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Tax benefits on a housing loan

Larissa Fernand

The Income Tax Act does show some amount of sympathy (in the form of a deduction and rebate) if you are repaying a housing loan.
Interest paid on capital borrowed for the acquisition or construction of property is entitled to a deduction. A couple of years ago, the maximum amount eligible for deduction was Rs 15,000 and then got doubled to Rs 30,000.
Later, the amount got further enhanced to Rs 75,000 and is now Rs 100,000.

So as the rules go, if you borrow money to acquire or construct property on or after April 1, 1999, then you can get a deduction of up to Rs 100,000. One condition exists though: the property has to be acquired or constructed before April 1, 2001.

However, thanks to the latest Finance Bill, the April 1, 2001 deadline has been extended to March 31, 2003. Another reason to cheer!

A crucial condition to avail of these benefits: you should be residing in the home for which the loan is taken. If you are buying property in your home town to prepare for retirement, this will not be applicable.

That brings us to the rebate. You do get a 20 per cent rebate on repayment of principal of the housing loan. While this was earlier subject to a maximum of Rs 10,000, it has been doubled to Rs 20,000 in the latest Finance Bill.

Do insist on an interest certificate, as you can claim a rebate for housing loan only on producing the certificate from the lending institution. Only loans taken and interest paid thereon, to specified financial institutions which offer housing loans, qualify for deduction under the Income Tax Act, 1961.

Taking a loan from a family member or a friend may get a you a cheaper rate of interest, or no interest at all, but will not qualify for such deductions.
On the other hand, if you wish to finance the property out of your own resources, you would be losing the tax shelter on account of the deduction available as well as the tax rebate.

If you have taken the loan in your name, then you are entitled to the tax benefits. What if you and your spouse have jointly taken the loan? Since both of you will be interested in claiming the deductions and rebate, you will have to approach the financial institution and ask for a certificate. This certificate will state how much of the loan is your responsibility and how much you are contributing towards the repayment. Your tax deduction and rebate can be calculated based on this amount.

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