When you take a loan with the purpose of seeking financial assistance, usually to buy an asset, the loan principal along with the interest is paid back in EMIs. EMI stands for equated monthly instalments, and has to be repaid within a specified number of months.
For instance, if you have taken a home loan you will be making a monthly repayment to the bank in the form of a home loan EMI. When can I start claiming a tax deduction on the pre-EMI of my home loan? You can start claiming a tax deduction on the pre-EMI of your housing loan only after the construction of the property has been finished. For ongoing construction, there won’t be any tax deductions. The tax deduction on the complete interest that you have paid during the property construction tenure can be claimed over five years in equal installments. This taxation instead falls under section 24 of income tax. How much is the total tax deduction that I can claim for interest paid on a home loan? The total income tax deduction that you are eligible to claim on the interstate component of the housing loan is up to two lacs under section 24B of income tax. This is the aggregate amount that is allowed for a maximum of two owners of a single property. Can I avail pre-EMI on a home loan for an already constructed house or a ready-to-move flat? The pre-EMI option available on housing loans can only be availed for the property that is under complete construction. This is because the housing loan amount is disbursed in installments according to the requirements at various stages of property construction. Can I claim a tax deduction for the principal component of the pre-EMI repayment of the home loan? When you are making a payment of pre EMI on your housing loan only the interest component of the housing loan is being paid back as the monthly installment. This is the amount of interest that has been disbursed so far and not interest on the entire housing loan amount. This is why you cannot claim any kind of tax deduction on the principal loan value of a housing loan. Can I claim tax benefit on the pre-EMI interest if I sell the property before taking possession of it? If you are paying pre-EMI on your housing loan but still have the property before taking possession, you can claim the interest paid as the cost during the capital gain when the property is sold. Wrapping up When you need it, home loan providers will offer you a low-interest rate. Get to know the tax benefits if you want to avail the tax benefits on your home loan EMI amount.
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