Checklist - Home Loan Closure
It is important not to sit back and relax after you have paid the last equated monthly instalment of your home loan. There are a few steps you should follow to ensure that your account is closed properly and all the necessary documents are handed over to you.
Here are the necessary steps you should take:
1. Do not forget to collect all your original documents from the lender
A lot of original documents are submitted when you apply for a loan. These include the registered sales deed of the house/flat, the initial agreement with the vendor for sale of the property, home loan agreement with the bank, prior sale deed/s of the property in case you are not the first owner of the property, the original document of the power of attorney, in case the property was sold through a registered power of attorney, to name a few.
Normally, the lender will have a list of all the documents taken from you.
While receiving these documents, check each and every page, and tally them with the photocopies you have. This process may seem tedious and redundant, but there’s no harm in being cautious.
2. Take the no objection certificate from the lender
This document supports the fact that the loan has been fully paid according to the terms of the lender. It’s a legal document to prove that the lender no longer has rights over the property. It may also prove useful in case you are selling off the property.
3. Take away the lien with the registrar office
The lender may record the lien on the property with the registrar office. If they have done so you may request them to take way the lien after closing the loan. Else, at the time of selling the property, this lien in record will come in the way of selling your property. If the lender delays in doing so, you may with the help of the NOC remove the lien.
4. Updating your information at the Credit Information Bureau of India Ltd
Once your home loan is fully paid off, it is important to update this information at CIBIL. This will help improve your credit rating. While the lender will usually send this information to CIBIL, it’s always better to follow up and cross-check this information. Otherwise, you may face difficulties the next time you want to take a loan.
Tax and Home Loan
- Home loans are the cheapest loans available in the market. May be Govt. has sniffed that, in India Real Estate is quite costly and owning a home is the most important part in each of our lives. Read on:
- o Tax rebate on interest repayment of home loan upto s150000/-. o Tax rebate on repayment of principle upto s100000/- under section 80C.
- While purchasing property, you can opt for a joint loan with your spouse. Under the Income Tax Act, tax benefits are available on home loans and the interest paid on them. In case of joint loans also, all the co-borrowers can get tax benefits. The maximum limit of Rs.1, 50,000 will apply individually to both of you (i.e. the total deduction will be limited to Rs.3, 00,000).
- It needs to be ensured that both should be co-owners of the property. A co-owner of a house must be a co-borrower as well. It is essential for a co-borrower to be a co-owner in order to claim tax benefits. You cannot get tax benefits if you are only a co-borrower and not a co-owner.
- Co-borrowers, who are also co-owners, are eligible for the tax rebate in the proportion to their share in the loan. The repayment capacity of each spouse will be taken into account while arriving at the share of the loan. The shares of the loan may be in any ratio. The tax benefits would be shared in that proportion only. You have to specify the share of the property and other loan details on a stamp paper.
- In case a husband and wife pay Rs.2.4lakh as interest and Rs. 100,000 as principal, each has an equal share in the borrowing, and each can claim Rs. 120,000 towards interest (subject to maximum of Rs. 150,000) and Rs. 50,000 towards principal in their respective income tax returns. The maximum tax deduction for a single borrower is Rs. 1.5 lakhs. This deduction would apply to each borrower.
- In case one of the co-owners does not have any income, the other co-owner should enter into an agreement with the spouse. The agreement should state that the entire repayment is met by only one borrower’s income. This would ensure that the main applicant will have 100% beneficial home ownership, and consequently, he can avail all the tax benefits applicable to a single borrower.
- Each borrower needs a copy of a borrower’s certificate. It has to be provided to claim their respective tax relief. A co-borrower should enter into a simple agreement with the spouse on stamp paper of Rs.100.
- This agreement should basically contain the shares of the ownership along with that of the home loan availed by the couple.
- The borrowers should take two copies of the interest and principal paid certificates from the bank and each can submit a copy of the certificates along with a copy of the agreement signed between them.
- Pre EMI is the interest paid to the band/NBFC for partial disbursement till you get the posession of your property. You can use the home loan for tax saving only when the construction is completed. Pre-EMI is paid till the house is under construction. So, you cannot use the pre-EMI as the tax deduction source. Once the construction is completed, the total pre-EMI interest paid is shown in the five equal instalments in the subsequent five years.
- For example, Mr. A Purchased a property in 04-05 and got posession in 08-09. if Mr. A have paid Rs. 180000 as the pre-EMI (irrespective of the construction tenure of home), i.e. from 04-05 to -8-09 then Rs. 36000 will be shown in the next five years as tax deduction from 08-09. Note that the upper limit on deduction each year remains Rs. 1.5L. Note that pre-EMI is only the interest paid during the period. If you have paid any principal amount, that is not eligible for the tax deduction. The principle amount which was repaid during home was constructed is lost forever, and will never give you any tax benefit.
- Example: If my house is completed in December 2009 then you will get tax benefits for the financial year April 1, 2009 to March 31, 2010. The entire interest paid in this financial year will be eligible for deduction under Section 24, irrespective of whether the interest pertains from April to December 2009 (when the property was under construction) or post- January 1, 2010 (when the construction was complete).
- Tax implication for an under constructed property will be same as a pre-EMI scenario as explained. All the interest paid during the construction of home will be aggregated and one-fifth of this aggregated amount shall be allowed as a deduction along with the interest for the current year.
- If the construction of the property is not complete by March 31 of the financial year, then no benefit is available for that financial year. In fact, in such cases, the deduction in respect of principal paid during the years in which the construction is not complete is lost forever as, unlike for interest payable, no similar provision for aggregation of principal exists.
- If Ashish lives in Mumbai and has a purchased a home in Mumbai for which he has taken home loan. Will he still get benefit under the Act for this second home in Delhi? The answer is ‘Yes’.
- Here we have to understand how the Income tax act/sections work and how are their conditions. You could get the benefit of Section 80C (for Principal component) and Section 24(b) (for interest component) can be taken for more than one home if all these homes satisfy the requirements of the Act.
- Ashish has to declare the home in Mumbai satisfies the condition of self occupancy while the home in Delhi comes within the exception of the self occupancy rule that the city of work is different. But understand that, Irrespective of the number of homes the maximum limit of Rs.1L for Section80C and Rs.1.5L for Section 24(b) still apply. Note that it does not matter if Sunil gives one home on rent. He will still be able to get the tax break.
- A maximum of 1Lac per year of principal repayment can be availed as deduction from salary under this section. The Act requires the home loan to be towards a property for self occupation. However if the assessee’s city of employment is different from the city where he has purchased a home, he is still eligible for this deduction. So if Ashish works in Mumbai but has purchased a home in his hometown Delhi, he can still claim a deduction under this section even if he is not actually staying in this home.
- A maximum of 1.5Lac per year of interest repayment can be availed as deduction from salary.
