Save money by taking a home loan

Have a query regarding your home loan? Maybe we can help.

Drop us a line and our expert, Harsh Roongta, will answer it.

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I took a Rs 15 lakh (Rs 1.5 million) home loan.

My Equated Monthly Installment began in August. My house registration will be done only in November.

In such a case, when can I claim the tax rebate -- from November or from August?

If it is from November, can I get any benefits for the Equated Monthly Installment paid before registration?

- Anand Devaraj

Assuming the construction is completed by March 31, 2006, you will get full deduction for the amount of interest payable and the capital portion of the loan repaid for the year ending March 31, 2006.

The registration charges and stamp duty paid in November 2005 will also be eligible for deduction under Section 80C.

Also, do take a look at the answer given to the next question.

My bank is ready to release the full disbursement of the loan amount before the construction of my house starts.

If I avail of this, can I claim the housing tax exemption for the period before construction is complete?

Is it wise to opt for this? I get a substantial discount if I do so.

- Lokeshwara Reddy

The discount should be weighed against the extra interest you have to pay on the disbursement being made by the bank before it was warranted by the construction stage.

Also, you will lose money if the construction is delayed as you continue to pay the interest on the entire loan amount irrespective of whether the construction is complete.

Please go for this option after examining the credentials of the builder carefully.

In answer to Lokeshwara Reddy and Anand Devaraj on the issues of tax benefit on the home loan before the construction is complete.

Let's say the construction is complete on August 31, 2005.

Then you will get tax benefits for the financial year April 1, 2005 to March 31, 2006.

The entire interest paid in this financial year will be eligible for deduction under Section 24, irrespective of whether the interest pertains from April to August 2005 (when the property was under construction) or post-September 1, 2005 (when the construction was complete).

Additionally, the entire interest payable till March 31, 2005 (irrespective of the number of years for which the construction was going on), from the date of taking the loan, shall be aggegated and one-fifth of this aggregated amount shall be allowed as a deduction alongwith the interest for the current year.

Got it? All the interest you have paid till date can be totalled and one-fifth of this amount will be considered as deduction.

Such additional deduction will be available for five years from the first year of availing of the tax benefits. In this case, the financial year ended March 31, 2006 is the first year.

Please also read Tax benefits on pre-EMI.

I stay in Mumbai. I have a flat in the suburbs which I have rented out. I took a loan against it.

With the proceeds of this loan-against-property, I bought a plot of land in Mangalore. Can I get any tax benefits on this loan?

- Satish Naik

It is the usage of the loan that determines the tax benefits.

You get no tax breaks if you take a loan to buy a plot of land.

But if you take a loan for construction (a loan to build a house on that plot of land), you can get a tax break.

In such a case, the tax benefits are available on both portions of the loan -- the one to purchase the plot and the one taken to construct the house on it. 

Let's say you took a Rs 5,00,000 loan to buy a plot of land and, a year later, you took a Rs 3,00,000 loan to construct a house on it. Now, when you complete construction, the total amount will be combined and you will get the tax benefit on the entire amount.

Do note, the tax deductions will be applicable only from the year in which the construction is completed.

Please also read Tax benefits on a land loan.

Got a question for Harsh Roongta? Please write to us!

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