To help readers keep pace with what’s happening in the real estate sector, Mint’s Q and A will appear every other Monday.
I recently purchased a home on resale, which is 10 years old. I would like to avail loan for its renovation. Will I be entitled for income tax benefits for the equated monthly instalments (EMIs) I will pay against this loan? Is there any financial limit of such benefit?
Under Section 24, the interest paid on the home improvement loan is tax deductible up to Rs30,000 per annum. However, it is part of the overall tax benefit of Rs1,50,000 available under the section for interest paid on housing loans.
Therefore, if you are already servicing a home loan and availing of the tax benefit for the interest paid on the loan, then the combined overall limit for the tax deduction for interest paid on both the home loan and home improvement loan is Rs1,50,000.
In case the interest paid on the home loan is Rs1,20,000 or below, then you will be able to get the maximum benefit of Rs30,000 on the home improvement loan provided you have paid so much interest during the year.
However, unlike a home loan, there are no tax benefits available for the principal amount repaid on the home improvement loan under Section 80C.
I am a professional working with an IT major. I have availed of a housing loan of Rs35,00,000 for purchasing an apartment on which the annual interest component works out to around Rs3,50,000.This apartment is leased to a company at an annual rental value of Rs1,20,000. I am staying in a rented accommodation and thus availing of both HRA and interest on housing loan deduction benefit at the rate of Rs1,50,000 per annum. My query is whether I am entitled to avail of a benefit of (actual interest paid less net rental income) or is there any other methodology to set off loss from house property?
Most taxation experts have very different views on this. There is no limit on the tax benefit for the interest paid on housing loan for a rented property, unlike the tax benefits available for a self-occupied property, which is Rs1,50,000.
To elaborate, you can set off the entire interest payment in excess of net rental income (rent received less standard deduction for repairs) paid on the rented house against this income.
In your case, Rs2,66,000 can be set off against your rental income. This is determined through the following calculations: Net rental income = Rs1,20,000 (rental income) less Rs36,000 (standard deduction for repairs, which is 30% of rental income). This works out to Rs84,000. Therefore, since your interest outgo is Rs3,50,000, if you deduct Rs84,000 net rental income, the excess interest outgo works out to Rs2,66,000.
In addition, you can also claim tax benefit under Section 80C on repayment of principal amount. However, it will be part of the overall 80C benefits.
I have taken a loan from HDFC along with an insurance cover from HDFC Standard Life. I plan to prepay the home loan so I want to know what happens to my insurance policy?
This depends on how you plan to prepay your loan.
In case you are going in for a balance transfer by availing a loan from another housing finance company, then as per our arrangement with HDFC Standard Life, even if you were to transfer the existing loan—which has an insurance policy built around it—the policy will continue to be in force.
The policy will have to be reassigned in favour of the new lender so that in the event of death it ensures that your outstanding loan, up to the amount insured, is adjusted/repaid to the new lender.
On the other hand, if you prepay the loan through your own funds, then in this case the original policy continues and you will continue to be covered as per the policy schedule. Once the loan is prepaid the policy needs to be reassigned in your name so that in case of death the benefits as per the policy schedule are paid to your family.
In other words, when you prepay the loan, the benefit that accrues to you and your family from the policy will still continue in the same proportion as the loan amortisation schedule.
Do home loan companies provide finance for the stamp duty and registration as well?
Home loan companies do provide finance for registration charges and stamp duty, which can be included in the loan amount itself.
However, this is subject to a maximum amount of 85% of the total cost of the house, which includes the value of the property, stamp duty and registration expenses.
Renu Sud Karnad is executive director with HDFC.
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