What are the tax benefits that are available if one avail of a housing loan?
Following are tax benefits:
If you are paying EMI for the housing loan, it has two components – Interest Payment and Principal Repayment.
1. Deduction for Interest Paid on Housing Loan:
A home loan must be taken for the purchase/construction of a house and the construction of the house must be completed within 5 years from the end of the financial year in which loan was taken. If you are paying EMI for the housing loan, it has two components – interest payment and principal repayment. The interest portion of the EMI paid for the year can be claimed as a deduction from your total income up to a maximum of Rs. 2 lakh under Section 24. From Assessment year 2018-19 onwards, the maximum deduction for interest paid on Self Occupied house property is Rs. 2 Lakh. For let out property, there is no upper limit for claiming interest. However, the overall loss one can claim under the head of House Property is restricted to Rs. 2 lakh only. This deduction can be claimed from the year in which the construction of the house is completed.
2. Deduction on Principal repayment:
The Principal portion of the EMI paid for the year is allowed as deduction under Section 80C. The maximum amount that can be claimed is up to Rs. 1.5 lakh. But to claim this deduction, the house property should not be sold within 5 years of possession. Otherwise, the deduction claimed earlier will be added back to your income in the year of sale.
Is there any relief from tax arising on the transfer of long-term capital assets under the income tax act, of 1961?
Long term capital gains on the sale of property used for residence:
Section 54 of the Income Tax Act provides relief to an individual or Hindu Undivided Family from capital gains arising from the transfer of a residential house held by the assessee at least for a period of 24 months. Such capital gains to the extent utilized for purchase (within 1 year before or 2 years after the date of sale) or construction (within 3 years of the date of sale) of a residential house is exempt u/s 54. If the amount of capital gains is proposed to be utilized but is not so utilized up to the due date for filing of return then, the amount of unutilized capital gain is required to be deposited in the “Capital Gains Account Scheme, 1988”.
With effect from AY 2020-21,as per section 54(1) the capital gain of the house property does not exceed Rs. 2 Crores, the Individual, HUF have one more option an once in a life time for investing in Two residential house properties.
Capital gains on transfer of capital assets other than a residential house
Section 54F of the Income Tax Act exempts long term capital gains arising from transfer of any long term capital asset other than a residential house. Such capital gains to the extent utilised for purchase (within 1 year before or 2 years after the date of sale) or construction (within 3 years of date of sale) of a residential house is exempt u/s 54F. To be entitled to this exemption the assessee should not own more than one residential house other than the house sold as on the date of transfer. The provisions of depositing the unutilised capital gain in the “Capital Gains Account Scheme, 1988” as explained above is also applicable.
Capital gains not to be charged on investment in specified assets
Section 54EC of the Income Tax Act provides relief from capital gains arising from transfer of any capital asset on or after 1st April 2000 shall be exempt to the extent such capital gain is invested within a period of 6 months after the date of such transfer in the long term specified asset provided such specified asset is not transferred or converted into money within a period of 3 years from the date of its acquisition. However, the investment made on or after 1st April 2007 in the long term specified asset by the assessee during any financial year cannot exceed Rs. 50 lakhs. For claiming this exemption, the capital gains have to be invested (within 6 months of the date of transfer) in notified bonds issued by:
National Bank for Agriculture and Rural Development (NABARD)
National Highways Authority of India
Rural Electrification Corporation Ltd.
National Housing Bank
Small Industries Development Bank of India (SIDBI)
TDS on immovable property under section 194IA
TDS on Immovable property is required to be deducted @1% if the property value is more than Rs. 50 Lakhs. This is applicable on sale of all properties except on sale of Agricultural Land.
The buyer has to deduct TDS @1% of the total sale consideration. 'Consideration for immovable' property shall include all charges like nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to the transfer of the immovable property.