BUYING a house in the city that you live in or aim to eventually settle down in is a dream for everyone and requires a bit of planning.
One part of the planning involves being aware of the tax incentives that the Income-Tax Act, 1961 offers, that can help reduce the tax burden of the individual while taking a decision on the type of house to be purchased.
Self occupied property: In case you own one house property, which is self occupied, that is, used for own residential purpose, the annual value of such house property is taken to be nil and hence, there would not be any taxability.
Moreover, if you have taken a loan for purchase or construction or repair of such house property, then an amount up to Rs 1,50,000 is allowed as deduction on account of interest paid under the head "income from house property" (IHP), subject to fulfillment of prescribed conditions. You can also claim the deduction for the principal amount of the loan paid (within the overall limit of Rs 1,00,000) under section 80C of the Act up to a maximum of Rs 100,000.
Let out property: In case you have let out your property, the rent received/ annual value would be taxed in your hands after a standard deduction of 30 per cent that is allowed under the act. If a housing loan has been taken then you can claim a deduction of the actual interest paid on such loan without any ceiling. Also, as in the case of the self occupied property, deduction of Rs 1,00,000 under section 80C for the principal amount of loan is allowed for a let out property.
Multiple Properties: In case an individual owns more than one house properties and none of them are actually let out, then only one property (of the individual's choice) can be considered to be self-occupied.
The other properties would be deemed to be let out and the individual will have to pay income tax as if the property was let out.
Here, the individual can choose that property for his own residential use that has a higher net annual value, so as to reduce his tax burden.
Joint home loan: An option that might prove fruitful for married couples, who with taxable income, is buying the property in their joint names and taking a joint home loan.
By doing this, the income from house property can be divided between the two of them according to their share of ownership in the house property and the amounts paid.
They both should, how ever, contribute financially towards the house and jointly pay the loan instalments. Additionally, both can separately claim a deduction for the amount of interest and principal of the home loan separately.
Sale of the property: Even if you decide to sell your house at a later stage, there are various exemptions that are permissible under the act.
Broadly, for the purpose of exemption, the individual is required to invest the capital gains arising from such sale in prescribed avenues, including, purchase of another house property and investment in bonds, which can save him considerable amount of tax.
Therefore, informed tax planning measures taken at the time of buying a house not only enable an individual to own an asset, but also lead to lower tax li ability, keeping well within the four walls of the law.
Happy Investing!!
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