Maximize Your Tax Benefits on Apartment Loans: A Comprehensive Guide

Did you know that tax benefits can be availed after the construction of the house since the interest repaid during construction cannot be claimed as Pre-EMI interest on the apartment loan? Read on to discover various ways you can save tax on your apartment loan.

Increasing Popularity of Apartment Purchases

Nowadays, many people are opting to buy apartments and build their dream homes in them rather than choosing pre-designed apartments or villas. Contrary to the myth, apartment loans can offer significant tax benefits similar to home loans. As tax season approaches, it's crucial not to overlook the substantial tax-saving opportunities that owning an apartment or property can provide.

Here are some essential tips to help you catalogue your deductions this year and plan for the next.

Deduction on Interest

Homeowners, including those who purchased an apartment intending to construct a house, can claim a significant reduction in loan interest from their taxable income. This deduction is particularly beneficial in the initial years when interest payments constitute a major portion of the loan repayments.

Pre-Construction Interest Deduction

Interest incurred during the construction period can be claimed in the financial year when construction is completed, distributed in equal installments over five years. However, if the property is self-occupied, the maximum deduction available is Rs. 2 lakh.

Deduction Under Section 80C

The EMI portion that goes towards repaying the principal amount is eligible for deduction under Section 80C of the Indian Income Tax Act. You can claim up to INR 1.5 lakh per annum for these payments. Additionally, expenses on stamp duty and registration fees can be claimed under Section 80C, but only in the year these payments are made.

Deductions Under Section 24

Under Section 24, you can claim tax benefits of up to Rs. 2 lakh on the interest paid for the home loan. To avail of this benefit, you must convert your apartment loan to a regular home loan once construction is completed.

Claiming Tax Benefits for an Apartment Loan

Tax benefits for apartment loans can only be claimed after the construction of the building is completed. Once construction is finished, you can start claiming the deductions as outlined above.

Loan-to-Value (LTV) Ratio

The LTV ratio is a critical factor considered by lenders. While home loans can cover up to 90% of the property's value, apartment loans typically cover only 60%-70%. This means you will need to pay the remaining 30%-40% out of pocket.

Type and Location of the Apartment

Apartment loans are usually granted for residential properties within municipal or corporation limits. Loans are generally not available for agricultural land or properties in rural areas. However, home loans are more flexible and can be availed for various types of properties, regardless of location.

Loan Term

Apartment loans typically have shorter loan terms compared to home loans. While home loans can extend up to 30 years, apartment loans generally have a maximum term of 15 years, with rare instances extending up to 20 years.

Apartment Loans for Non-Resident Indians (NRIs)

NRIs face stricter regulations and higher interest rates when applying for apartment loans. It is advisable for NRIs to conduct thorough research before applying for an apartment loan to ensure they understand the terms and conditions.

By understanding these aspects of apartment loans and the associated tax benefits, you can better plan your finances and maximize your savings during the tax season.