Hillsboro Realty

The benefits of taking a home loan The income tax authorities look with favour upon those servicing a housing loan from specified financial institutions. And, it is up to you to be wise enough to take advantage of this.

Let's start with Section 24 of the Income Tax Act.

Interest paid on capital borrowed for the acquisition, construction, repair, renewal or reconstruction of property is entitled to a deduction. That means you are allowed to deduct an amount equivalent to the total interest payable on the housing loan from your taxable income within the same financial year.
This is now a substantial amount. It started off with the Income Tax Department offering Rs 15,000 as the maximum amount eligible for deduction in the case of self-occupied property. This later got doubled to Rs 30,000. It did not stop there. After getting enhanced to Rs 75,000, it was then taken to a limit of Rs 1 lakh. Presently, the limit stands elevated to Rs 1.5 lakh.

So, should you borrow money to acquire, construct, repair, renew or reconstruct property on or after April 1, 1999, you get a deduction of up to Rs 1.5 lakh. The criteria being: the property has to be acquired or constructed by March 31, 2003 and be self-occupied.

When put in figures, this is quite an amount.
Assume taxable income of Rs 4 lakh, placing the assessee in the highest tax bracket.
Assume interest payment during the first financial year is Rs 1.60 lakh
Taxable income stands reduced to Rs 2.5 lakh (Rs 4 lakh - Rs 1.5 lakh being the maximum limit)
Total tax amounts to Rs 49,980 (tax of Rs 49,000 + surcharge of Rs 980)
Tax saved is Rs 45,900 (tax @30% on Rs 1.5 lakh plus 2% surcharge as the investor is in the highest tax bracket)

That brings us to Section 88 of the Income Tax Act.

You get a 20% rebate on repayment of principal during a financial year. Once again, over the years, the principal repayment eligible for rebate has been enhanced from Rs 10,000 to the current limit of Rs 20,000. Stamp duty, registration fee or other such expenses paid for the purpose of transfer of such house property to the assessee is also considered under this amount.

Going back to our earlier example:
Taxable income of Rs 4 lakh
Taxable income stands reduced to Rs 2.5 lakh
Tax before rebate and surcharge: Rs 49,000 (no surcharge is computed as surcharge is applicable on tax payable after allowing for rebate under Section 88)
Rebate of Rs 4,000 (20% of Rs 20,000 being principal repayment)
Tax less rebate of Rs 4,000 + surcharge @ 2%= Rs 45,900
Tax saved = Rs 49,900 (Rs 45,900 as shown above plus rebate of Rs 4,000)

Eligibility

Home loan

• You must be at least 21 years of age when the loan is sanctioned.
• The loan must terminate before or when you turn 65 years of age or before retirement, whichever is earlier.
• You must be employed or self-employed with a regular source of income.

Land loan

• You must be at least 21 years of age when the loan is sanctioned.
• The loan must terminate before or when you turn 65 years of age or before retirement, whichever is earlier.
• You must be employed or self-employed with a regular source of income.
• You must be purchasing a plot of land for residential use.
• The purchase has to be from a development authority or from a registered co-operative society.
• The purchase of the land must be for the construction of a house.
• The plot of land must be clearly demarcated with clear boundaries.

Office premise loan

• You must be at least 21 years of age when the loan is sanctioned.
• The loan must terminate before or when you turn 65 years of age.
• You must be self-employed with a regular source of income.
• The loan can be for the purchase / construction / extension of a non-residential property.
• A loan for renovation or improvement will be given only at the time of acquisition of property.
• Professionally qualified and self-employed individuals (doctors, pathologists, chartered accountants, cost accountants,
• company secretaries, architects, engineers, consultants, lawyers, chemists) can apply.
• A minimum of 3 year’s work experience is a must.

Home Equity Loans

• You must be at least 21 years of age when the loan is sanctioned.
• The loan must terminate before or when you turn 65 years of age or before retirement, whichever is earlier.
• Your must be employed or self-employed with a regular source of income.
• You must be the owner of a self-occupied property.

Loan Amount

A number of factors are taken into account when assessing your repayment capacity. Your income, age, number of dependants, qualifications, assets and liabilities, stability/ continuity of your employment / business are some of them.

However, there are ways by which you can enhance your eligibility.

If your spouse is earning, put him/her as a co-applicant. The additional income shall be included to enhance your loan amount. Incidentally, if there are any co-owners they must necessarily be co-applicants.

Did you know that your fianc�e's income can also be considered for sanctioning the loan on your combined income? The disbursement of the loan, however, will be done only after you submit proof of your marriage.

Providing additional security like bonds, fixed deposits and LIC policies may also help to enhance eligibility.

While there is no need for a guarantor, it could be that having one might enhance your credibility with us. If so, our loan officer would provide you with the necessary details.

The final amount to be sanctioned will depend on your repayment capacity. However, what you ultimately are entitled to will have to conform within the limits fixed for each loan.

Also, when the company looks at the total cost, registration charges, transfer charges and stamp duty costs are included.

Sanctioning Documents

• Passport size photograph.
• Age verification: PAN card, Voters ID, Passport, License.
• Bank statement for the last six months.
• Income Documents e.g. Latest Form 16, Certified IT returns for latest 3 years.
• Admin Fee cheque.
• Loan Enclosure letter.

These are the documents required for sanctioning a loan. You may be asked to submit further legal documents if required by the Bank or its approved lawyers. Do retain photocopies of all documents being submitted by you.

� Hillsboro Realty