Tax Rebate on Home Loans

What do you understand by the sentence “Tax rebate on home loans?” It is a tricky question, isn’t it?


Well my friends, the specific sentence means that approaching for a home loaning scheme may help you in saving a significant part of the tax you are needed to pay. The tax rebate on housing loan is quite effective for the tax payers and functions on certain issues like the overall payment of interest amount related to home loan, etc.


If we follow the legal proceedings, then there are clear rules that highlight the above points. According to the INCOME TAX ACT 1961 of the SECTION 24 (b), tax payers who have acquired home loan can claim an amount of maximum 1, 50,000 /- INR. The claiming of this amount can be done on the overall interest that is paid on the home loaning scheme. The expenditure that was undertaken while purchasing of construction materials related to house properties are needed to be shown clearly in order to avail the rebate facility.


The payment procedure related to the interest amount that you are required to pay before the construction work commences follows a particular strategy. The amount is broken down equally into five parts. Each part is required to pay on an annual yearly basis. The starting date of payment will be the time when the construction of the house started.


However, if multiple properties are self-occupied by one person, then the deduction procedure takes place from any of the single property of that person.


The interest can be deducted under the section 24 (b) for loans taken to purchase house property, but there are also certain other factors.


The interest can also be deducted if the home loan taken is used for re-construction of the house, or even repairing and renewal of the living property. Rules are clearly mentioned in the Section 24 (B) of the Income Tax Act 1961 regarding Housing Loan Tax benefits related to these circumstances.


If you are aware of the recent introduction of sections like 80 C and 80 CE of Income Tax Act 1961, then you may not have difficulty in understanding the policies. However, those who are not clearly aware, allow me to give them a briefing about the rules and policies.


The sections 80 C and 80 CE indicate that a maximum reduction of one lack INR can be deducted from the principal home loan repayment amount.


However, the annual gross income of the person will also come under consideration. Let us have an understanding through an example.


Assume that you have a taxable income of around 5, 50,000 /- INR. The principal amount that is repayable within the same calendar year is around 1, 10,000 /- INR and accordingly the interest to be paid for the current year is 1, 60,000 /- INR. The total amount that will be deducted is 2, 50,000 /- INR. The calculation of the total deductible amount is like this: one lack rupees for the principal generated due to repayment of loan and one lack fifty thousand for the interest that needs to be paid.


Home Loan Deduction in Income Tax


Total Taxable Income (5, 50,000) – Total Amount Deductible (2, 50,000) = the reduced taxable income, which is 3, 00,000 /- INR.


Income Tax Rebate on Home Loan

Have a look at the rules that are followed on tax rebate related to home loans:


  • The borrowing of the total capital amount is done on the 1st of April, 1999 or afterwards in order to construct or acquire a property.

  • The deadline given to finish the construction or acquisition of the property should take place within a time period of maximum three years, starting from the time of the borrowing amount.

  • The creditor is required to mention and certify clearly about the amount that needs to be paid as interest at the earliest of stage. If any previous loan amount is still outstanding, then the borrower may not get the facility of tax reduction.

  • Unless previous records are cleared, tax reduction under Section 86 E and 86 CE will not be achieved.

  • If by any means, the capital amount is borrowed before the 1st of April 1999, then clear statements that will highlight the proof of purchasing or re-construction and modifying of the property need to be placed.

  • If the capital amount is borrowed after the 1st of April 1999, then it needs to be seen whether the construction is completed within the following three years or not. If the construction fails to get completed within the required three years, then under special consideration tax rebate can be acquired.


Let us have a look at the current tax rates according to the income slab.


Income Slab (INR)

SC (surcharge)

EC (educational cess)

TR (tax rate) (%)

0 - 50, 000/-

NIl

NIl

0

50, 001 /- - 60, 000 /-

NIl

Yes

10

60, 001 /- - 1, 50,000 /-

NIl

Yes

20

1, 50,001 /- - 8, 50,000 /-

NIl

Yes

30

Above 8, 50,000 /-

Yes

Yes

30


Let us have an example on how a person pays tax:


Let us assume a person is having an annual income of 4, 00,000 /- INR.


The tax payment procedure will be as follows:


Tax for Income Slabs

Rate of Tax

Calculation

Amount (INR)

0 - 50, 000/-

NIl

Nil

Nil

50, 001 /- - 60, 000 /-

10 %

(60, 000 – 50, 000) x 10 % =
10, 000 x 10 %

1000

60, 001 /- - 1, 50,000 /-

20 %

(1, 50,000 – 60, 000) x 20 % =
90, 000 x 20 %

18000

1, 50,001 /- - 8, 50,000 /-

30 %

(4, 00,000 – 1, 50,000) x 30 % =
2, 50,000 x 30 %

75000

Above 8, 50,000 /-

As annual income is 4, 00,000 /- INR, so no tax will be levied for this slot. Also in the above calculation, deduction is done from the annual income which is 4, 00,000 /- INR.


Hence, the total tax that needs to be paid is 1000 + 18000 + 75000 = 94000/- INR.


On this total tax payable amount, the rebate is given in case of home loan policies.


Leave a comment:
Name:
Email ID:
Your comment:
Comments for this URL:
1. B. Chandrashekar (b.chandrashekar1968) posted this comment on Mar 22, 2013 at 03:20
what was the age limit for senior citizen