Tax Deductions against Income from Property
Section 24 is titled as “Deductions from income from house
property”. ‘Income from house property’ is applicable in the following
cases:
If you are renting out your house(s), then the rent received will be considered as part of your income
If you have more than 1 house, then the Net Annual Value of the
houses, except the house you are living in, will be considered as your
income.
If you own only 1 house and you are living in it, the income from
house property will be considered as NIL. Any income derived from rent
and annual value of additional houses, will be subject to tax after
deductions made under Section 24.
Deductions under Section 24
There are 2 types of deductions under Section 24 of the Income Tax Act:
Standard deduction: This is an exemption allowed
to every taxpayer, where a sum equal to 30% of the net annual value
does not come under the tax limit. This is not applicable if you are
occupying the only house you own.
Interest on loan: If you have taken a home loan
for purchase, construction or renovation of the house, whatever interest
you pay on the principal amount of the loan is exempted from tax
payment. The sub-clauses in this category are:
If the loan has been taken for a self-occupied property, then you can claim exemptions of up to Rs.2 lakh.
If you took a loan for purchase or construction (not renovation)
of a property before actually buying or completing its construction, you
can still claim the interest. You can seek deductions on the interest
paid before the construction or purchase is completed, in 5 equal
instalments, from the year in which the house is bought or the
construction is completed.
If the loan is taken for renovation or reconstruction of a house,
you cannot claim tax exemption until the renovation is completed.
To avail this deduction, you need to compute the interest amount you
have to pay to the bank or financial institution that you took the loan
from, separate from the principal repayment. It does not matter whether
you have actually paid the amount to the financier – you can get
exemption for the complete annual interest amount.
Exceptions under Section 24
If the house is not occupied by you, you can claim exemption for the
whole interest amount that you are paying, without any upper limit.
If the house is not occupied by you because you live in another town
due to your employment or business, or you live in another property or
rented property in the city of your employment, then you can claim tax
exemption on interest payment only up to Rs.2 lakh.
There is no deduction for any brokerage or commission for arranging the loan or tenant.
You have to buy or complete construction of the house within 3 years
of taking the loan for you to be able to claim maximum deduction on the
loan interest amount. If the construction or purchase is not complete
within 3 years, you will be able to claim only Rs.30,000 instead of Rs.2
lakh.
You must have an interest certificate for the loan that you are taking.
Deduction under Section 80C
Individuals who purchase a new house can claim deductions under section 80c of the Income Tax Act. Under this clause, deductions can be claimed for stamp duty
and registration charges, which could add up to around 10% of the total
cost of a house. Deductions claimed under this section are subject to
the condition that they do not exceed Rs 1.5 lakh.
Individuals can also claim a deduction towards any other expense
during the process of transfer of property. Homeowners should keep in
mind that this is applicable only for new residential properties.
Capital Gains Tax on Property:
Capital gains tax refers to the tax levied on the profit which is the outcome of a property sale. Capital gains tax
can be a major source of wealth drain if not handled smartly. A simple
way to handle this is to purchase a new house from the proceeds of a
property sale, keeping in mind that such property should be purchased
within two years of sale. Proceeds from a property sale can also be used
to construct a house, ensuring that capital gains tax on property
doesn’t become too taxing.
For more information on this, visit TAXAJ
Posted by Aashima
Team TaxaJ