Here are five things about home loan incentives that you should know:
1) Even a loan taken from an employer, friend, private lender is eligible for deduction — but only on the interest and not principal. And you’ll need a certificate from the lender.
2) Booking an apartment which is under construction is sometimes cheaper. I-T law permits you to claim the total interest paid during the pre-delivery period as a deduction in five equal instalments starting from the financial year in which the construction was completed or you acquired your apartment (generally this denotes the date of possession). Of course, the maximum you can claim as a deduction per year continues to be Rs 2 lakh, in case of self-occupied property (Although, you could be eligible for the additional interest deduction of Rs 1.5 lakh for your first house).
Union Budget 2021-22: Complete coverage
3) It makes tax sense to purchase the new apartment jointly — say with your spouse, then each of you is entitled to a deduction of Rs 2 lakh for interest funded by each of you, as explained above. In case you have a working son/daughter and the bank is willing to split the loan three ways, all three can avail deduction up to Rs 2 lakh each on self-occupied property. Add to it the additional interest (if applicable for rented or deemed to be let out property) and the savings can be significant.
4) No notional rent will be added to the taxable income for your second self-occupied house property. Thus, if you don’t find a ready tenant you can keep it self-occupied. Do note, that this leeway is available only for up to two houses. A third house which is not let out will still attract tax on its ‘deemed value’. In other words, tax will be calculated at expected market rent.
5) The total loss from house property which can be adjusted with any other income (salary, other source) has been capped at Rs 2 lakh. Further, if you are unable to set-off the interest of Rs 2 lakh against any of the heads of income, the (surplus) interest which could not be set-off can be carried forward only for eight assessment years. Additionally, such set-off is possible only against ‘Income from house property’. It becomes a sunk cost if you haven’t let out your house on rent.