Summary of this article
Joint ownership can increase eligible tax deductions.
Stamp duty may qualify under Section 80C.
Pre-construction interest offers future deductions.
For homebuyers in India, tax benefits remain a clause that confuses them. Most individuals consider that home loan benefits begin and end with two provisions of deduction on principal repayment under Section 80C and deductions on home loan interest under Section 24(b). But the tax benefits related to housing finance can extend beyond the basics. With the right ownership structure, documentation and understanding of when expenses become eligible for deductions, borrowers may be able to reduce their overall tax outgo.
Consider a joint home loan with a co-owner
Taking a home loan jointly with a spouse can increase the overall tax benefit a family receives, provided both borrowers are co-owners of the property and contribute towards the repayment. Each eligible co-borrowers are co-owners of the property and contributes towards repayment of the same. Each eligible co-borrower can claim deductions independently, which is subject to the limits and conditions. This means a family could potentially claim deductions on principal repayment and interest payments across two taxpayers. Ownership of the property, repayment contribution and applicable tax rules need to align, as just adding another borrower is not enough; nor is it financially smart.
Another overlooked tax mistake people make is opting for a loan against property if they already own a pre-existing property. “A Loan Against Property is a secured loan where you pledge a property you already own, residential, commercial, or even a plot, to raise funds. The money can be used for anything, be it expanding a business, funding education, managing a medical emergency, or consolidating debt. On the other hand, home loans are purpose-specific. It finances the purchase or construction of a new property, and the property being bought itself acts as the collateral. In a simpler way, a home loan helps you buy an asset, whereas LAP helps you unlock one you already own,” adds Mahesh Shukla, Founder & CEO at PayMe.
Don't overlook stamp duty and registration charges
The cost of buying a home extends beyond the sale price and the loan. Stamp duty and registration charges can represent significant upfront expense, but these payments may be qualified for deduction under Section 80C, which is subject to the applicable conditions and overall Rs 1.5 lakh limit. This deduction is generally available in the year in which these are actually paid. This can be relevant for buyers who have already used part of their Section 80C limit through other investments. Hence, borrowers should factor these charges into their tax planning rather than just treating them as transaction costs.
Account for pre-construction interest
For borrowers who are purchasing an under-construction property, they may begin to pay interest much earlier than they receive possession. The pre-construction interest is often overlooked because the immediate tax benefit does not work in the same way as the post-possession interest. Subject to the applicable conditions, the eligible pre-construction interest can be claimed in five equal annual instalments beginning from the year of project completion. This makes the process important to preserve the loan statements and certificates.
Tax savings should not be the sole reason for choosing a loan. Borrowers should assess the purpose, quantity, total interest that would be levied, EMI burdens and ownership structure. A tax benefit can reduce the effective cost of borrowing and give huge savings to the borrowers if done right.
