Posted on 24 Feb 2017
Owning a home is rewarding in many ways. It is one of the most crucial necessity for an individual in terms of the reduction of the tax burden because it provides crucial tax saving avenues.
What are these avenues and what benefits can you muster from the government when you buy your home?
Generally, buying a house requires home loans. Under the IT Act, interest payable on loans borrowed for construction or purchase is allowed as deduction if the construction is finished within 3 years at the end of financial year in which the home loan was taken, subject to maximum limit of INR 150,000/- in case of self-occupied property. If a joint home loan is taken, the co-owners can separately claim the benefit of deduction of interest on loan subject to maximum limit of INR 150,000/- and fulfilment of certain requirements. Interest paid during the construction period preceding the year of completion of construction can be accumulated and claimed in equal instalments over a period of 5 years starting from the year of completion of the property.
The government incorporated these implications keeping in mind the bulk of savings involved in buying a home. While compared to the Real estate pricing, this amount may seem low, however, the overall exemption structure when considered over a period of certain years is rewarding.
Furthermore, under section 80C of the IT Act, the repayment of the principal amount towards the housing loan as well as any stamp duty (including registration charges) paid on the purchase of house property shall be allowed as deduction. If the owner transfers the house property within these 5 years to someone else, no deduction will be allowed in the previous year in which the house property was transferred.
While selling a house, the re-sale value was assessed based on the 1981 trends. The government changed that to 2001 creating a four-fold increase in the base value of the buyer’s home.
The taxability of capital gains is dependent on the period of holding of the asset. An asset is classified as long term capital asset if the asset has been held for more than 36 months. Otherwise, it is known as a short-term asset. The indexation benefit on the cost of acquisition shall be available in case of a long-term capital asset. Under the IT Act, long term capital gain is taxable at an interest of twenty percent plus education cess whereas short term capital gains are taxable as per normal slab rates.
Under DTC, no distinction has been made between long term capital gain or short term capital gain. Benefits of indexation are available if investment assets are transferred at any time after 1 year from the end of financial year in which the assets are acquired. Further, no special rates are provided for capital gains. The capital gains shall be taxable at normal slab rate subject to indexation benefit.
The implications along with the Capital gains index is going in tandem to provide home owners all the benefits possible for an easy purchase of property. This is a major boost up for the real estate industry creating a wave of positivity through the customer base as well as the builders.