Tax Advantage on Homes

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Your home is the single largest investment of your life and the best part is that this can also help you save taxes.

Real estate is actually one of the most popular tax-efficient investment options facilitated by the Government, particularly the first home especially if a home loan is availed.

Home Sweet Home

Purchasing your first house is a great tax-saving investment as it saves you rent every month and also the EMI on your first house is tax deductible from your income. “The interest component of your EMI is allowed to be set off against salary or business income (up to ₹200000 a year); while the principal component is allowed as a deduction under section 80C (up to ₹150000 a year). Additional deduction under section 80EE up to ₹50000 a year is allowed on the purchase of the first house,” says Vijay Kuppa, Co – Founder, Orowealth. C. S. Sudheer, CEO and Founder, IndianMoney.com adds, “you can avail a joint home loan with your spouse and both can separately claim tax deductions under Section 80C. You must be an owner and applicant (as per loan documents) to claim the tax benefit.” A second house is also eligible for the similar deduction under section 80C, but deduction under section 80EE is not allowed. Rohit Gera, Managing Director of Gera Developments Pvt. Ltd. explains, “for example, I buy a home worth ₹60 lakhs for which a loan amount of ₹48 lakhs is approved. My monthly EMI is ₹42571 on 20 year tenure at a rate of interest of 8.8% per annum. With a net outflow of ₹5.11 lakhs in the first year of which the interest is ₹4.18 lakhs and Principal ₹0.92 lakhs, I can avail a tax deduction of ₹2.92 lakhs (₹2 lakhs towards interest u/s 24 and ₹0.92 lakhs on principal paid u/s 80C.)”

Tax Matters

“The latest change in GST rate which is 1% on affordable units (60 sq mt for metro and 90 sq. mt for non-metro cities as carpet area) and 5% on rest of the category and notional rent on second property has been abolished that was taxable earlier also helps,” says Dinesh Jain, MD- Exotica Housing. PMAY (Pradhan Mantri Awas Yojna) offers interest subsidy under CLSS (Credit Linked Subsidy Scheme) and on a unit of ₹35 lakh, a home buyer can save ₹2.76 lakh maximum in the form of subsidy via direct bank transfer. “Currently, a buyer pays anywhere between 5-7% of the property cost as stamp duty and registration taxes depending on the respective state. “For instance, suppose ‘x’ bought a house in the year 2018 for INR 50 lakh and paid INR 5 lakh as stamp duty and registration charges. He will be entitled for tax benefits computed during the fiscal year 2019-2020, only if all the expenses have been paid during 2018-19,” says Anuj Puri, Chairman – ANAROCK Property Consultants.

Tax Rationale

There are no tax benefits if the home loan payments are made during the pre-construction phase Section 24 – allows a tax deduction of any interest portion payable in home loans. “Unlike the deduction under 80C, Section 24 runs on an accrual basis. If interest on home loan accrued in a year which has not been paid in that year, the interest can still be claimed for that financial year,” says Abhinav Angirish, Founder, Investonline.in.. CA Maneet Pal Singh, Managing Partner, I.P. Pasricha & Co says, “The Finance Act, 2019 has extended the exemption for investment made, by way of purchase or construction, in two residential houses provided the amount of capital gains does not exceed ₹2 crores and the assesse can exercise this option only once in a lifetime.” The rationalization of property-related taxes is the most significant benefit that was offered in the 2019 Interim Budget. “Changes have been made to the long-term capital gains tax structure for people selling a house to buy another house. The advantage of rollover of capital gains under section 54 of the Income Tax Act will be increased from investment in one residential house to two houses for tax payers having capital gains of up to Rs 2 crore,” adds Rakesh Reddy, Director, Aparna Constructions & Estates Pvt. Ltd. So are you ready for a home that helps you save tax too?

This story first appeared in The Tribune dated 13th April 2019 here:

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