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My sister booked a flat in May 2006 on my behalf, for which the construction started in August 2006. As I was abroad at the time, she booked the flat and took the housing loan in her name. However, I have been servicing the loan from the beginning by transferring money from my bank account to hers, every month. I came back to India on 31 December 2006. Can I claim deduction in respect of interest and principal repaid on the loan even though (1) the flat is still under construction (it is proposed to be completed in December 2008) and (2) both the flat and the housing loan are in my sister’s name? I have already prepaid a substantial amount of the loan; hence, it will get fully paid by the time construction is over.
Since your sister is the owner of the house and she has been paying the equated monthly instalments (EMIs), only she is eligible for the tax benefits.
As for pre-EMI, since the property is still in the pre-construction stage, one is allowed to claim tax rebates for paying pre-EMI only to the extent of 20% of the interest paid during the year. The balance 80% pre-EMI interest can be claimed over the next four years to the extent of 20% each year, subject to the condition that one cannot claim more than Rs1.5 lakh per year in the case of a self-occupied property. You must consult your tax consultant for further guidance in this matter.
My job made me relocate to Pune and, I am living in a rented property. I already own a house in Nashik , for which I pay an EMI of Rs11,500. I plan to buy another property while retaining the earlier one, but my eligibility is not enough because of the ongoing loan. Please suggest options.
You may consider renting the earlier property and use the rental income to pay your EMIs. In the normal course, at least 50% of the rent you receive will be considered as part of your income, which could help increase your loan eligibility.
Moreover, this will also make you eligible for tax benefits on both the properties, subject to conditions. This would reduce your overall financial burden and further enhance your loan eligibility.
Renu Sud Karnad is joint managing director, HDFC. Readers may write in with their queries and comments to firstname.lastname@example.org