Here’s How Investing in Residential Property Helps Save Tax

Posted on: Jan 24, 2022 | | Written by:

Here’s How Investing in Residential Property Helps Save Tax

Published on February 11, 2022. EST READ TIME: 4 minutes

Buying a home in India can be beneficial from tax saving perspective. Also, real estate investment also promises good return in the long run. For all the benefits, you need to plan out your real estate investment well. It is also when purchasing the home, even for an investment purpose, it is advisable to buy a home insurance policy to safeguard it from any unforeseen events like natural calamities, fire, etc.

5 ways by which you can enjoy Income Tax Benefits on Residential Property Investment

1. Income Tax Saving on Home Loan

Tax benefits on housing loan are provided under section 24, section 80C and section 80EE of Income Tax Act, 1961. For claiming the tax benefit on a home loan, you must fulfil one essential requirement common with all the income tax sections. You must be the bearer of both the titles, i.e., owner of house property and the borrower of loan for the property. Only ownership alone or being a borrower of funds alone cannot reap you these benefits. Though, you may be a co-owner or a co-borrower. For instance, if you are thinking of buying a home in your wife’s name and paying the EMI from your income, Then, unfortunately you will not get any tax benefit.

Overall only an individual or member of a Hindu undivided family can claim tax benefits on the home loan. Moreover, no company, partnership firm, or body corporates benefit from home loan interest & principal deduction.

2. Income Tax Deduction for Home Loan Repayment of Principal Amount u/s 80C

You can claim a deduction for principal repayment only after the construction of the property. For instance, if the competent authority issued the construction completion certificate in March 2021, then the principal amount repaid during the financial year 2020-21 can be claimed entirely in the income tax return of that year to the extent of Rs. 1,50,000. However, the principal repaid if any prior to the FY 2020-21 cannot be claimed in return filed for the FY 2020-21. The deduction is also eligible only for the repayment of a loan borrowed to purchase or construction of house property. Hence, principal repayment of loan borrowed for alteration, renovation or repair doesn't qualify for claiming deduction under section 80C.

3. Amount of Income Tax Deduction for Payment of Housing Loan Interest u/s 24

You can claim the tax benefit of interest paid on the home loan for both the pre-construction and post-construction periods. Deduction for the interest paid on home loan can be claimed under Section 24 of the Income Tax Act 1961. The interest is divided into two categories - Pre-construction/Acquisition & Post Construction/Acquisition. Pre-Construction Period Interest: It starts from the date of borrowing and ends on the 31st March just before the date of completion or the date of repayment of the loan, whichever happens first. Post-Construction Period Interest: Interest on loan after completion of construction is called the post-construction interest.

4. Income tax deduction for first time home buyer in India under section 80EE

An individual is given extra tax benefit amounting to Rs.50,000/- for interest paid on the home loan.The benefit of this deduction is given over and above interest deduction taken under section 24. To avail these benefits, you must be buying your first house and amount of loan shall not exceed Rs 35 lakhs. Also, the value of property should not be more than 50 lakhs.

5. Maximize Tax Benefit on Stamp Duty & Registration Charges

You can take benefit of the stamp duty and registration charges paid at the time of purchase of a home under section 80C up to Rs.1,50,000. These benefits can be claimed anytime in the year of payment irrespective of whether any loan has been acquired or deduction.

Conclusion

Buying a home is a good decision as it adds up to your assets and can also help you get good returns. Also, you can get tax benefits if you plan out your residential investment considering the points mentioned above.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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