Are you also planning to buy a home? Then, this blog post is surely for you as a person must be aware of how to save taxes while owning a property. Hence, in this blog post, we have listed all the important points to consider when you plan to buy a home. So, go through this post and get the answers to all the questions that are making you anxious about being a home owner.
1.Components of Property Purchase
The entire homebuying procedure includes three parties that are the buyer, the seller and the Government authority. Leave the buyer aside here as you have to pay the entire cost of a unit. But, the seller and the Government authorities have their separate share when a property transaction takes place.
The Seller is reserved to receive a payment around 80 to 85% which can be received via different monetary transactional methods.
The Government authorities receive the remaining 15-20% cost of a unit after which multiple clearance certificates are issued to the buyer in regard to the same housing unit.
2.Taxes Difference between Ready-to-Move in Property and Under-Construction
A home buyer requires all legal documents and thus a person has to pay multiple taxes to get the necessary sanctions from the authorities. But, the tax inclusions are different for both the Ready-to-move in properties and for the under-construction properties
3.Tips to Save Tax on Self-Use Property
You can save funds by availing tax deductions in an appropriate manner. This also reduces the financial burden and helps you manage funds at the same time. So, go through the below-mentioned points and save more.
Tax Rebate on Stamp Duty and Registration Charges
You can avail a rebate on these two charges under Section 80C of the Income Tax Act, 1961. The stamp duty and registration taxes are levied at 5 to 7% of the property cost by the Government. If a home buyer fulfills all the creterias then he/she can avail tax exemption upto Rs. 1.5 lakhs.
For example, the taxes paid must be in the same year as that of claim, only fully-constructed properties are considered for this exemption and the property must be purchased for self-use and not as an investment.
These exemptions can only be availed on a fully-constructed i.e. Ready-to-move in property for self-use and not for an investment purpose.
Tax Rebates Available on Home Loans
A home buyer can avail tax rebates on home loan including the principal and interest amount under different sections of the Income tax Act like, Section 24, 80C and 80EE. All these are described below:
Tax Rebate on Interest Repayment
Under Section 24, a person is eligible for a tax rebate of upto Rs. 2 lakhs on the interest amount of a home loan on the property which is bought for self-use. Whereas there is no maximum amount restriction on tax deduction claims of rented property.
Tax Rebate on Principal Repayment
Under Section 80C, a person becomes eligible to avail a flat deduction of Rs 1.5 lakhs on repaying the principal amount of EMIs that are paid for the respective year.
However, the person cannot sell the same property upto five years after acquiring possession of the property. In case a person sells the property prior to five years then his/her deduction will be added back to his/her taxable income of the year in which the property is sold.
Benefits for First-time Homebuyers
Under section 80EE, the first-time homebuyer is eligible to avail an extra rebate of Rs. 50,000. However, he/she should have availed a loan amount of Rs. 35 lakhs or less. Also, the property should not cost more than 50 lakhs for availing this benefit.
Tax Rebate on Joint Home Loan
Under Section 80C, both the co-borrowers can enjoy a rebate of Rs. 2 lakhs on interest amount and rebate upto Rs. 1.5 lakhs on the principal amount.
However, both the co-borrowers should own the same property jointly under the purchase through loan amount.
4.Tips to Save tax on Rented Property
A property-owned with an intention to earn rental also comes under tax rebate and the deductions are as following:
Maintenance Fee – A person is suggested to exclude the maintenance charge from the rent received to avail the tax rebate. This means that a person should only mention the maintenance fee on the rent agreement.
Government Taxes – A person can also avail tax rebates on property tax, sewerage tax and more only if he/she is paying these taxes and the tenant is not charged for the same.
Tax Rebate on Jointly-Owned Property
A husband and wife can avail tax deductions on jointly-owned property in two ways.
Firstly, the rental amount can be divided between the couple in the percentage of property ownership. This is possible if the wife is a homemaker.
Secondly, a couple can avail tax rebate if both are working and fall under different tax slabs.
A property owner can avail a flat rebate of 30 percent on the yearly rental amount to carry out repairs and maintenance work. This is a flat deduction and thus can be availed irrespective of the amount incurred on the above-mentioned work during the year.