Home Loan Tax Benefits

The Home Loan repayment mainly consists of 2 components i.e. principal and interest component. Under Income Tax Act both these components brings tax benefits to the borrower on fulfilling some basic criteria.

Now lets look at some of the tax benefits available on Home Loan repayment:-

Under section 80C and 24b
Borrower can avail deduction of the principal amount of loan under section 80C up to a maximum limit of Rs. 1.5 lakhs including other eligible items like Life Insurance premium, contribution to Provident Funds, etc.
And under section 24b for the payment of interest on loan to the extent of Rs. 2 lakhs if the property is self occupied and in case the property is let out, then he can claim whole of the interest payable against the rental income in respect of such property.
Expense incurred for Registration Fee and Stamp Duty paid for a house is also eligible for deduction under section 80C up to an overall limit of Rs. 1,50,000/-

For Co-borrower / Co-owner
To be eligible for the tax benefits, the co-borrower should also be the co-owner to the property.
They can both claim the deduction for the home loan repayments in the ratio of their respective shares in the loan. Tax deduction benefits will be available for each of them separately under section 24 (interest payable on the loan) limited to Rs. 2,00,000/- for each of them if the property is self-occupied. Moreover they both claim deductions under section 80C to the fullest extent of Rs. 1,50,000/- for each of them (for the principal repaid) in the proportion of their share in the loan.

For Under-construction property
A borrower can get tax deduction benefit on home loan for under-construction property only from the financial year in which the construction of the house is completed irrespective of whether it is Pre-EMI or EMI on part payment. The interest paid during the period prior to the year of completion of construction will be allowable in five equal installments beginning from the year in which the construction is completed and possession taken. Any repayment of principal during the years when the property remains under-construction is lost forever.

For Loan taken from relatives or friends
For claiming deductions in respect of principal portion comprised in home loan installment, the loan should be taken from specified entities like Central or state government, any bank including cooperative bank, LIC, National housing bank, any housing company, any cooperative society engaged in providing loans for financing construction of house, employer which is a public company or public sector company or any university, etc.
However as regards to payment of interest on borrowed capital, there is no such restriction. And therefore, borrower can claim the deduction of interest payable u/s 24b up to Rs. 2 lakhs in case the property is self-occupied. In case the property is let out he can claim whole of the interest as deduction without any upper limit.

On second home loan
In case a person owns more than one property and both are either occupied by self or his relatives, the person has got an option to treat one of the properties as self-occupied. Once the option to treat a particular property as self-occupied is taken, the other property will be deemed to have been let out and a notional income equivalent to the rent expected to be realized on such property will be treated as rental income in respect of the other property.
The annual value of the self-occupied property is taken at nil and a person is entitled to claim interest payment for loan taken to acquire that property up to a limit of Rs. 2,00,000. He can also claim income tax benefit towards repayment of housing loan on both properties put together within overall limit of Rs.1,50,000 under Section 80 C.
The taxable income of the second property will be arrived by deducting actual interest payable in respect of such property without any limit from the notional rent taken above as well as 30% standard deduction.

Please note that owning 2 properties can have wealth tax implications. So consult your personal tax advisor.

On HRA and Home Loan
Borrower can claim both HRA and tax benefits in respect of home loan provided he is able to prove that he is staying in a premises not owned by him and he is actually paying rent for it. The claim of HRA is independent of his owning a house. Even he can own the house in the same city and take on rent another house and claim HRA benefits. What is important is that he should be able to prove that he is actually paying the rent for the house that does not belong to him.

