Vaibhav Sankla, director, H&R Block India Private Limited, advises our readers on ‘how to save taxes through property investments.
Sankla says that when you take a home loan on a ‘self-occupied’ property, you are liable to claim tax rebate on the interest of up to Rs 2 lakh, under the head ‘Income from House Property’.
However, in case you own more than one property, income (equivalent to the rent that a similar property would fetch) will have to be offered to tax. One needs to pay wealth tax at the rate of 1 per cent on the second or more property investments.
Experts advise you to rent out your house because a locked house still attracts tax, which is calculated the expected market rent.
If the apartment is sold within three years you will incur a Short-Term Capital Gain (STCG), which is subject to Income Tax based on your applicable slab rate. STCG is applicable when a property is held for less than three years before it is sold off. On the other hand, one can claim Long-Term Capital Gains or LTCG when you hold the property for more than three years before it is sold off.
What is done in the case of booking a property in an under construction project?
In both the cases, it is essential that you get the delivery of the apartment or the construction is completed within three years. This is from the end of the financial year in which the loan was taken otherwise the deduction allowed will be limited to Rs 30,000 as against the Rs 2 lakh.
In case if the property is purchased jointly — with your wife/spouse. In this case, each of you is entitled to a deduction of Rs 2 lakh, as explained above. How to calculate it? Sankla says, “From the annual rent, deduct the amount of property taxes paid in respect of the house to arrive at net annual rental income. An amount equivalent to 30 per cent of the net annual rental income can also be deducted towards repairs and maintenance of the property.”
“This 30 per cent deduction is adhoc and irrespective of the actual amount you incurred for repairs and maintenance. In case you have taken any loan for the purchase/repair of the property, then the interest from the same is available for deduction. The balance amount (annual rental minus the property tax minus 30 per cent deduction for repairs and maintenance and minus the interest on loan) is the taxable income from the property. It would be taxed in yours and your wife’s returns, based on the percentage of ownership,” he adds.
Good news for the buyers is the provision that if they buy property in the name of a female member, then they can enjoy several more tax benefits. Not only do they get concession in stamp duty that is paid at the time of registration of the property, but also enjoy several other tax exemptions.
Source: Magicbricks.com Bureau