Real estate is a booming industry in India providing ample investment opportunities for investors. It is observed from the past returns delivered that real estate investments can beat inflation in future course also. For buyers of residential house property it is most essential to understand the economics and tax implication of the same. The investor should consider all aspects of buying, owning, renting and selling a residential house property.
Tax Benefits
There is a tax concession available if the investment is made in a residential house property for self occupation purpose. This concession is in the form of a deduction from total income of an individual to the tune of Rs 150,000 being the interest payable by the individual on a housing loan, provided, that the construction or acquisition should be completed within three years. This tax deduction is available under section 24(2) of the income tax act 1961 on account of interest payment in respect of loan taken for buying residential house property for self occupation purpose. The loan can be availed, not only from a financial institution. It can be availed from any persons like friends, relatives and it makes no difference in availing the tax benefits on the same. In order to take the benefit of this deduction of the income tax, one should ensure that the investor do not possess any other residential house property for self use. If, the investor owns another residential house property and the same is given on rent and thus the investor does not own any residential house for self occupation, then he or she eligible to claim tax benefit.
It is important to note that, it is immaterial whether the interest has been actually paid or merely credited and made payable at a later date, irrespective of a actual payment, non-payment or partial payment, this deduction would be allowed under the Income tax act. Those looking to buy for rental incomes from housing properties can also avail tax benefits. From the rental income it is 30% standard deduction available which is the biggest incentive for the home buyers that too without submitting any proof or evidence for the same. Tax payers coming under highest tax bracket would gain a lot. The individuals are eligible to claim deductions on account of Municipal taxes paid during the financial year. Another tax benefit that is available in respect of the let out property is the payment of interest. 100% interest payment is allowed as a tax deduction to the tax payers from their rental income.
If the property is owned by co-owners their definite and ascertainable share will be included in his/her total income as below:
a) Where house property is self occupied by each owner, the annual value for each co-owner will be Zero and each of the co-owner will be entitled to the deduction of Rs 30000/150000 on account of interest on loan taken.
b) If entire or part of the house is let out, the income from that property will be computed as if property is owned by one owner and thereafter the computed income will be apportioned amongst each co-owner as per their definite share.
In order to avail tax benefits on account of capital gains, one should hold the property for at least three years. If the property is holded for three years and above, the capital gain availed is termed as long term capital gain and the same is taxed at a concessional rate of 20%. One should invest the gains in acquiring new residential property or else one can go for investing in a Capital Gain bond Scheme upto maximum limit of 50 Lacs Rupees in order to get away completely with tax liability. On the other hand, If the property is sold after holding for less than three years then it is treated as short term capital gain for which there is no tax benefit.
One should remember that the second residential house is subject to wealth tax. Also the interest on loan can’t be taken advantage of if the investor is buying second residential house in his/her own name for self use. The second residential house for self occupation is subject to income tax in respect of deemed rental income. So, it is advisable for all categories of investors and tax payers to go for second residential house, in the name of different family members and each family member is co-owner of one self occupied residential property only. Thus, it is good to go for second house property in name of another family member who has no residential house property of his or her own.
Disclaimer: The information given above are the result of personal readings of related geniuine magazines and personal understanding of the subject matter. This is written to make the readers understand, how importance in investing in real estate sector at present scenario in india. However,this blog is not responsible for any error or inaccuracy in the same.
