What is home loan?
Home loan is the amount borrowed by an individual from a financial institution / bank or any lending company at a certain rate of interest to be paid with the EMI every month. The property is taken as a security by the money lending company for the home loan. The property can be either commercial or personal in nature. Most importantly when the borrower cannot repay back the loan the lending company/ bank/ any financial institution will possess all the legal rights to sell the property for recovering the outstanding amount or payment. There are various types of home loan: home purchase loan, home improvement loan, home construction loan, land purchase loan, home extension loan, joint home loan, home loan balance transfer and top up home loan from https://www.smâlân.com.
Documents required: application form with photograph duly signed, identity, residence and age proof, last 6 months bank statements, last 3 months salary slip, processing fee cheque, form 16/ income tax returns, proof of business existence, business profile, education qualification certificate and proof of business existence, last 3 years income tax returns with computation of income, last 3 years CA certificate / audited balance.
Post closure of loan, documents required for handover of original property documents:
- Power of attorney format for collection of original property documents
- In case of death of loan account holder : request letter from the legal heir/ claimant/ nominee(s) for handover of property documents and letter of relinquishment for relinquishing right in favor of legal heirs/ nominees/ surviving owners for handovers of property documents.
(APPLICABLE FOR SALARIED, SELF EMPLOYED PROFESSIONAL AND SELF- EMPLOYED NON PROFESSIONAL)
Is taking home loan for tax saving advisable?
Tax benefits on housing loan are provided by section 24. Section 80C, section 80EE of the Income Tax Act 1961.
- Tax benefit of interest paid on home loan for both the pre-construction and post- construction period can be claimed.
- Accrual basis is considered for tax deduction.
- Interest amount paid towards home loan are tax exempted under this section.
- Rs. 2 lakh is the maximum tax exemption available under this section.
- Individuals also have the option to claim tax benefits on yearly basis according to the loan repayment style.
- It is important to ensure the house construction is completed within 3 years of taking the house loan else the deduction under this particular section will be only to the extent of Rs.30, 000.
- Loans taken for the purpose other than owning a house does not get tax exemption under this section.
- Loan taken for renovation, repairs and reconstruction do not get the benefit of this section.
- Individual can enjoy tax benefits on home loan’s principal amount under this particular section.
- Maximum tax allowed on principal payment is Rs 1, 50,000.
- If the individual has not paid any amount towards the principal of the loan amount for a year then that tax exemption is not available for that particular year.
- Any payment made by the loan borrower towards registration fee and stamp duty is also exempt under this particular section.
- Loan should be taken from financial institution only as defined by Income Tax Act 1961.
- After claiming the deductions the property should not be sold before the end of 5 years of possession.
Section 80 EE
- If one is a first time home loan buyer, there are various benefits available under this section.
- Conditions: 1. the loan should be approved by the bank or NBFC between the period 1st April and 31st march, of the year.
2. Home load should not exceed more than Rs.25 lakhs and the overall value of residential property should be below Rs.40 lakh.
- Thus for such borrower deduction under this particular section are up to 1 lakh.
Who can claim tax benefits?
Only an individual can claim tax benefits on home loan. No company, partnership firm or body corporate is allowed the benefit of home loan interest and principal deductions.
Limits of tax deduction in a year for the interest on home loan?
There are certain limits specified by the income tax department. The limit varies according to the nature of use (owner or let out) for which house could be used for which the loan is being borrowed.