• Even a Loan taken from an employer, friend, private lender is eligible for Deduction – but only the interest and not the principal. And you’ll need a certificate from the lender.

• Booking an apartment which is under – construction is cheaper. IT law permits you to claim the total interest paid during the pre- delivery period as a deduction in five equal instalments starting from the financial year in which the construction was completed or you acquired your apartment (generally this denotes the date of possession). Of course, the maximum you can claim as a deduction per year continues to be Rs 2 lakh, in case of self-occupied Property.

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• It makes tax sense to purchase the new apartment jointly say with your spouse, then each of you is entitled to a deduction of Rs 2 lakh for interest funded by each of you. In case you have a working son or a daughter and the bank is willing to split the loan three ways, all three can avail deduction up to 2 lakh each on a self-occupied property.

• If you have a second house, it makes better tax sense to rent it out rather than keeping it empty. An empty second house will still attract tax on its deemed value. In other words, tax is calculated at expected market rent.

• Expenses towards repair and maintenance are not allowed as a deduction income from house property. However, a standard deduction @ 30% of gross value is allowed to compensate for repair and maintenance expenses of a house property. This is allowed irrespective of actual expense. Also, deduction towards municipal taxes paid during the financial year is allowed irrespective of the year to which it pertains. The above is not applicable to a self – occupied property.

Tax benefits on principal

Equated Monthly Instalments (EMIs) are typically divided into principal (the amount you took as loan) and interest (the cost of servicing the loan). Principal is allowed as a deduction from your gross total income (subject to an overall cap of 1.5 lakh with other eligible investments).

Tax benefits in Interest Paid

Interest paid on ‘self-occupied’ property is subject to a maximum deduction of 2 lakh under the head ‘Income form house property’. It can be set against other income, which includes salary income, in the same year. This reduces your total liability. But to claim this, it is essential that the acquisition or construction is completed within five years from the end of the financial year in which the loan was taken; else the deduction will be limited to 30,000 additional deduction of Rs 50,000 for interest paid shall be allowed for first time buyers if certain conditions are fulfilled.

Source: Economic Times

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