Your queries: Income tax – Benefit from a tax advantage on the principal as well as on the interest paid on the mortgage

By Chirag Nangia

What are the tax advantages of taking out a mortgage?
— Brijesh Kumar

A deduction of up to Rs 1.5 lakh is allowed under Section 80C due to the repayment of the principal of a home loan taken out for the purchase/construction of a house. In addition, you can benefit from a deduction on the interest borrowed for the acquisition, construction, repair or reconstruction of a house on the income calculated under the heading “ownership of the house”.

The interest deduction for owning a detached house can reach Rs 2 lakh, which is reduced to Rs 30,000 if the construction is not completed within five years. In addition, you can claim an interest deduction for pre-construction periods in five consecutive installments, starting in the year of acquisition or construction of the property. Although you may not be able to claim a deduction for the principal repayment of a home loan due to the exhaustion of the prescribed limit, you may still be able to claim a deduction for the interest element.

As I plan to prepay my home loan, will I benefit from a tax advantage?
—Yashpal Dubey

Early repayment of a home loan does not entail specific benefits, while a benefit when repaying a home loan is provided. However, these benefits differ depending on when the loan is repaid, i.e. before or after the acquisition of the property. If repayment is made after acquisition/construction, the full amount of principal paid in a financial year may be claimed as a deduction from total gross income under Section 80C before calculating net taxable income. Interest payment can be claimed as a deduction under Section 24, up to Rs 2 lakh for a self-occupied property provided the construction is completed within five years of the end of the financial year in which the property has been purchased/built.

Also read: Looking for a home loan? Find out the lowest interest rates based on your credit score

I want to transfer shares to my daughter and son NRI demat accounts as a gift. Do I have to sign a deed of gift?
—SB Manhas

Since the shares are considered as “movable property”, it is not mandatory to sign a deed of gift. However, in order to create a legal case, it is best to execute one. An acknowledgment can also serve the purpose. In addition, capital instruments may be transferred to NRI as a grant subject to satisfaction of RBI rules.

I am an employee and I invest in the stock market. I realized capital gains in August of this year. Which ITR form should I file next year in July?
—KL Sridharan

ITR 1 is a simple form for resident individuals with total income up to Rs 50 lakh, having income from wages, property, other sources (interest, etc.) and agricultural income up to Rs 5,000. Persons with income under “capital gains” cannot file ITR 1 and must report income details in ITR 2. In the current tax year, you may provide the ITR 1 form instead of the ITR 2, if you have no income under the heading of capital gains.

The screenwriter is the director, Nangia Andersen India.
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