What are the tax benefits that are available to a home loan applicant?
In the case of self-occupied property out of borrowed funds, the deductions available are explained below.
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 on interest paid
Interest payable on `self occupied’ property is subject to a maximum deduction of 2 lakh under the head `Income from house property’.
Long term capital gains on sale of property used for residence:
The Income Tax Act has laid out exemptions under Section 54 to help taxpayers save tax on capital gains on sale of House Property. To claim full exemption the entire capital gains have to be invested.
Requirement for Long term capital gains
- A new residential house property must be purchased or constructed to claim the exemption
- The new residential property must be purchased either 1 year before the sale or 2 years after the sale of the property/asset.
- Or the new residential house property must be constructed within 3 years of sale of the property/asset
- If you are not able to invest the specified amount in the manner stated above before the date of tax filing or 1 year from the date of sale, whichever is earlier, deposit the specified amount in a public sector bank (or other banks as per the Capital Gains Account Scheme, 1988).
- Only ONE house property can be purchased or constructed.
- To claim full exemption the entire capital gains have to be invested.
- The property must only be bought on the name of the seller and not on anybody else’s name.
- If the builder of the new residential construction fails to hand over the property to the taxpayer within 3 years of purchase, the exemption is still allowed.
Home Purchase Loan:
If you are buying an existing property, either in an apartment building or a stand-alone home, a home purchase loan is your best bet. A home purchase loan can get you tax benefits under the prevailing Section of Income Tax regulations.
If yours is a joint loan, then the other person, say your spouse or parent can also avail of the tax benefit.
Land Purchase Loan :
When you’re building a home from scratch where in you will need to buy a plot of land and construct the house.
Home Construction Loan:
If you already own a plot where you would like to construct a home to your liking, then you can consider taking a Home Construction Loan.
Home Improvement Loan:
If you already own a home but lack the funds to renovate your home, a home improvement loan can help.
->Type of Interest Rates on Home Loans
Fixed Interest Rate on Home Loan
Fixed Interest Rate means repayment of home loans in Fixed Equal Installments over the entire period of loan. In this case the interest rate doesn’t change with Market fluctuations. During the early part of loan tenure the majority of monthly payments are used to service the interest and principal is served in the later parts of loan tenure.
Benefits of Fixed Rate home loan
- Interest Rate remains fixed irrespective of Market Conditions.
- A fixed rate home loan is excellent for those who are good at budgeting and want a fixed monthly repayment schedule, which is easy to budget and doesn’t fluctuate.
- It brings a sense of Certainty and Security.
Floating Interest Rate on Home Loan
Floating rate by the name implies that the rate of interest varies with the market conditions. Floating interest rate home loans are tied up to a base rate plus a floating element thereof. So, if the base rate varies the floating interest rate also varies.
Benefits of Floating Interest rate on Home loan
- The biggest benefit with floating rate home loans is that they are at least 1%-2% cheaper than fixed interest rates. So, if you are getting a floating interest rate of 11.5% while, the fixed loan is being offered at 14%, you still save money if the floating interest rate rises by up to 2.5%.
- Even if the floating rate goes over the fixed rate, it will be for some period of the loan not for the entire tenure. The interest rates will surely fall over a long period and thus floating interest rate brings a lot of savings.
HOME LOANS FOR NRI
A Non-Resident Indian (NRI) is a citizen of India who holds an Indian passport and has temporarily emigrated to another country for six months or more for employment, residence, education or any other purpose.
A Person of Indian Origin (PIO) is a person of Indian origin or ancestry but who is not a citizen of India and is the citizen of another country. A PIO might have been a citizen of India and subsequently taken the citizenship of another country, or have ancestors born in India or other states.
If you are a non-resident Indian (NRI) planning to buy a property in India, time could not have been better for you to do so, buying property in Indian has become more lucrative and favourable. The general permission, however, covers only purchase of residential and commercial property.
Who can buy a property in India?
A.1 Under the general permission available, the following categories can freely purchase immovable property in India:
i) Non-Resident Indian (NRI)
ii) Person of Indian Origin (PIO) – that is an individual (not being a citizen of Pakistan or Bangladesh or Sri Lanka or Afghanistan or China or Iran or Nepal or Bhutan)
- An NRI buying an property in India does not require any special permission. However, the payment can’t be made in foreign currency. NRIs can make the purchase using Indian currency. There are also no restrictions on the number of properties that an NRI may purchase, either residential or commercial.
- NRI investments into the property market are treated on par with investment made by resident Indians, but for some exceptions:
Nature of property:
NRIs can buy all sorts of properties in India other than agricultural land, farm house and plantation property.
When an NRI sells a property in India, TDS (tax deducted at source) calculation is done at the rate of 20.6 per cent on long-term capital gains and 30.9 per cent on short-term capital gains. However, the final taxation rate is similar for NRIs and resident Indians. If an NRI has a lower tax slab applicable to him, he can apply for a refund of the TDS by filing their income tax return.
The RBI has given a general permission to banks and housing finance companies registered with the National Housing Bank to provide loans to NRIs for buying residential property in India. Sanctioned in Indian currency, the loan has to be repaid using the same currency. However, the loan amount, according to the regulations, cannot be credited directly to the bank account of an NRI and has to be disbursed to either the seller’s or the developer’s account. The loan can be repaid using funds in an NRI’s NRO/NRE account or FCNR deposits.
Power of attorney (PoA):
As they live outside, NRIs have an option to give PoA to their friends or relatives to complete the property purchase process in India. The PoA can be general or specific about the rights your representative can exercise.