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My queries are with reference to a home loan taken to purchase an apartment under construction. I keep hearing two versions:

(a) The principal amount is eligible for deduction when the house is under construction, and the interest component can be deducted at a 20% basis over five years once the apartment is occupied.

(b) No deduction for the principal amount. The interest component can be deducted even during the construction.

Which one of the above is true? If none, then what are the correct details?

- Sreenivas

No tax benefits are available for the years in which the house is being constructed.

In the year in which the construction of the house is complete, the following deductions are available.

Under Section 24

Interest payable for that year as well as 1/5^th of the aggregate interest payable during the construction period.

If the house is self-occupied, the dedution is limited to a maximum of Rs 1,50,000; the amount comes down to Rs 30,000 if the construction is completed three years after the end of the financial year in which the loan is taken.

Please note the maximum limits apply only if the house is self-occupied.

Under Section 80C

Starting from the year in which the construction is completed, the principal amount paid back will qualify for deduction under Section 80C.

The limit under this section is Rs 1,00,000.

This is irrespective of how much you earn and under which tax bracket you fall.

Also, there are no sub-limits under this overall amount of Rs 1,00,000.

So, if you choose, you can invest the entire amount in Equity Linked Saving Schemes or in infrastructure bonds. The choice is entirely up to you as to how you want to reach this limit. To understand how an ELSS works, read Which ELSS Fund should you invest in?

If you are repaying a home loan and the principal repayment amounts to Rs 1,00,000, you can claim the entire amount as deduction.

To get a list of all the investments falling under Section 80C, read All about Section 80C.

• Buying a home? Service tax will hit you

I took a loan of Rs 1,75,000 in 1997 at a rate of 16.25%. My Equated Monthly Installment is Rs 3,057 for a period of 10 years.

Even today, I am paying at the same rate.

My outstanding principal amount is Rs 60,000. 

Even when interest rates fell, I was not given the benefit. Can I ask for it now? Can I request them to waive off the balance amount since it would amount to the high interest I have been paying when interest rates were so low.

Or will the lower rates only be applicable from the day I put in the request?

- Martin Darshi

I don't think the home finance company will agree to reduce rates from a back date.

Your best bet would be to talk to your existing lender and request for a rate reduction with immediate effect.

The balance loan amount is very small and may not be viable for a balance transfer loan. This is when the home finance company picks up your current loan at a lower rate of interest.

If you need money, you could apply for a top-up loan from any other bank to make it worthwhile for the other bank to lend to you.

A top-up loan is when you get a loan over and above your home loan. It is given as a percentage of the market value of your property, less the amount you owe on the home loan.

Of course, this will be possible only if your repayment track record has been very good.

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