Home Loan Process

Taking a home loan is a lengthy process and involves several steps. For smoother and swifter process, the key lies in knowing the entire process well in advance so as to avoid any last minute hiccups. Some of the steps involved are given below for your reference;-

Application Form
Filling up the application form is the first step towards getting the loan.
It will have to be supported by following documents:-
1. Income proof
2. Age proof
3. Identity proof
4. Address proof
5. Employment details
6. Proof of educational qualifications
7. Details about the property, if finalized
8. Bank statements

Processing Fees:
· Payment of Processing Fees which is non refundable
· Varies between 0 – 0.50% (excluding service tax) of the loan amount

Personal Discussion with bank officials
To know more about the borrower and his repayment capabilities

Bank’s Field Investigation
Physical verification / validation of information provided by the borrower

Credit appraisal by the bank
Establishing repayment capacity of borrower based on income, age, qualification, employer and nature of business for self-employed, experience, credit report through CIBIL, etc.

Offer Letter / Sanction Letter
Based on credit appraisal, sanction letter is issued mentioning –
1. Maximum loan eligibility
2. Tenure
3. Rate of Interest
4. Type of loan – floating, fixed, dual or home saver
5. Mode of repayment
6. Terms and conditions

Submission of legal documents & legal check
Submission of original property documents for legal check
Eg. Title deed, NOC from legal owners, Co-operative Housing Society or any other statutory authority.
Documents remain with banks till the complete repayment of loan (if loan is disbursed)

Technical / Valuation check / Valuation of property
The valuers appointed by the bank do valuation of the property.
Determination of amount of loan to be financed by bank

Registration of property documents
Agreement of Sale between the previous owner and the borrower to be stamped and registered at registrar’s office
Submission of the original copy to the lender.

Signing of agreements and submitting post-dated cheques
Agreement to be signed between the lender and the borrower.
Post dated cheques to be submitted

Disbursement
Disbursal of loan as per the sanction letter

Car Loan Overview

In present scenario owning a car has become more of a necessity rather than a luxury item for many of those working in the larger towns of the country where traveling through public transport can be inconvenient.

But with the high cost attached, owning a car is an expensive proposition for a common man and to bring this utility within easier reach of a common man, the Banks and NBFC’s provide maximum finance for buying it.

Some of the key parameters for availing car loan are given below for your quick reference:

Purpose of Car Loan
Car Loan can be availed for the purchase of:-
· New passenger car
· Used / Pre-owned passenger car
· SUV / MUV’s

Eligibility
The applicant for the car loan should be:-
· Minimum 21 years of age
· Salaried Individual
· Self Employed professionals / non-professionals

Loan Amount
Most lenders offers up to 80%- 100% of the ex-showroom cost of the car, which excludes octroi or local taxes, registration, insurance, etc. as a loan for new car subject to maximum of 2.5 – 3 times your net annual income.

The quantum of loan for used car will depend on the valuation done independently by the lender and is generally lower than the actual cost

Rate of Interest
Car loan is available on Fixed and Floating rate of interest. In fixed rate, the rate of interest remains fixed for the entire duration of loan. While in Floating rate, the interest rate changes whenever there are changes in Base Rate (BR) of the bank or Prime Lending Rate (PLR) of the Non Banking Financial Corporation.

The rate of interest for used / second hand cars is usually higher than what is offered for new car, though some PSU banks offer same rate of interest.

Repayment
For new car – maximum tenure is 7 years
For used / second hand car – maximum tenure is 7 years as reduced by the age of the car.

Fees and Charges
The processing fee on car loan varies from lender to lender and some of the lenders may offer waiver on processing fee periodically for certain period or capping it at a fixed sum irrespective of loan value.

The prepayment charges on fixed rate loan also vary from each lender and sometimes can be as high as 11% of the outstanding loan amount.

Normally people prepay their car loans and since RBI has issued a notification, banning levy of penalty on foreclosure of all floating rate loans taken from the banks, you won’t have to worry about the penalty or early repayment.

Documentation
To start the loan process, the lender will require proof of:-
· Identity
· Age
· Residence
· Income
· Employment details
· Quotation of the car

While buying the car, you should negotiate separately and not settle it for free accessories. You should also go for insurance yourself in case you can do it so that you can bargain for it.

Personal Loan Overview

Personal loan is a simple hassle free process of funding your personal requirement with minimal documentation and within quick time. In India, Banks as well as Non Banking Financial Corporation finance personal loan.

