HOUSE RENT HOW TO CASTLE FOR A CUT

HOUSE RENT HOW TO CASTLE FOR A CUT

02.02.2021

For those who have been eyeing a home for years, 2021 may be a good year to jump in. Home loan rates are down, as are property prices. States such as Maharashtra and Karnataka have also slashed stamp duties. The bonus is that you get tax breaks

TAX BENEFITS ON PRINCIPAL

Equated monthly instalments (EMIs) are typically divided into principal (the amount you took as loan) and interest (the cost of servicing the loan). The principal is allowed as a deduction from your gross total income (subject to an overall cap under section 80-C with other eligible investments of 1.5 lakh).

TAX BENEFITS ON INTEREST PAID

Interest payable on ‘self-occupied’ property is subject to a maximum deduction of 2 lakh under the head ‘Income from house property’. It can be set off against other heads of income, which includes salary income, in the same year.

This reduces your total tax liability. But to claim this, it is essential that the acquisition or construction is completed within 5 years from the end of the financial year in which the loan was taken; else the deduction will be limited to 30,000.

An additional tax deduction of up to 1.5 lakh has been introduced for interest on home loan taken during the period April 1, 2019 to March 31, 2022 for purchase of residential house with stamp duty value up to 45 lakh. However, the individual should not own any other residential property at the time of sanction of loan. If you still haven’t purchased your first home, do so at the earliest.

If you have rented out your property, the difference between the rent you get after adjustment of municipal taxes paid by you, standard deduction and the entire interest on housing loan is your ‘loss from house property’ which you can set off up to 2 lakh against your other income, say salary.

Deduction of interest on housing loan from a selfoccupied house property is not available under new ‘simplified’ personal income tax regime.

Loss under head House Property shall not be allowed to set off from any other head of income and cannot be carried forward under new ‘simplified’ personal income tax regime.

Please note that no notional rent will be added to the taxable income of your second self-occupied house property. Thus, if you don’t find a ready tenant you can keep it self-occupied. Also, do note that this leeway is available only for up to two houses

TAX RELIEF ON DIFFERENCE BETWEEN CIRCLE AND MARKET RATES

The existing rule stipulated that the transaction value of the property purchased should not be less than the circle rate (stamp duty valuation) — but a variation of 10% was acceptable. If the stamp duty valuation rate was higher by 10% of the declared purchase value, then the difference was taxed as income in the hands of the buyer. For example, if you declared a purchase value of 60 lakh but the circle rate was 72 lakh, then, the difference of 12 lakh would be considered as deemed income in your hands and taxed accordingly. Last November, to boost the real estate sector, (under the Atmanirbhar Bharat 3.0 scheme), the variation threshold has been hiked to 20%, but it is only with respect to first time allotment of residential units. This benefit is available for purchase transactions of 2 crore or less from November 12, 2020 up to June 30, 2021.