Lesser-Known Tax Benefits That Home Loan Borrowers Can Avail

Buying a home is one of the prudent ways of saving tax on income tax and this is the reason why young home buyers are moving towards real estate investment. As Union Budget 2017 reintroduced section 80EE, the holding period was lowered that delighted the home buyers. But given a major jolt to those who used to claim a loss on the let out the property as government restricted the tax benefit up to Rs 2 lakh rather than the full amount.

There are several other benefits and claims that are often missed by the home buyers. Here are few of them:

Claim tax relief on the interest paid during construction stage

Home buyers can claim a tax deduction on the interest paid during the construction of a house in five equal instalments. However, the buyer can make the claim only when he receives the completion certificate. So once the construction is completed, the total tax benefit would be annual interest+1/5th of interest paid during the construction period, limited to Rs 2 lakh. 

Claim  tax deduction on loan charges

As per section 2(28A) , interest is defined as all types of service fees and charges paid with respect to any type of loan. Home buyers can claim a tax break on processing fees, prepayment charges and other cost related to the home loan under interest column.

Loans from friends and relatives are liable for tax benefit

Obtain interest certificate from your relative/friend to claim a tax deduction on interest component. You cannot get the tax benefit for principal repayment. Also, ask the lender to show the interest paid by you in their internet returns filing.

Tax benefit on missed EMI

A home buyer can claim the tax benefit on the 'interest' component of the housing loan even if you have missed the EMI. The payee should have the copy of interest certificate issued by the lender that specifies the loan amount and total interest payable in the financial year. However, the tax deduction on principal component won't be functional here as it depends on the actual repayment.

Principal repayment benefit

Though the holding period has been shelved to 24 months for qualifying for long-term capital gains but if you are claiming the principal repayment benefit and if you sold the property within five years of purchase of a home or sanctioning of home loan, the benefit would get reversed. The entire benefit would get added into the yearly income of the buyer.

Also Read: Why Prepaying Your Home Loan Is The Best Option

Tax breaks are only for co-borrowers and co-owners

Being a co-owner is not just enough to even when you are paying the monthly installments, you have to be a co-borrower in a home loan to avail tax deduction on interest and principal component. Moreover, if the property is owned by both the spouses, husband and wife can avail tax deduction on that same loan. But it is necessary to have your name on loan book to avail tax benefits as a co-borrower.