The direct tax code has come as a relief for home loan takers. Earlier, in the draft version, it was proposed that the tax benefits on home loans will go away but the government has taken a decision against it. So, the tax benefit on home loans will continue next year onwards as well. This will act as a boost to the real estate industry.
The tax benefit is available on both principal and interest components of the home loan. These deductions are available to assesses who have taken a loan to either buy or build a house, under Section 24(b).
Interest on borrowed capital is deductible up to Rs 1.5 lakhs. There are certain criteria though, the amount should have been borrowed on or after April 1, 1999 to acquire or construct a residential property. Also, the acquisition or construction should be completed within three years from the end of the financial year in which the amount was borrowed. If these conditions are not met, the interest on borrowed capital is deductible up to Rs 30,000. The interest on a loan, taken for repair, renewal or reconstruction, also qualifies for the deduction of Rs 1.5 lakhs.
Principal amount is eligible for a deduction of up to Rs 1 lakh under Section 80C from the assessment year 2006-07.
If an assessee fails to make EMI payments, he cannot claim tax benefits on the dues. A husband and wife, both being taxpayers with independent income sources, can get tax deduction benefits on the same housing loan. In this case, the tax benefits are shared to the extent of the amount of loan taken in their respective names.
As per the latest direct tax code, if the person has not rented his property, he cannot claim the tax benefit on interest of Rs. 1.5 Lakhs.
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