Property is more than just an investment; it is also a representation of your dreams. Dreams of better living, improving the quality of our lives and most importantly, creating a better future for our family. It is therefore only natural to want to optimise this investment and recoup maximum profits. This is why it is important to understand where one can avail of tax deductions with respect to property and increase profits.
A great time to invest:
As Indian buyers, we are seeing a new era of real estate. The rise of townships, family friendly locations, home insurance options, a luxurious lifestyle and accessible provisions close to one’s home are just a few of these. The middle class Indian investor has never been more empowered. If you’ve been planning to move to a better locality, hoping for a better deal, thinking about a holiday home in the hills or at the beach, it is definitely attainable.
Tax deductions on property investments:
The benefits of investing in property are tremendous. Tax deductions are the most significant of these.
Recently, Finance Minister Arun Jaitley increased the tax deduction limit to Rs. 60,000 per annum from the current Rs. 24,000 on the housing rent; he also announced an additional tax relief of Rs. 50,000 per annum on a loan of Rs. 35 lakh in 2016-17 for first-time home buyers, provided the house cost does not exceed Rs. 50 lakh.
Any process associated with property investment, including the very act of investment is a process of saving one’s taxable income. When you invest in property, your wealth has legitimate accountability; hence, it is something for which the government cannot tax you. This also ensures that your investments are more profitable.
Types of ownership and benefits:
An investor tends to be one of the following owners:
1. An owner who uses his property for personal use
2. A landlord who rents out his flat
3. Other ownerships are subsets of the ones that are mentioned
The owners receive tax deductions on their home loans and all processes thereon. Their taxable income is exempted from a lot of taxes because of the mortgage payment and the investment itself.
Landlords can use many ways to reduce taxation on their rentals. If your investment is rented to someone, you get tax deductions on the lease due to activities undertaken as landlord, running an office to manage your property, depreciation costs and much more. In addition to the tax savings, remember that the property is also generating income through rent.
Tax Benefits on Home Loan:
When you purchase your house on loan, you receive various tax benefits. As an owner, these benefits ensure that you not only have to pay lesser taxes, but you are also able to manage your cash outflow better. If you are paying EMIs for a home loan you took to buy a house, the interest component in the EMI can be claimed as deduction.
Suppose the construction of your house was completed on October 30, 2014, you can claim deduction for interest for the entire 12 months in financial year 2014-15. So every year a maximum of Rs. 2 lakh can be claimed for a house that you use for your own residence. If your house is rented, the entire interest for the year can be claimed as deduction. The owner and landlord, both can reap benefits of this.
Similarly, the component of your EMI which goes towards principal is eligible to be claimed under Section 80C of the Income Tax Act. You can sum up the outgoings for the year towards principal and claim it. A maximum of Rs. 1.5 lakh can be claimed as deduction under Section 80C.
Besides the deduction allowed on principal repayment, payment made towards stamp duty and registration charges are also allowed to be claimed.
Property investment is a great way to reach closer to the future you envision for yourself. In 2016, all the elements, including the government as well as the market are conducive to help you to not only achieve your dreams but to build even greater dreams.