To save tax you should repay your home loan. Under Section 24 of the Income Tax Act, interest paid up to Rs 1.5 lakhs a year on a home loan can be set off against 'loss' from other heads for a self-occupied property. Suppose the property has been acquired before April 1, 1999, interest up to Rs 30,000 a year can be set off. If the property has been rented out, the entire interest paid is deductible from the taxable income after computing rental income. The loan taken for renovation then interest up to Rs 30,000 a year is deductible.
Under Section 24 of the Income Tax Act, the pre-equated monthly installment (pre-EMI) interest amount (the interest amount paid during construction) is deducted equally over five years from the year of completion of construction.
You can not claim tax benefit on loan taken only for purchasing land, but if you take a composite loan (for land and house construction) you can claim income tax benefits only after the completion of the construction.
You can claim tax benefits on loans taken for construction of a residential property, buy a residential property, extend a house, and for major repairs or renovation of a house. As the construction progresses the home loan installment is given.
However during the construction period, you have to pay pre-EMI interest every month. The entire pre-EMI interest paid is allowed as a deduction (under Section 24) equally over five years starting from the year in which the construction is completed. In case of a self occupied house you can claim total deduction towards interest on the home loan is up to Rs 1.5 lakhs a year. While there is no limit for deduction on interest paid towards a second home loan provided you add the rental income (annual rental value of your second house) to your income. Thus the annual rental value will be the higher of actual rent received a year, municipal value, and fair rent fixed.
Moreover out of the total annual rental value, you will get standard deduction of 30 percent available towards maintenance charges and municipal taxes. Even the insurance premiums paid on the property can also be deducted.
However the deduction on principal loan amount repaid is set to Rs 1 lakh.
In case of personal loan, taken to purchase or construct a house, the tax benefit can be claimed on both principal and interest paid. But if you have borrowed the loan from a friend or relative, you will get tax benefit only on the interest paid.
If there are co-owners of the property then both can claim tax benefits separately, as per the shareholding in the property. If the ratio of shareholding is not mentioned in the purchase agreement, they can execute an agreement on a requisite stamp paper, mentioning the shares in the property, and claim the benefits separately. Both the co-owners can claim tax deductions up to Rs.1.5 lakhs a year separately towards interest paid for a self-occupied house and the entire interest paid on a rented-out house, after computing rental income received, and also up to Rs 1 lakh towards principal repaid.
Under Section 80C of the Income Tax Act, home loan borrowers can claim a deduction of up to Rs 1 lakh from the taxable income on a loan repaid during the year, along with specified savings instruments. Which means along with other specified savings instruments, a home loan repayment amount, the amount spent on stamp paper and registration costs on registering a house, all up to Rs 1 lakh is deductible from the total income.
In case you sell the property within five years from the year when you started claiming tax benefits, you will lose all the tax benefits you had availed under Section 80C (on the principal loan amount) and the amount will be clubbed to the income of the year in which the property has been sold. Whereas the deductions claimed on interest paid under Section 24 will remain intact.
Tuesday, March 30, 2010
Thursday, March 18, 2010
How to know the eligibility of home loan?
Most of the people don’t have the idea that how much loan they are eligible for? Here we have discussed few things related to home loan which can help you in knowing how much home loan you can take.
First one is eligibility criteria. To decide the amount of home loan two important factors are taken into consideration – income and repayment capacity. The other factors include qualification, age, dependants, assets, liabilities, credit report, savings and the stability and consistency of your occupation also matter. The bank can also calculate the loan amount taking a specific percentage of the cost of the property.
Second is repayment capacity. Banks calculate repayment capacity on the bases of your income and expenditure pattern. It is assumed that you need around 40% of your income as living expenses. For example if you are earning Rs60,000 per month and out of this you are spending Rs25,000 as living expenses and Rs20,000 on heads, such as a car loan, then your eligibility will be calculated on the remaining Rs 15,000.
Then, is the formula to calculate the eligibility.
Home loan eligibility=monthly savings/equated monthly installment (EMI) per lakh x 1 lakh. For a home loan of Rs1 lakh taken for 20 years at 10% interest rate, the EMI would be around Rs965. Thus, in this case the eligibility will be 15,000/965 x 1 lakh, or Rs15.54 lakh.
You can increase the home loan amount. You take joint home loan with your spouse, children, parents or siblings to increase your eligibility. Try to get the longer tenure of loan, this increases the eligibility.
First one is eligibility criteria. To decide the amount of home loan two important factors are taken into consideration – income and repayment capacity. The other factors include qualification, age, dependants, assets, liabilities, credit report, savings and the stability and consistency of your occupation also matter. The bank can also calculate the loan amount taking a specific percentage of the cost of the property.
