Home loans: Tax benefit on dependent on timing of repayment

Updated: January 8, 2019 9:00:45 AM

Prepayment of home loan does not entail any specific benefits whereas benefit on repayment of the home loan is provided by I-T Act.

Tax benefit on home loan dependent on timing of repayment

Chirag Nangia

  • If I prepay my home loan, will I still get tax benefit?
    – Ravi Kumar

Prepayment of home loan does not entail any specific benefits whereas benefit on repayment of the home loan is provided by I-T Act. However, these benefits differ depending upon the timing of repayment of the loan, i.e., paid before or after the property is acquired. If repayment is made after the acquisition/ construction of property, total amount of principal paid in a financial year can be claimed as a deduction from gross total income under Section 80C before calculating net taxable income. Payment of interest can also be claimed as a deduction under Section 24 while computing income under head ‘house property’, up to `2 lakh in case of a self-occupied property provided construction gets completed within five years from the end of financial year in which the property was purchased/ constructed. For a let-out property, no limit has been specified up to which interest deduction can be claimed. If repayment is made before acquisition/ construction of property, the benefit can be availed only with respect to interest payment. Any interest paid before the acquisition of property can be claimed as deduction in five equal instalments while computing house property income. The deduction can be claimed beginning from the previous year in which such property was acquired.

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  • I have stayed out of India for 200 days in 2018. What will my tax treatment be?
    —Arun Rastogi

Tax treatment of an individual is dependent on his residential status, criteria for which is specified in I-T Act. The residential status is classified into three categories — ordinarily resident (ROR), non-ordinarily resident (NOR) and non-resident (NR). ROR is taxed on his global income in India, NR pays tax only on income accruing or arising/ received or deemed to accrue or arise/ received in India. All income earned by NOR is taxed in the same manner as specified for taxing the income earned by ROR except foreign income. NOR is not required to pay tax on income accruing or arising outside India unless it is derived from business controlled in or a profession set up in India. Residential status in India is determined on the basis of threshold specified which is different for each category and also takes into consideration period of stay in years preceding to the relevant year for which residential status is required to be determined. Given the limited facts, it is not possible to ascertain your residential status only with the information on the period of stay in 2018.

The writer is the director, Nangia Advisors LLP. Send your queries to
fepersonalfinance@expressindia.com

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