Tax benefits of House in India

By | May 25, 2016

Tax benefits of House

Tax benefits of House

1.  Tax benefits of House : Capital Gain Exemption in case of purchase of residential on Sale of residential house

Section 54 of the Income Tax Act, provide for exemption for long term capital gains . Following are the conditions

  • Exemption to individual or a Hindu undivided family
  • The capital gain arises from the transfer of a long-term capital asset ( after holding house for more than 3 years ) being buildings or lands appurtenant thereto, and being a residential house
  • The assessee has within a period of  one year before or two years after the date on which the transfer took place purchased new House  ; or
  • The assessee has within a period of  three  years after the date on which the transfer took place constructed one residential house in India
  • The Assessee is  required to invest only the capital gains computed after taking into account the indexation benefits. If the amount is not invested before the due date of filing return (normally by 31st july) the amount is required to be deposited into Capital Gain Account Scheme in Bank . This amount is to be utilized for purchase or construction of house.
  • Assessee can not transfer this new house within 3 years from date of purchase / construction
  • If new house transferred within 3 years from date of purchase / construction then cost of new asset sold shall be reduced by the amount of capital gain .

2.  Tax benefits of House : Capital Gain Exemption in case of purchase of Residential House on Sale of any asset ( other than Residential House)

As per Section 54F, In case the long term capital gains arise on sale of any asset other than a residential house property, you are required to invest the net sale consideration for purchase of a residential house property provided.

Conditions for  availing Section 54F :-

  • Assessee should not own more than one residential house on the date of sale of such other asset.
  • Exemption to individual or a Hindu undivided family
  • The capital gain arises from the transfer of a long-term capital asset ( after holding asset for more than 3 years ) not being a residential house
  • The assessee has within a period of  one year before or two years after the date on which the transfer took place purchased new House  ; or
  • The assessee has within a period of  three  years after the date on which the transfer took place constructed one residential house in India
  • The Assessee is  required to invest net sale consideration of sold asset. If the amount is not invested before the due date of filing return (normally by 31st july) the amount is required to be deposited into Capital Gain Account Scheme in Bank . This amount is to be utilized for purchase or construction of house.
  • Assessee can not transfer this new house within 3 years from date of purchase / construction.
  • Where the new house is transferred within a period of three years from the date of its purchase or, as the case may be, its construction, the amount of capital gain arising from the transfer of the original asset shall be charged to tax under  Capital gains relating to  previous year in which such new asset is transferred.

3 Tax benefits of House : When you pay stamp duty

If the possession of the house is taken during the year, the Assessee can claim deduction u/s 80C  (upto Rs 150000) of stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee.

4. Tax benefits of House : when you make  Repayment of Home loan

Deduction u/s 80C of Income Tax relating to Principal Amount of Home loan. Conditions :-

  • Deduction available to an individual or a Hindu Undivided Family
  • Deduction upto Rs 150000 on principal repayment of Home loan
  • Home Loan Should be taken for the construction or purchase of House
  • Home loan repayment if made towards or by way of
    • any instalment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or
    • any instalment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or
    • repayment of the amount borrowed by the assessee from
      1. the Central Government or any State Government, or
      2. any bank, including a co-operative bank, or
      3. the Life Insurance Corporation, or
      4. the National Housing Bank, or
      5. any public company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses in India for residential purposes which is eligible for deduction under clause (viii) of sub-section (1) of section 36, or
      6. any company in which the public are substantially interested or any co-operative society, where such company or co-operative society is engaged in the business of financing the construction of houses, or
      7. the assessee’s employer where such employer is an authority or a board or a corporation or any other body established or constituted under a Central or State Act, or
      8. the assessee’s employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society; or
  • House should be completed and Possession should be taken
  • Assessee is required to retain the house and not to sell it before completion of five years from the end of the year in which possession of the house is taken.
  • In case Assessee  sell the house before completion of five years no tax benefits shall be available for the year in which Assessee sell the house.  Moreover all the tax benefits claimed earlier by you on such house shall be reversed in the year in which you sell the house and it shall be treated as income of the year.

5. Tax benefits of House : First time home buyers

Section 80EE inserted by Finance Act 2016 allow Additional Deduction upto Rs 50000 to First time home buyers on the home loan taken by them.

All the following conditions must be satisfied by the Assessee

  1. The assessee is an individual; ( this deduction not available to HUF or any other person )
  2. Assessee may  be resident or non-resident
  3. the assessee has taken a loan
  4. Loan is taken for the purpose of acquiring a residential property; ( this deduction not available in case loan is taken for repair or renovation of house )
  5. value of residential house property does not exceed Rs.50 lakhs;
  6. loan has been taken from a financial institution; ( this deduction is not available in case loan is taken from any other source other than  financial institution )
  7. loan has been sanctioned by the financial institution during the period from 1-4-2016 to 31-3-2017
  8. Amount of loan sanctioned for acquisition of the residential house does not exceed Rs. 35 lakhs;
  9. the assessee does not own any residential house property on the date of sanction of loan.

Amount of Deduction in respect of interest on loan taken for residential house property

 a) If the aforesaid conditions are satisfied, the assessee shall be entitled to a deduction of the lower of (i) interest payable on loan or (ii) Rs. 50,000

b) When the aforesaid deduction is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provision of this Act for the same or any other assessment year.

Also Read :Deduction of interest on loan taken for residential house property : Section 80EE

6. Tax benefits of House : When you make repayment of Interest on Home Loan

Under Section 24(b) of the income tax act, you are allowed

  • Deductions for interest paid on money borrowed for purchase, construction or even repair, renovation of the house.
  • This deduction of interest is available from the year in which the construction of the house is completed and possession taken in case of an under construction property.
  • Interest paid before completion of the construction , which is generally referred to as Pre EMI interest, can be claimed in five equal instalments from the year in which construction of the house is completed. The overall deduction is restricted to Rs. 2 lacs in case the house property is self occupied with condition that you are required to continue to own the house for at least for five years failing which the claim for Pre EMI interest not claimed shall lapse for the remaining years.
  •  The quantum of deduction will depend on whether the house is self occupied or let out.
  • In case of let out property full interest is allowed to be deducted.
  • In case of self occupied house property the amount of deduction shall be restricted to Rs. 2 lacs .  However in case of an under construction house if the construction is not completed within a period of three years from the end of the year in which the amount of the loan was disbursed, the quantum of deduction shall stand restricted to Rs. 30,000/- in a year.
  • Due to usual delay in completion of the construction of the house in the country and in order to give relief to the tax payers the government,Finance Act 2016 has extended the period of completion of the construction of the house from three years to five year.
  • For claiming interest deduction it is not necessary that the loan has to be taken from specified institutions.
  •  Even interest paid to friends and relatives also qualify for this deduction as long as you are able to establish the linkage between the money borrowed and its end usage for the house purposes.

Related Post

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  2. Interest on loan taken for House Property not allowed if loan taken after purchase of property
  3. Interest subsidy on housing loans for the urban poor increased from 5.00% to 6.50%
  4. Interest Free Loan to wife under wealth tax act
  5. Additional Interest Deduction for first home buyers in Budget 2016
  6. Acceptance of Cash from Wife is not Loan
  7. Save Income Tax by Tax planning
  8. Interest free advance to Son,Interest Disallowed by ITAT
  9. Budget 2016 Tax Relief to Small Taxpayer

 

 

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