Even though WiFi has become a necessity that we can't live without in these times, the roti-kapda-makaan trinity remains the eternal Indian dream. Within it, the dream to own a house is one that most of us work hard and save harder to fulfil. And to aid our endeavours, we take home loans as well.
It is estimated that a majority of Indians have a home loan. But unfortunately, not everyone who takes a home loan understands the tax benefits they can claim on it. These benefits can reduce your tax burden in a big way. Let's understand how.
WHEN A HOUSE IS BOUGHT ON LOAN
Deduction on home loan interest
You can claim tax deduction under Section 24 of up to Rs 2 lakh on home loan interest if you or your family resides in the property, or even if the house is vacant. In case you have rented out the house, you can claim deduction on the entire home loan interest. These deductions are subject to certain conditions, but they can help reduce your tax outgo.
Deduction on principal repayment
Tax deduction on repaying the home loan principal can be claimed under Section 80C. The limit here will be the 80C limit of Rs 1.5 lakh. To claim this deduction, the home loan must be for purchase or construction of a new property. But if you sell the property within five years of possession, deductions claimed earlier will be added back to your income.
Deduction for first-time homeowners
Under the newly-added Section 80EE, first-time homeowners can claim tax deductions of up to Rs 1 lakh. This is applicable if the home loan does not exceed Rs 25 lakh and the property value does not exceed Rs 40 lakh. The house does not have to be self occupied to claim this deduction.
Deduction for joint home loan
If you have a joint home loan with a family member, you both can claim tax deductions on interest of up to Rs 2 lakh each. Furthermore, both co-borrowers can also claim deductions under Section 80C for home loan repayment and transfer charges. To avail these deductions, you have to be an owner in the property for which the joint home loan has been taken.
Other deductions on house purchase
You can also claim deduction under Section 80C on the stamp duty and registration charges as well as other expenses directly related to the transfer of property.
WHEN A HOUSE IS SOLD
A house is a capital asset and any gains from the sale of a house are subject to income tax. When a house is sold, there are certain expenses incurred that can be claimed as tax deductions. These expenses include brokerage or commission, stamp paper costs and travelling expenses in connection with the transfer.
Capital gains exemption on sale of house property
Over and above these expenses, you can claim exemption under Section 54 when the capital gains from the sale of a property are reinvested into buying another property. To avail this exemption, the new house has to be purchased one year before the sale or two years after the sale. When the gains have been reinvested in the construction of the property, the exemption can be claimed if the construction is completed within three years of the sale.
Be it a purchase or sale of a house, it is an important decision that involves a good amount of taxation. It is best to use these benefits and deductions to save taxes when the transaction is made.
By Archit Gupta, Founder & CEO, ClearTax.com
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