What tax benefits can I get on my home loan?

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I have taken a home loan for a property that will be ready only in December 2006.

Is it possible to get a tax rebate? If the bank releases the entire amount of loan at the start, do I get the tax rebate?

- Shankar Gokule

No tax benefits are available for loan repayments made during a financial year in which the construction of the property is not complete. So no tax benefits will be available for loan repayments till March 31, 2006.

The entire interest payable during the financial year ended March 31, 2007 (including the interest payable for the construction period between April 1, 2006, and December 31, 2006), will be eligible for deduction along with 1/5th of the aggregate interest payable till March 31, 2006.

This additional 1/5th deduction will be available for a total of five years. The maximum limit for the deduction is Rs 150,000 per annum if the property is self occupied.

Whether the interest is paid as pre-EMI interest or as part of the regular EMI makes no difference to your tax benefits. The latter will take place if you ask the bank to make a 100% disbursement at this stage itself.

I took a home loan on a property in Gurgaon in August 2004.

From August 2004 to February 2005, I have been paying pre-payment charges. My actual home loan EMI will start from March 1, 2005.

1. Can I avail of tax benefits on the pre-paid EMI?

2. Will the amount paid as processing fees also come under that rebate?

- Sandeep Sharma

I am assuming that the construction of the property was completed by March 1, 2005. If so, the entire interest payable for the period from August 2004 to March 31, 2005, will be eligible for deduction under Section 24.

As per Section 2 (28A), interest includes "...any service fee or other charge in respect of moneys borrowed or debt incurred..." Hence processing fees can, in my opinion, be treated as interest to claim deduction.

I have a home loan for a flat jointly owned by me and my wife. Since she has no income of her own, I repay the loan from my income.

I have leased the flat to my company (self-leased). My wife and I have signed the lease papers. The lease rent received from my company has been clubbed with my income.

1. Can my wife claim 50% of the rent received as her income from the property, so I have only 50% rent as income?

2. As I am repaying all the EMIs from my account, can I claim a tax rebate on the whole interest after deducting the 50% rent, 30% of rent as maintenance charges and Municipal Corporation of Delhi taxes?

- T P Singh

The rental income can be shared among the co-owners in proportion of their ownership interest.

From the facts stated, it appears that 100% of the beneficial ownership is yours since you have paid the down payment as well as have 100% responsibility for repaying the loan.

Hence, 100% of the lease rent received from your company will be taxable in your hands.

You can deduct the MCD taxes from this to arrive at the annual value. You will get a standard deduction of 30% of the annual value as well as the entire interest payable on the loan taken to acquire this property.

Harsh Vardhan Roongta is CEO, Apnaloan.com, and co-author of the book, The Complete Home Loan Guide - Where To Go, Whom To Ask, What To Do.

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Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.