Purpose of Personal Loan
Personal Loan is commonly known as all purpose loan it can be uses for fulfilling various legitimate personal needs that includes:-
· Education for self, children, etc
· Marriage in the family
· Dream vacation
· Festival expenses
· Medical emergencies
· Furnishing or renovation of house
· Purchase of high end consumer goods

Eligibility
Being unsecured in nature, lenders have stricter norms regarding eligibility and sanctioning of personal loan. But some of the basic eligibility criteria the applicant must fulfill are:
· Should be a Resident Indian
· Should be minimum 21 years of age
· Should be Salaried or Self Employed Professional / Non professional
· Should be a permanent employee of the organization, if salaried
· Should have continuous source of income to service the loan

Loan Amount
It is dependent on prospective borrower’s income and his ability to service the loan and can go up as high as Rs. 30 lakhs.

Rate of Interest
The rate of interest is primarily dependent on:-
· Company for which the prospective borrower is working
· Credit history of the borrower.

The bank may reject the personal loan if the borrower has defaulted on his past dues on any credit card or loans.

Repayment
Most lenders will require borrower to repay the loan within a period of 12 to 60 months maximum.

Fees and Charges
Processing fees varies from lender to lender and will be in the range of 0.5% to 3% (excl. service tax) of loan amount. Generally the processing fee for personal loan is not taken upfront, but is deducted from the loan amount disbursed by the lender.
If the personal loan is availed on floating rate of interest the borrower need not pay penalty for early closure of loan but may end up paying penalty if the loan is on fixed rate of interest.

Documentation
To start the loan process, the lender will require proof of:-
· Identity
· Age
· Residence
· Income
· Employment details

Guarantor / Collateral
Nowadays lenders do not ask for any kind of guarantor or collateral, though some of the PSU banks may insist on some kind of third party guarantee.

It makes sense to get in touch with as many lenders as possible and get them to make loan offers to you. Once that is done, you can negotiate with the lender for the interest rate and select the most cost effective option. You should also consider the processing fee and prepayment charges while finalizing the lender.

Home Loan Documents

Documents are the backbone of your entire home loan process and without it the process may not even begin. There are number of documents required to start the home loan process which may vary from salaried to self-employed professionals / non-professionals and NRIs.

To start the home loan process you will have to submit the following documents as and when the lender demands:-

Application Form duly filled and signed with photographs

Proof of Identity – PAN / Passport / Driver’s License / Voter ID / Aadhaar card

Proof of Residence – Telephone Bill / Electricity Bill / Credit Card Statement / Driver’s License /Ration / Aadhaar card

A/c. Statement
· Statement of bank account for the last six months
· If any previous loan, then Loan A/c. Statement for last 1 year

Income Documents
For salaried individuals:
· Form 16 or IT returns – last 2 years
· Employer Certificate, Appointment Letter, Increment Letter, etc.
· Copy of Employee ID Card.

For self-employed:
· IT returns – last 3 years
· Balance Sheet & Profit & loss A/c – last 3 years (certified true copy)
· TDS Certificate (Form 16 A, if applicable)
· Business proof (Gomasta License, Sales Tax Registration, etc.)
· Challans of Advance IT Paid (Xerox)

Property Documents from Builders / Society
· NOC from Builder / Society
· Agreement for sale (Registered)
· Letter of Allotment from Private Builder / Housing Board / Society
· Blueprint (Plan copy) stamped by Municipal Authority
· Development Agreement of Builder (Registered copy) & Commencement Certificate + NOC of ULC for new property
· All Payment Receipts to Builder / Seller
· Occupancy certificate and share certificate (for resale property)
· Chain of old Agreement/s (in Original for resale property)
· IF CIDCO / MHADA Property then, NOC & Transfer Letter from CIDCO / MHADA
· Tripartite Agreement in case of Gaothan / 12.5 % property
· If leased land, then Agreement for lease (registered)

