for the former, then you will become eligible for the tax benefits only after the construction of the property is complete. You can claim the tax benefits only from the financial year when the property was fully completed. However, you do have certain tax benefits with respect to the expenses towards the completion of the property or prior to its completion. These expenses can be claimed in the form of five installments. Even these claims can only be made once the property is fully complete.
Types of income tax benefits
There are two types of income tax benefits that you can claim with respect to Home Loans:
• Section 80C: According to this section, you can claim deductions towards the repayment that you make towards the principal amount. It is possible for each of the co-borrowers to claim up to Rs.1.5 Lakhs individually towards principle repayments. In case of multiple co-borrowers, the maximum claim that you can make under section 80G is restricted to Rs.3 Lakhs and is subject the actual repayments that you make towards the principal amount.
• Section 24: This is a claim that you can make towards the interest that you pay towards the Home Loan. The maximum amount that you can claim depends upon the type of property that you have taken the loan against. In case of a jointly owned property that is self-occupied, you can claim up to Rs.2 Lakhs as tax deductions. The maximum interest amount that you may claim for a tax deduction is unlimited if the property is let out.
How to claim tax benefits on Home Loan?
Provided that you have fulfilled all the conditions mentioned above, you are eligible for tax benefits of different types. The tax benefits that you can claim include:
• Tax claims for property occupied by self: Every co-owner who is also listed as a co-applicant as per the loan documents is eligible to claim a deduction of a maximum of Rs.2 Lakhs on any Home Loan. These claims can be made as part of the Income Tax return. The total interest that you pay towards the loan is allocated to you as per the ratio of your ownership in the property. It is important to note that the total interest claim that you make jointly must not exceed the interest that you pay towards the loan in total. For instance if a loan interest of Rs.5 Lakhs is being paid in total towards the property, the claims made are based on the ratio of property ownership. If the joint owners have a 50:50 ownership in the property, then they can each claim Rs.2 Lakhs as part of their tax returns.
• Tax claims for rented property: Recently, a major change was made with respect to the tax benefits that you can claim for a rented property. In this case the interest that you claim depends upon the loss on the house property. This amount cannot exceed a sum of Rs.2 Lakhs.
• Tax claims for principal payment: All the co-owners and co-borrowers of a Home Loan Against a Property can claim deductions up to a maximum of Rs.1.5 Lakhs towards the repayment of the principal amount as per section 80C.
• Tax claims for registration fees and stamp duty: Under section 80C, it is possible for you to avail deductions based on the stamp duty and the registration fees paid towards the property. It is possible to split these costs between the owners and then make a claim in order to get maximum benefits. It is important to note that you have to claim tax deductions on these fees in the year that you made the payments.
All of the above deductions can be claimed once your property has been completed.