Learn how can you save taxes through your house !

Learn how can you save taxes through your house !

Saving tax through residential house property!

Ever wondered that your house could save taxes for you. Here we have compiled for you the various ways through which your house can help you cut your taxes

We had already discussed the repayment of home loan up-to 1.5 lakh can be claimed under section 80 C

1. You can also get deduction of interest paid on home loan

If you have self-occupied your house, i.e. you are residing in the house and have not let it out, you can claim a deduction of interest paid on home loan subject to max. of Rs 2 lakh.

However, if you have let out the house, you can claim the entire interest as deduction without any limits.

Things to know

  1. Eligible loans are loan taken for purchase, construction, repair, renewal & reconstruction of house
  1. No deduction is allowed for any commission or brokerage paid for arranging the loan
  1. You can claim the deduction only after the construction is complete. If you have incurred interest expense before the construction was completed, you can claim such interest as “pre-construction interest” in 5 equal annual instalments starting from the year when the construction is completed.
  1. In order to be eligible for the deduction of interest expense under this section, you must acquire or construct the house before 3 years from the end of FY in which loan was taken

2. First time home owners can get an additional deduction of interest expense on home loan of up-to Rs 50000

Section 80 EE gives you an additional deduction of interest on home loan if you have taken loan for buying your first home.

However, you need to meet the following condition to be eligible for the same:

  1. You should be a first-time home owner
  2. The loan should be taken during the FY 2016-17 (i.e. between 1st April 2016 and 31st March 2017)
  3. Loan should be taken from a bank of housing finance company
  4. Loan should not exceed Rs 35 lakh
  5. The house you are buying should not cost more than 50 lakhs

Note that, if you are not able to exhaust the complete Rs 50,000 limit in FY 2016-17, this could be carry forward to FY 2017-18.

3. Interest on loan taken for improvement of house property

You can claim a deduction of Rs 30,000 for interest expense on loan taken for improvement of a self-occupied house property. However, if you have rented the house, you can claim the entire interest expense as deduction

Things to know

  1. Home improvement would include furnishing of home or repairing, painting etc.
  2. This deduction is over and above the interest deduction for purchase or construction of house that we have discussed earlier.
  3. No deduction is available for the repayment of principal portion for this loan

4. Tax saving on sale/transfer of residential house property

i.Section 54: Exemption on sale of house property by purchasing another house property

Quantum of exemption

Long term capital gain from sale of house property shall be exempt to the extent it is invested in purchase or construction of new house.

Conditions to be met

  1. This exemption is available only to a individual or HUF
  2. New house property can be purchased within 1 year or 2 years after the date of sale of house property
  3. New house can be constructed within a period of 3 years from the date of sale of house property
  4. Purchased or constructed house property cannot be sold up to a period of 3 years from date of acquisition

On violation of the condition i.e. if new house is sold within 3 year, then for computing capital gain on transfer, the cost of acquisition would be reduced by the amount of capital gain exempted under this section and this will always be a short-term capital gain

ii.Section 54 F: Exemption on sale of any asset by purchasing a house property

Quantum of exemption

The amount of exemption depends upon the fact that what proportion of sale consideration is invested in buying the house property.

If entire amount of sale consideration is invested, entire amount of capital gain is exempt. Otherwise the amount of exempted capital gain would be calculated as follows:

Exempted amount

= Capital gain x (Amount invested in house property / Net Proceeds from sale of capital asset)

Conditions to be met

  1. This exemption is available only to a individual or HUF
  2. New house property can be purchased within 1 year or 2 years after the date of sale of house property
  3. New house can be constructed within a period of 3 years from the date of sale of house property
  4. Purchased or constructed house property cannot be sold up to a period of 3 years from date of acquisition
  5. You should not own more than 1 residential house property on the date of transfer of such asset exclusive of the one he has bought for claiming exemption under this section

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