Additional Documents for NRI’s
· Passport with Visa copy
· Work Permit, Work contract & Appointment Letter
· Employment Profile for last 5 years.
· Valid residence proof
· Employer’s ID Card
· Statement of Overseas Bank A/c. and Indian NRE a/c which reflects salary credit of last six month
· Salary Slips (3 months) or Tax Returns (if applicable)
· Power of attorney in Bank format (if applicable)

Additional Documents for Balance Transfer
· Foreclosure letter (By Existing financer),
· List of Documents held by existing lender
· Loan A/c Statement
· Society Maintenance Receipts
· Chain of agreements (as mentioned above)

Home Loan Overview

Whether it is your first step towards owning that dream home for your family or transferring your existing home loan from another lender for better terms or buying a property for investment, it is very essential to get the right loan that is best suited to your requirement at the right cost.

A little knowledge about home loan and what is being currently offered in the market will go a long way in getting that best deal on your home loan.

But before you proceed to meet the lender, it is beneficial to have some knowledge about the product, even though you may have an earlier experience of availing the home loan. Some of the key points are listed below for your consideration before you approach the lender for home loan.

Purpose of Home Loan
Lenders generally finance for –
1. Buying under-construction / new or resale residential property
2. Construction of house
3. Buying a plot of land for construction of dwelling unit
4. Renovation and Extension of exiting residential property
5. Refinance of existing home loan

Loan Amount
Normally financial institutes finance maximum up to 80% (90% for loan amount below Rs. 20 lakhs) of the agreement value of the property. As per RBI notification, banks do not fund stamp duty and registration charges anymore. This means that your down payment will have to be atleast 10% – 20% of the agreement value of the property plus 100% of other costs such as stamp duty, registration charges, etc
The final loan amount is dependent on host of other factors like income and regular outgoings, existing loans, repayment track record, valuation of the property by the lender, etc.
To increase the eligibility amount, you can add your earning parents / spouse / children and in some cases brothers as co-borrowers to the loan.

Interest Type
Very few financial institutes offer pure “Fixed” interest rate that remains fixed for the entire duration of loan. Nowadays, some lenders offer “Dual Rate” where the interest rate remains fixed for duration 1 – 10 years and then gets converted to floating rate of interest.
In “Floating” rate, the interest rate fluctuates with market conditions. The rate of interest is tied up with the Base Rate (BR) of the bank or Prime Lending Rate (PLR) of the Housing Finance Companies and gets affected whenever there are changes in the repo rates announced by RBI or any changes in Base Rate / PLR of the lender.

Spread
Normally, the interest rate is calculated as certain point above Base Rate for Banks and certain point above or below PLR ( Prime Lending Rate) for Housing Finance Companies. This difference is popularly known as spread.
You can periodically review your loan account to ensure that whenever there is a reduction in Base Rate / PLR, corresponding changes happen in your home loan interest rate. The lender tends to provide the benefit of lower rates selectively to new borrower by changing the spread rather than by decreasing the Base Rate / PLR.
Therefore, you should ideally consider the spread (preferably lowest or nil in case of banks and highest in case of housing finance companies) along with the BR / PLR, if you want to get the benefit of lower interest rate on par with new customers.

Repayment
Most lenders offers maximum tenure of 30 years but it is also restricted by the borrower’s age at the end of the tenure so as to ensure that the loan repayment ends on or before the retirement age of the borrower which is usually 60 years for salaried and 65 years for self employed borrowers.

Fees and Charges
Every loan has a costs attached to it like Processing Fees or Administrative fees which are non refundable, Legal fees payable to the lender or to the legal consultants of the lender, Stamp duty on creation of mortgage, etc.
Foreclosure charges are applicable only on fixed rate loans taken from bank, whereas housing finance companies levy prepayment penalty only on fixed rate loan if prepaid from other than own sources.

It is very important that you as a prospective borrower do your own research or take help of online price and feature comparison like Apnapaisa to compare the latest interest rates, features, fees, etc. and shortlist the lenders that will offer you right loan at right cost.

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