Tax benefits on loan

[pavanamc]

Hi,

I have a doubt regarding the loan taken for buying a BDA site.
1st scenario:
Suppose, I buy a BDA plot for 30 lakhs and take a loan of 25 lakhs. Can I claim tax benefits on the Interest and principal?
2nd scenario:
Suppose, I buy a BDA plot for 30 lakhs and take a combined loan for plot + building of house say 50 lakhs. Can I claim tax benefits on the Interest and principal?

Basically, i just want to know how does the tax benefits work in the above 2 scenarios.

[vpbs_bak]

From here: http://www.hindu.com/pp/2008/10/19/stor ... 110600.htm
"If you take loan only for land purchase, you are not eligible for any IT benefits. If you take a composite loan (land and house construction),
only after the completion of the construction will you be eligible for income tax benefits. "

So in scenario 1, if the loan is a not a composite loan there is not IT benefit. I believe for scenario 2, the answer is yes (check on the internet
for "composite loan"). or other articles here in mybdasites.

HTH

[jackalbda]

For plot loan , no benefits

For composite loan, until you complete the construction , again no benefit. Once you have completed the construction ( Proof need to be Electricity bill/Telephone BIll or Completion Cert ), then the interest paid from the time you took the loan , up till you started ocupying it, can be divided into 5 equal portions and claimed in the next 5 years. Again the princial paid for the time house was construction cannot be claimed. Also, there is a condition that you should complete the construction of the house within 3 years from the financial year when you took the loan. Example below...

Case 1: You have taken a loan of 30 Lakhs in Sept 2009 for a plot purchase as a plot loan. Then this means the loan is not Housing loan . Then you dont get any benefit on Interest or Princial any time.

Case2: You have taken a loan of 30 Lakhs in Sept 2009 for a plot purchase, but as a housing loan , with the agreement that you would construct the house withing a stipuated time. Again lets say the split up of principal and interest paid were as below..

2009-2010 - Principal - 10,000 Interest - 3.6L
2010-2011 - Principal - 12000 Interest - 3.4L
2011-2012 - Princial - 14000 Interest - 3.2 L
2012-2013 - Princial - 16000 Interest - 3 L

1. Then , you need to complete the construction before Marc 31st 2013 ( FY end of Sept 2009 is Marc 31 2010 and then 3 years added to it )
2. Assuming you completed the house construction in Feb 2013 , then when you file IT returns for 2012-2013, you can claim 3.6+3.4+3.2+3 /5 = 2.64 Lakhs under loss on housing property for interest . But since it is capped at 1.5Lakhs you can get only 1.5Lakhs benefit for interest. Principal will be under 80C and it can be only 16000 Rs ( forget about interest paid in previous years as it cannot be claimed ).

During 2013-2014 IT filing, you can claim 2.64Lakhs + the interest paid during 2013-2014 , which gets again capped at 1.5Lakhs. Again on the principal side, it will be just the amount paid in 2013-2014.

[vpbs_bak]

jackalbda

Are you sure abt the principal part (that it cannot be claimed retroactively) ? I was told otherwise (i.e. it works similar to interest).
If there's any IT clause/Act reference to this - I need to discuss with my bank on this.

thanks !

[jackalbda]

"For example, if you have paid Rs 5 lakhs as the pre-EMIs, then Rs 1 lakh will be shown in the next five years as tax deduction. Pre-EMI is only the interest paid during the period. If you have paid any principal amount, it is not eligible for tax deduction."

http://articles.economictimes.indiatime ... emi-tenure

[pavanamc]

Thanks vpbs_bak and jackalbda for the clarification.
Do they differentiate the loan amount into plot+house for tax benefits.
The reason i am asking is, suppose i want to buy a plot which costs 50 lakhs and just to claim tax benefit, i will construct a small 1 BHK house for 10 lakhs (construction completed in 1 year) and take a composite loan of 60 lakhs. Can i then claim tax benefit for the complete amount.

[jackalbda]

I had asked the same question to SBI loan officer and he said NO. For SBI, what matters is the project cost. Based on places the allocation to plot and house may be different. For example, a 1Cr housing project in Mumbai may cost 80 Lakhs for land and 20 Lakhs for construction. But the same one in a remote village might be costing 80Lakhs for construction and 20 Lakhs for land.

Long story short, it does not matter , what the allocation is. You may buy a 1cr land and construct a shed for 1Lakk and claim housing benefit on it . In fact , one of my friend has done the same in MS Ramiah North city. His land cost is 53 Lakhs and he constructed one room and a car park for 10Lakhs. Still he gets benefit on total 63 Lakhs.

[sudheerpalyam]

Cost of Land and Construction is not differentiated while considering taxation. I have a plot with small house and i'm getting tax benefit for the whole home loan interest & principle paid.
Another aspect to this is that there is no 1.5Lakh limit, if you LET-OUT this property, ofcourse you will have to show the rent (minus 30% standard deduction) as income. If you interest is 5 lakhs per year, 5 lakhs become tax free straight away.

[vpbs_bak]

Just another note: that one can get 2.5L exemption if the loan amt if <25L.

http://economictimes.indiatimes.com/per ... 729917.cms