All of us know that buying a house is an expensive proposition. It really costs huge amounts going by the real estate prices. It is impossible to buy any residential property without taking a home loan. As you must be aware that home loan is available for reasonably cheaper interest rates and for a long tenure. Not only this, it comes with the topping of tax benefits which makes it even more attractive for the loan seeker.

This article dwells on various tax benefits available in respect of home loan under the provisions of the Income Tax Act. Let me tell you that your home loan servicing has two components — interest repayment and principal repayment and both these entitle you to claim tax benefits, but not without fulfilling certain conditions.

Rebate under Section 80 C for principal repayment of home loan

As per Section 80 C, an individual and an HUF can claim benefit of principal repayment component of a loan and it is available along with other eligible items like life insurance premium, NSCs, EPF, ELSS and stamp duty and registration charges etc. is restricted to Rs 1 lakh in a year. Remember the deduction is only for a residential house property and not for commercial property. Besides, it is also available only for purchase or construction of a house and not for loan taken for renovation, additions or repairs on any existing house property.

You can claim tax benefit for principal repayment if you have taken loan from specified entity like banks, HFCs, Central and state government, LIC, NHB, public company or a public sector undertaking. Even a university established by law or a local authority or corporation established under State or Central laws.

Deduction available under Section 24(b) for interest payment

In addition to deduction for principal, Section 24(b) of the Income Tax Act allows you deduction for interest payable on loan taken to buy or construct a house property, or even for repair or reconstruction of an existing property whether it is residential property or a commercial property. It may be interesting to note that even processing fee paid in respect of home loan shall also be treated as interest so you can claim deduction in respect of processing fee paid for taking such loan. Even in cases where you prepay your loan, you will be entitled to claim the amount of any pre-payment fee paid to the bank for such pre-payment. Here you can claim the benefits in respect of loans taken from your friends and relatives besides banks and financial institutions.

The deduction is available for self-occupied as well as let-out properties too.

For self-occupied property, the deduction is restricted to Rs 1.50 lakh per annum. For let-out property, you can claim full interest. You can claim the benefit even if you have taken loan from friends and relatives. If you have more than one self- occupied houses, you have to select one house as self-occupied and the other house/s shall be treated as let-out. In this case you have to offer notional rent for taxation and to claim the full interest payable. So in order to maximise your tax benefits, it is always advisable to treat the property on which interest is lower as self-occupied in case interest payable on any or all of the property is more than Rs 1.50 lakh.

For under-construction property, you can only claim the interest deduction from the year construction is complete and possession taken. However, in respect of interest paid for the period prior to the year for taking possession, you can claim aggregate of such interest in five equal instalments from the year in which construction is completed.

Moreover, in case you sell the house acquired with home loan, within five years from the end of the year in which possession of the house was taken, all the deductions allowed for principal repayment in earlier years shall be withdrawn. This shall be treated as income of the year in which this property is sold. Moreover, no deduction under Section 80C shall be allowed for principal repayment made during the year.

Deduction under Section 80EE for the current year

For this financial year, an additional deduction of Rs 1 lakh for interest is available under Section 80EE. This deduction can only be claimed if the loan amount is not more than Rs 25 lakh and the value of house does not exceed Rs 40 lakh. But you should not own any other house. Here, the loan should have been sanctioned during April 1, 2013 to March 31, 2014. This deduction has only limited benefit in respect of self-occupied residential house property purchased with loan sanctioned and disbursed during the financial year 2013-2014 as you are entitled to claim full interest benefit in respect of let out property.

Your home loan entitles you for some real tax benefits too!

The author is CFO, Apnapaisa.com. The views expressed in this article are his own

It has been observed that most parents start planning for the child’s future quite late. Their focus on meeting the rearing priorities usually leads to overlooking their financial planning. To reap the benefits of financial investments, it is always advisable to opt for financial planning for child’s future during the child’s formative years (3-8 years) so that sufficient funds are available when the child is ready to embark on a career. The earlier they start planning and investing, the longer is the investment period and better the returns.

There is a bewildering range of choices available today in child insurance plan market. Parents must choose the plans that are designed to serve the sense of responsibility that sets in new parents about giving the best to their child’s needs. If chosen well, a child plan is a solid long-term vehicle to manage the future of a child’s different milestones. These plans inculcate a sense of discipline among the parents to invest systematically over the long term. These investments can be made in funds that can earn returns that match the escalating costs of education. Finally, these plans have options that protect the child’s future plans in the unfortunate event of death of parents. Here are four simple tips to choose a suitable plan:

nStart planning and invest for your child’s future as early as possible. Insurance companies offer plans with maturity benefits structured to coincide with the child attaining 18 years or ‘timed’ release of payouts at critical lifestage from 18 years onwards. These plans offer a long horizon to invest which helps you systematically build the corpus.

nInvest in plans that offer premium waiver benefit. Most child plans offer premium waiver benefit either as an option or as an essential feature in the main plan. Under this plan, in case of death of a parent, the insurer waives future premiums to be paid while the insurer continues to fund the insurance policy till the maturity. This makes sure that the maturity benefit that was set for a certain age remains intact as planned in addition to the death benefit paid.

nChoose a plan that offers a mix of investment options and adequate risk cover — Make sure you invest in a child plan which offers a balanced mix of growth and debt funds and option of risk cover. Empirically, equities give the best returns in the long run. Make sure that the insurance plan you choose offers you the right mix of capital protection and growth. Also, choose a plan that has the system transfer option to make sure your gains in the investment are protected. Lastly, take adequate risk cover (at least 20 times the annual premium) to ensure that the death benefit is a substantial lump sum that can help your family in case of your demise.

nRead the product brochure and understand the costs of the product. Insurers lay out charges that the customer needs to pay for the policy clearly in the product brochure. Compare the products available in the market on their charges, the reputation of the insurer, claim settlement ratios (available on the websites), flexibility offered and their service quality perception.

Research the plans available by probing the insurance agent on features, charges and past performance and satisfying yourself with evidence on every aspect of the product.

The author is VP, Product, HDFC Life. The views expressed in this article are his own