Are you thinking of buying a house and want to know what are your tax benefits and how you should plan it?
- Establish Ownership – An ‘owner’ is the only person who can claim Loss or Income arising from a House Property. In some situation, this owner may be a deemed owner – say when you transfer property to your wife without adequate consideration. Or transfer property to a minor child – you will be considered a deemed owner of the property. You may also be a co owner, when you own the property jointly. You may be paying off a loan in respect of the house, for which the legal owner is a parent or your spouse, even in such a case the benefits (income or loss) of this house property shall rest with the owner. Therefore, important to establish ownership first –a co owner is also entitled to income or loss of the property in the ratio of his/her ownership in the property.
- Check if it falls in the meaning of a House Property – A house property means either a building or a land attached to the building. This does not include vacant land or a plot of land – any income from such a land is taxable under the head Income from Other Sources. House Property could be your home, an office, a shop, a building or some land attached to the building say a car parking. The property in consideration must fall in the definition of a House Property.
- Home Loan Interest Deduction under section 24 – Interest on Loan taken for purchase, construction, repair, reconstruction is allowed as a deduction from the Gross Value of both Self Occupied and Let Out Property. The deduction allowed is Rs 1,50,000 when taken for purchase or construction and Rs 30,000 when taken for repair or reconstruction. In some cases, where you own more than one house property, with respect to the let out property, you may allowed full interest deduction beyond the limits mentioned above. You must obtain an interest certificate from the lender to claim deduction for Interest on the Loan.
- Other Deductions – The 3 deductions available are (1) Municipal Taxes (when paid) (2) Interest on Home Loan (see above) (3) Standard Deduction which is 1/3rd of the Net Annual Value. That is an exhaustive description of deductions available from your house property income– no other deductions or any expenses you may have incurred are allowed to be deducted.
- Co Owners – If you are a co owner, you are allowed the benefit of the Income or Loss of the Property in the ratio of your ownership. When co-owners take a loan for the house property, deduction towards interest is also allowed to them in the ratio of their share in the property. Therefore, a co-owner when he/she is a co borrower too, shall be entitled to tax benefits in the share of the property. If you are only a co owner and not a co-borrower the entire benefit of a home loan will be received by the one taking the loan and repaying it. If you are only a co-borrower and not a co owner, unfortunately, you may be paying up the interest but no tax benefit will be available to you since you do not own the property. However, if you are a co-owner and you are paying up the entire EMI on the loan, your co owner (and co borrower) does not repay any portion of the loan – in this case you can claim the entire interest in your return from Income from House Property.
- Other Tax Benefits – Section 80 C and 80EE – Besides claiming interest as a deduction under section 24 (see above), any repayments towards the principal are also allowed as a deduction under section 80C up to a maximum of Rs 1,00,000. You need to make sure this property is not sold by you within 5 years from the end of the financial year in which you took possession of this property. If that happens deductions claimed by you under Section 80C will be added back to the taxable income of the year in which you sell the property. Co owners can both claim up to Rs 1,00,000 individually for principal repayment. For section 80EE read here – https://blog.cleartax.in/section-80ee-deduction-on-interest-on-home-loan/ . The benefit of this section is only available for financial years 2013-14 & 2014-15.
- HRA and Income from House Property – You can own a house property and at the same time be paying rent. Therefore, against the rent payment you will be allowed to claim HRA (https://blog.cleartax.in/house-rent-allowance-hra/) and regarding the house property or more than one house properties the provisions above shall apply and you can claim deductions under section 24, section 80C as well as 80EE.
Keep in mind these handy tips before you decide to invest in a house property and hopefully this can help you save tax!
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