Second is repayment capacity. Banks calculate repayment capacity on the bases of your income and expenditure pattern. It is assumed that you need around 40% of your income as living expenses. For example if you are earning Rs60,000 per month and out of this you are spending Rs25,000 as living expenses and Rs20,000 on heads, such as a car loan, then your eligibility will be calculated on the remaining Rs 15,000.
Then, is the formula to calculate the eligibility.
Home loan eligibility=monthly savings/equated monthly installment (EMI) per lakh x 1 lakh. For a home loan of Rs1 lakh taken for 20 years at 10% interest rate, the EMI would be around Rs965. Thus, in this case the eligibility will be 15,000/965 x 1 lakh, or Rs15.54 lakh.
You can increase the home loan amount. You take joint home loan with your spouse, children, parents or siblings to increase your eligibility. Try to get the longer tenure of loan, this increases the eligibility.
Wednesday, March 10, 2010
ICICI Bank, Kotak Mahindra hike home and auto loan rates by up to 0.5%
ICICI bank country’s largest private sector bank has withdrawn its 8.25% special home-loan scheme and hiked its auto-loan rates by up to 0.5%, signifying rising interest rate regime.
An ICICI Bank spokesperson told, "Auto loans rack rates have been raised by 0.25%-0.5% depending on (the) segment and tenor with effect from 5th March."
The bank sources have not given any reason for hiking rates but industry experts believe that the bank decision is largely prompted by indications given by the RBI in its last monetary policy review.
In its policy review RBI had hiked the cash reserve ration or the amount banks have to park with the central bank by 0.75% to 5.75%, absorbing Rs36,000 crore from the system in order to absorb excess liquidity from the system. The hike in CRR will be able to absorb Rs 36000 crore from the system.
ICICI Bank special home-loan scheme stands withdrawn from 1st March said the spokesperson. The bank has raised new auto loans which will be in the range of 9.75%-11%.
At present bank is offering home loans up to Rs30 lakh at 8.75%; loans between Rs30-lakh to Rs50 lakh at 9% and those above Rs50 lakh at 9.5%.
Another private sector bank, Kotak Mahindra Bank and its car financing group has also raised its home and car-loan rates.
Bank has hiked its home-loan rates by 0.25%-0.5% with effect from 18th February, Kotak Mahindra Prime (KMP), the car-financing arm of the group, has hiked its loan rates by 0.5%-0.75%.
Kamalesh Rao, Kotak Mahindra Bank's head of retail assets said, "We decided to hike the interest rates for home loans by 0.25%-0.5%. This is primarily to align lending rates in line with the cost of deposits."
He told this year bank registered a growth by 50% in its home-loan segment. KMP chief executive Sumit Bali told that the new lending rates will be effective from 8th March.
Mr Bali said, "We are hiking the lending rates as the cost of funds has gone up by up to 0.75%. We have to pass on this additional cost to customers, which we didn't do last month".
In this financial year KMP total loan book of around Rs 6,500 crore has registered a growth of around 35%. Mr Bali said, the company is looking at loan growth in the range of 15%-20%.
An ICICI Bank spokesperson told, "Auto loans rack rates have been raised by 0.25%-0.5% depending on (the) segment and tenor with effect from 5th March."
The bank sources have not given any reason for hiking rates but industry experts believe that the bank decision is largely prompted by indications given by the RBI in its last monetary policy review.
In its policy review RBI had hiked the cash reserve ration or the amount banks have to park with the central bank by 0.75% to 5.75%, absorbing Rs36,000 crore from the system in order to absorb excess liquidity from the system. The hike in CRR will be able to absorb Rs 36000 crore from the system.
ICICI Bank special home-loan scheme stands withdrawn from 1st March said the spokesperson. The bank has raised new auto loans which will be in the range of 9.75%-11%.
At present bank is offering home loans up to Rs30 lakh at 8.75%; loans between Rs30-lakh to Rs50 lakh at 9% and those above Rs50 lakh at 9.5%.
Another private sector bank, Kotak Mahindra Bank and its car financing group has also raised its home and car-loan rates.
Bank has hiked its home-loan rates by 0.25%-0.5% with effect from 18th February, Kotak Mahindra Prime (KMP), the car-financing arm of the group, has hiked its loan rates by 0.5%-0.75%.
Kamalesh Rao, Kotak Mahindra Bank's head of retail assets said, "We decided to hike the interest rates for home loans by 0.25%-0.5%. This is primarily to align lending rates in line with the cost of deposits."
He told this year bank registered a growth by 50% in its home-loan segment. KMP chief executive Sumit Bali told that the new lending rates will be effective from 8th March.
Mr Bali said, "We are hiking the lending rates as the cost of funds has gone up by up to 0.75%. We have to pass on this additional cost to customers, which we didn't do last month".
In this financial year KMP total loan book of around Rs 6,500 crore has registered a growth of around 35%. Mr Bali said, the company is looking at loan growth in the range of 15%-20%.
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