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Earn Tax Benefits Even After Delayed Possession of Property

As a home buyer, filing a home loan application (and getting it sanctioned) is one of the best ways to purchase that apartment you’ve set your eyes on. What’s even better is that you’ll get tax benefits on the interest and principal loan amount. So while you’re paying large EMI amounts, you can at least rest assured that you will get some tax refunds on them.

However, delay in possession of property can come in the way of availing tax benefits. In India, under-construction properties can get delayed for months and even years, and this can result in the loss of tax incentives.

The Union Budget 2016 has mitigated this problem for Indians to a certain extent, and now you can still hope of getting a tax redemption on your home loan.

Taxation Laws Applicable on Home Loans in India

Tax Benefits on Principal Amount

According to Section 80C of the Income Tax Act, you’re liable to get a tax exemption of up to Rs.1.5 lakh on the principal amount of your home loan. This amount, however, is inclusive of other tax benefits that you can claim on investments like PPF account, tax-saving fixed deposits, equity-oriented mutual funds, national savings certificate, and senior citizens saving scheme.

So, if you’ve claimed tax benefits for any of these investments and the total tax deduction stands at Rs.1.5 lakh, then you can’t get a tax redemption on your principal amount.

Tax Benefits on Interest

According to Section 24 of the Income Tax Act, you can avail a tax redemption of up to Rs.2 lakh on the interest charged on your home loan. However, you have to bear in mind that the property has to be self-occupied for you to avail this tax benefit.

On the other hand, if the property is not an SOP, there’s no maximum limit on claiming tax benefits and you can actually get a tax deduction on the entire interest amount.

How the Union Budget 2016 will Affect You

There’s nothing new in builders delaying possession of property in India. How many times have you come across your friends and relatives complaining about a pending housing project? This is not just an annoyance to home buyers who just want to move into their new home, but also cuts down on your tax benefits. But this changed with the new budget.

Till the latest Union Budget was announced, you could only gain tax benefits on the interest charged on your home loan if you got possession of your property within 3 years of the financial year in which the loan was availed. Post that, you wouldn’t have been able to gain tax benefits.

But the current budget has proposed to extend this time period to 5 years, to give home buyers a better chance at availing tax benefits. The government has proposed this change keeping in mind the hassles faced by home buyers. They may have to lose out on tax benefits because the builder has delayed the project or in case the project is put on hold. This change in the window of opportunity will come as a relief to home buyers.

However, remember that this amendment will be made from April 2017.

The extension is definitely a boon for home buyers, so take out online EMI Calculator for home loan and start planning for your dream home today!

Written By

Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog.

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