ALL YOU NEEDED TO KNOW ABOUT HOME LOAN TAX ADVANTAGES

There have been regular reforms to the real estate sector by the government and the steady cuts to the home loans make the current times exciting for home buyers. And the availability of affordable homes is like the icing on the cake. The feeling of having your house coupled with the above are good enough reasons for you to consider buying a home with the help of a home loan. But before you finalize your decision, here are the tax-related goodies that you should benefit from.

  • Deductions Under 80C

This is probably one of the most known facts when it comes to a home loan. The government allows you to deduct certain payments that you make towards your home loan including the repayment of principal amount. You can claim up to Rs.1.5 lakhs per annum against Section 80C towards principal repayment and up to Rs.2 lakhs per annum towards interest repayment. Since the deductions are applicable to the interest amount that is accrued over a year, even if you miss out on one or more EMIs, you can still claim the deductions. But when it comes to principal repayments, it is only on the actuals.

  • Processing Fee

A loan comes along with a lot of other components and charges. But not many of us are aware that a few of these charges or fees are eligible for tax deductions. As per the Income Tax Act charges levied on customers for a loan are eligible for deductions as they are considered as interests. Therefore, charges such as processing fee can be claimed under Section 24 or income from house property. However, any charges that you pay as a penalty will not be covered under this section.

  • Friendly Loans

Section 24 also comes in handy if you have borrowed any loan from friends and family. If you have borrowed any money from your friends or family for the purpose of construction of house or purchase of a property, you can claim the interest amount paid on loan under Section 24. The loan does not have to be a bank and the purpose can be repairs or reconstruction of house or property as well. One needs to be careful with this as you can claim only the interest amount paid. Also, you lose out on other tax benefits like the principal amount claims if you do not take loans from a bank.

  • Pre-Construction

Some of us start the home loan installments even when the house or property is under construction. Though one cannot claim the principal repayment, they can do so with the interest paid. The interest paid can be accrued and claimed post the completion of construction. This acts as a deferred deduction.

  • Principal Repayment is reversible

Individuals who have opted for a home loan and sell the property within 5 years of doing so, reverse all the tax benefits. If you have claimed any repayments towards loan principal under Section 80C, it will be reversed and will be added to your taxable income should you sell the house within 5 years. However, this is applicable only to deductions under section 80C.

  • Must be a co-owner

Borrowers who wish to claim tax breaks on home loans need to be a co-owner of the house or property in question. If your parents own a property and you are paying EMIs for the same, you cannot claim the amounts for tax deductions unless you are a co-owner of the property. Also, the bank records should reflect your name as a borrower or co-borrower for the property.

The above points should help you out if you are starting out with a home loan. Even if you already have started you can still benefit from it and make correct decisions.

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HOW TO TRANSFER YOUR HOME LOAN?

These are interesting times for home buyers as new and better regulations come into effect in support of them. Times are even greater for home loan borrowers as recent cuts to the interest rates mean they can benefit from the same. Thus, the chances are high that you are paying higher interest rates on your home loan than you should. Or possibly you are not happy with the services that your bank is providing you with.

There is nothing to be afraid of and as you are not stuck in a limbo. In such cases, you can always opt to transfer your home loan to a different lender. Here is an easy guide for you to transfer your home loan and save your hard-earned money.

  • Is it beneficial?

The whole point of you switching to a different bank or lender is to save some money as you are paying higher interest rates. If you spend some time to analyze your situation before taking a call, you will benefit a lot from the same.

  • Transferring a home loan with fluctuating interest rate is better than a fixed interest rate home loan, as pre-closure charges are higher on the later.
  • Transfer of a long tenure home loan gives you the flexibility of better benefits.
  • Check with the interested bank regarding all charges (including all documentation).

Once you are convinced that the transfer will save you some money, you should take the next step.

  • Bank Clearance

To transfer your existing loan to a different bank you would need to get a no objection certificate from your current bank. Things can get interesting here, as your current bank might offer to reduce the interest rates. You can bargain at this point and get an even better rate from the new bank, but it requires quite some efforts. Apart from the NOC, you need to get a letter of foreclosure along with all documentation with your current bank and your history of payment with the bank.

  • Application

Now that you have procured all the necessary documents, it is time to apply for a home loan with a new bank of your choice. The new bank would require the set of documentation mentioned in the above step along with proof of income, proof of ownership of house etc. The bank will then verify the documents and check if you will be able to repay the loan.

  • Approval

The approval process might differ depending on the bank that you choose. But in general, they carry out a background verification process which includes:

  • Verification of ownership authentication
  • Re-evaluation of the home loan application
  • Verification of your credit history with other banks and financial services

If needed the new bank might ask you for additional supporting documents. Once the bank is convinced with all the paperwork, they will approve the loan and send across a letter with interest rates and other terms and conditions. It is at this moment that you have to take the final call, either to move to the new bank or stick with the old bank with a better interest rate.

  • Final Switch

Assuming you move to a new bank with lower interest rates, you would need to wrap up the documentation with both the banks. At times, the situation might get a bit tricky as both the banks would require documentation from the opposite side to continue with the process. The easiest option is to get representatives from both banks and clear out the air.

The above steps should help you out with transferring your home loan to a new bank irrespective of what reasons you have for the switch. The process outlined here is quite generic and the nitty-gritty might differ from bank to bank. If the assessment phase reveals that you can save a decent sum of money, even though the process can be a bit clumsy, you should go for it.

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