Nifty Tax Savings from Investing in Property

By | August 7, 2015


If you’ve been planning a vacation, you’ve been looking at a lot of different travel packages. And every different type of package give you different amounts of add ons.

Similarly, investing in property gives you different tax add ons based on your situation.

Here’s Anuj, just another Indian who thinks real estate is one of the best investment options. He had made a couple of real estate investments at some upcoming locales but is a little worried about the taxation on his property investments. He decided to consult a CA and here’s all the advice he got about taxation and tax saving from property investments.

Tax deduction from home loan:

If you have taken home loan for the purchase of a property, it will help you save tax. The Income Tax Act of 1961 allows individuals and HUFs to claim tax deduction on repayment of both, the principal amount and interest of home loan, during a financial year under Section 80C and Section 24 respectively.

The deduction under Section 80C is limited to a maximum exemption of Rs.1.5 Lakhs and for self-occupied property.This is available only if you have taken up the loan for either purchase or construction of a house. If the loan is for renovating an existing property, or if taken as a Top up loan, you will not be eligible for this deduction.

Tax deduction under Section 24 for up to Rs 2 Lakhs for the interest paid on a home loan is available for all cases, except for Top up loans. If your home loan is for a property which is not self-occupied, you still have the option to get tax deduction for your annual income on the interest paid to the bank.

If you are selling property after 3 years:

If you are selling your property, you will have to pay a tax for the profits you receive from the sale proceeds. If you sell your property within 3 years from the acquisition date, a Short Term Capital Gains Tax is applicable. If it is sold after the 3 years of acquisition, the sale proceeds will be liable for a Long Term Capital Gains Tax (LTCG).

LTCG is taxed at a rate of 20%, plus a cess of 3%.The liable income tax can be exempted if you are using the sale proceeds or tax liability to purchase a new property. The timeline for the purchase can be one year prior to your sale date or up to two years from the sale date of the property.

Taxation on income from house property:

If you are receiving rental income from any residential or commercial property, it is categorized as income from house property in the tax lingo. This income must be added to your annual income. The rental income is liable for income tax, but you can avail deductions for it under the provision of property maintenance.

A landlord can offset 30% tax deduction on annual value of the property under the head house maintenance charges. The good news is that you can avail this deduction even if you have not spent any money towards maintenance of the property.  Any payments made as municipal taxes for the property are also exempted from tax.

Any interest you are paying on a housing loan for the rented property can also be offset from the rental income to reduce tax liabilities.

Tax savings from under construction property:

Buying an under construction property is a popular trend today as buyers can get the property at lower rates as compared to a ready to move in property. But, if you have invested in a under construction property, you are not eligible to avail tax deduction against any principal repayment made towards home loan.

However, you can get a tax deduction on the interest paid for the home loan for the period. You can claim deduction for the payments made in five equal installments starting with the year of completion of the construction.

Indians have traditionally been strong real estate investors.Investing in property has its own advantages, and tax deduction is a strong point, bringing more people to look at property investment as a lucrative option. As the prices of real estate escalate over time, property investments assures good returns too.

With all the tax Anuj saved, he got a kickass travel package for Vienna. Where are you going to spend your tax savings?


YOU MAY ALSO WANT TO: Check out exactly how much you’re saving – Home Loan EMI Calculator

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