Advantage with Ready to Move in Property

Advantages of Ready to move in Flats

Advantages with Ready to Move in Property

A major advantage of going in for a Ready to Move in Flats and availing a home loan to finance it is that you start paying your EMIs immediately. As you start repaying your home loan amount, the interest on it also decreases. The EMI payments include contributions towards both principal and interest on the loan amount. The interest component constitutes a major portion of the EMI payments in the initial stages. Over a period of time, the ratio of interest payment reduces and contribution towards the principal repayment increases.

The EMI depends on the loan amount and interest rate, and is inversely

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Assume you have purchased a house on April 15, 2017, and during the financial year 2017-18 assume you pay interest of As 1.80 lakhs on the home loan, and make a principal repayment of As 40,000. So, in your income tax returns for the year 2017-18, you can claim Rs 40,000 deduction under Section 80C and As 1.80 lakhs deduction under Section 24 against ‘Income from House Property’.

Had this been an under – construction house, you would have to wait till the construction is completed and then claim the deductions over the next five years.

So, in case you had a taxable salary income of As 11 lakhs and come in the 30 percent tax bracket by claiming the deduction against home loan interest paid, you can reduce the taxable income to Rs 4.20 lakhs and thus come in the 20 percent tax bracket, resulting in substantial tax savings.

Proportional to the tenure of loan. The higher the loan amount or interest rate, the higher is the EMI and vice versa. In case the tenure of the loan increases, the total amount of interest to be paid increases too, but the EMI decreases. The shorter the loan tenure, the higher will be the EMI.

Ready to move flats with Occupancy Certificate

Similarly, the EMI will be lower in case of a lower loan amount, lower interest rate or in case of longer loan tenure. In case you increase the tenure of the loan, the EMI will come down, although the total amount of interest payable over the loan tenure will increase.

In case of an under-construction property, you do not commence paying the EMIs till the time the construction is completed. Usually, till then, the loan is disbursed in tranches, depending on the stage of construction of the property. As long as the construction is not completed, you just keep paying interest on the amount borrowed and the period for which you have borrowed the amount. You cannot claim any tax deduction on the payments till the time the construction of property is completed.

Once the construction of the property is completed, the entire pre-construction interest paid can be claimed as a deduction in five equal installments over five years. Pre-construction interest deduction is allowed when you have taken a loan for the purchase or construction of a house. This is not allowed in case of a loan taken for the repairs or reconstruction of a property. The deduction against this interest is allowed in five equal installments starting from the year in which the house is purchased or the construction is completed.

Though pre-construction interest is allowed to be deducted on the basis of one-fifth each year, beginning in the year in which the construction is completed, the total amount of pre-construction interest and interest on a housing loan that can be claimed as deduction in a year cannot exceed As 2 lakhs.

As against this, in case of a ready-to ­move-in property, you can start claiming the deductions against the interest paid as well as the principal amount repaid (under Section 80C) straightaway. The deductions will be subject to the conditions and limits set out in the Income Tax Act.

There is no pre-EMI interest to be paid or claimed at a later stage. Claiming of interest deduction from Day One helps you reduce your tax liability significantly from the day you acquire the home itself.

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Read More: Ready to Move property vs Under Construction property – Which is better?

Source: Times of India article..

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