A home loan helps you
reduce your tax burden besides offering
the pleasure of owning a house and living
Home is where the heart is, and in today's
world, home is what takes up a good part
of your income as well. Most people, young
and old, have equated monthly installments
to worry about, which makes home loans a
subject of pressing concern.
Coming to the benefits, apart from the
obvious one of having the pleasure of owning
a house in due course of time, taking a
home loan is a great way to reduce your
tax burden. Resident Indians are eligible
for tax benefits on principal and interest
components of a loan under the Income Tax Act, 1961. The tax deduction can be claimed
on interest payments subject to an upper
limit of Rs 1, 50,000 for a financial year.
Moreover, you can get added tax benefits
under section 88 on repayment of principal
amount up to Rs 20,000 per annum which can
further reduce your tax liability by Rs
4,000 per annum (tax rebate of 20 per cent
on the principal repaid, subject to a principal
ceiling of Rs 20,000 per year).
Both principal as well as interest of
home loans attract tax benefits. With effect
from 1st April 2005 (i.e. assessment year
2005-07) under section 80C of the Income
Tax Act 1965:
Principal amount of repayment of loan along
with other savings such as PF, PPF and Life
Insurance premium etc up to a maximum of
Rs 1, 00,000/- will be eligible for deduction
from gross income.
Interest paid on loan after completion
of construction will be deductible from the
tax for the income earned on property. Benefits aside, most
of us still have to grapple with the fine
print of a loan agreement.
Other Costs Involved:
Home loans are usually accompanied by the
following extra costs:
- Processing Charge: It's a fee payable
to the lender on applying for a loan.
It is either a fixed amount not linked
to the loan or may also be a percentage
of the loan amount. The loan amount required
by you cannot be less than the processing
- Pre-payment Penalties: When a loan is
paid back before the end of the agreed
duration, a penalty is charged by some banks / companies, which is usually between
1% and 2% of the amount being pre-paid.
- Commitment Fees: Some institutions levy
a commitment fee in case the loan is not
availed of within a stipulated period
of time after it is processed and sanctioned.
- Miscellaneous Costs: It is quite possible
that some lenders may levy a documentation
or consultant charges.
- Registration of mortgage deed.