The coronavirus pandemic left buyers uncertain about their investment options, including investments in real estate. If you are looking to buy Apartments in Chennai but unclear on the tax benefits, this article is for you.
Properties are considered huge investments by the average Indian buyer. But few people are aware of the expense deductions that come with it. The properties are treated like small businesses by the It department, allowing buyers to enjoy multiple tax benefits.
The following Sections of the Income Tax Act of India outline the tax reliefs for Real Estate investments.
Section 80C of the ITA allows you to deduct up to Rs. 1.5 Lakhs from the Total Taxable Income of those who have made investments. Since buying property is an investment you can deduct the amount from your income, claiming it towards the home loan. This tax benefit is purely on the total expenditure towards payment of the principal amount in that year. There is no minimum claim amount, but the upper limit is Rs.1.5 Lakhs.
Of course loans are not just the principal amount, but there is a substantial interest involved. This is where Section 24 helps you. This section allows exemptions for interest on borrowed capital.
Under the existing tax regime, the deductions can be up to Rs.2 Lakhs on Home loan interest if the buyer or their family resides on the property. If the house is for rent, you can still claim the deduction of home loan interest on the rental income, under Section 24(b).
The term Capital Gains refers to the profit generated by the sale of a property or investment.
Short term Capital Gain refers to the profit made if the property is sold within 3 years of purchase. In case of short term capital gains, they are considered as income, and accordingly taxed. For investors whose total income crosses 10 lakhs, there is a 30% tax levied on it. Post 3 years the profits are long term capital gains which get taxed at 20%, after taking indexation into account.
Profits made from property sold within 5 years of purchase is considered Long term Capital gains. In this case tax benefits under Section 80C will get reversed, but you can still avail the benefits under Section24 (b). Any amount extended towards principal will get taxed, but loan interest can be claimed as a deduction.
The tax benefits from depreciation are by far the largest tax deduction for the buyers that significantly improves their cash flow towards repayment of home loans.
With prolonged use, real estate properties experience wear and tear. The owner has to reinvest in the house to make repairs and renovations for its upkeep. The improvement costs and the depreciated purchase price can be claimed in tax deductions. This depreciation comes into effect as soon as the house is owner or tenant occupied.
New Tax Relief
Besides these existing tax benefits, a new tax relief was proposed for buyers of new homes of value up to Rs.2 Crores, the upper end of which is roughly the price of a 4BHK house. The relief came into effect on November 12, 2020, and will continue up to June 30, 2021. It is aimed at encouraging new buyers to invest in real estate.
According to Section 43CA of ITA, the admissible differential between Circle rate and Agreement value was 10%. The new tax relief Section 52(2)(x), has increased this to 20%. If the differential amount is within 20%, that amount is exempted from taxation.
With such compelling tax benefits, you can confidently choose to invest in Real estate. If you are on the lookout for 4BHK houses for sale, then browse Lifestyle Housing’s luxury Apartments in Chennai. Our Marketing personnel are well versed in the technical and legal information that helps you make educated choices to get your money’s worth in Quality housing.