Is it rude to ask if your salary is above 10 lakhs? Well, we don’t want to know the exact amount but if it is (above 10 L pa), then you might be brooding over the fact that in spite of earning a high salary you are losing out a huge chunk of money by paying taxes. We complain about the rules and acts set out by the government where people earning above 10 lakhs fall under the 30% tax bracket and have to lose out on all the hard earned money over taxes. But the Government has also set out various acts where if you invest right, you can save a huge amount of tax.
The tax burden in India really bogs us down and with the financial year about to come to an end, most people might already be looking at multiple options that will save some amount of tax from their annual income. The government has implemented laws and offers exemption on tax if you have some investments in PPF, Insurance or NSCs. Another option where you can save a huge amount of tax is property investment. As per the provisions of the Income Tax Act in the budgetary session in A.Y 2019-2020, it enables people to save as much as 2 lakh per year on tax by investing in self-occupied house property. This policy was brought in encourage people to invest more in realty sectors and save on Income Tax. Also with the implementation of GST, several other taxes like the service tax or the VAT comes consolidated under GST.
The total cost involved in buying a property is divided into two components – 80%-85% that goes to the builder while the rest 15%-20% goes to the government as tax. The taxes will differ for an under-construction and a ready-to-move-in property. Did you know that if you are a first-time property buyer, you can save more on tax if you buy an under-construction property rather than a ready-to-move-in property?
So, be a smart planner and invest in a property to save huge bucks on income tax.
So, if you are taking a home loan to fund for your property, you must understand sections 80C, 80EE and 24B, the three important sections under Income Tax Act that covers the tax gains under home loans.
Under section 80C, you can save taxes if you have investments like PPF, Sukanya Samriddhi Yojana, Insurance, equity-oriented mutual funds amongst others besides a home loan. If you are taking a home loan, this section allows saving a tax amount upto Rs.1,50,000 on the repayment of the principal amount of the home loan. However, you can get the tax benefit only after the construction of the property is completed and the taxpayer gets the completion certificate.
In this act, you get a tax rebate on the interest amount of the home loan. This is applicable to the home loans taken for self-occupied property subjected to construction, reconstruction, repair, renewal, or purchase. You can claim upto 2 lakhs.
The income tax rebate mentioned in this section is applicable to the interest on home loan for first-time home buyers. They are eligible for an extra Rs.50,000 tax deduction over 1.5 L (under sec 80C) and 2 L (under sec 24B).
However, these tax deductions can be availed only under the following terms and conditions:
- Value of this house should be Rs 50 lakhs or less
- Loan taken for this house must be Rs 35 lakhs or less
- The loan must be sanctioned by a Financial Institution or a Housing Finance Company
- The loan must be sanctioned between 01.04.2016 to 31.03.2017
- As on the date of the sanction of loan, no other house property must be owned by you.
If the above conditions are not met, then you will not be able to get the excess Rs.50000 tax benefit under Sec 80EE.
Also Read: Advantages of living in a Gated Community
Buy a ready-to-move-in property
When you buy a ready-to-move-in property, you need to pay only the stamp duty or the registration charge which is only 6%-8 % of the total property cost, however when it is an under-construction property in question, besides these charges, you also pay 12% GST, and a 1% TDS if the property is priced at 50 Lakhs and above.
In Telangana, the prevailing stamp duty is 6% and 7.5% in Andhra Pradesh.
How to save tax while investing in an under-construction property?
If you have taken a home loan for the under-construction property, you can save tax to a certain extent applicable under sections 80C, 24B and 80EE of the Income Tax Act on both the principal amount and the interest amount.
In cases, where the spouses are the co-owners of the property and have taken a joint loan, they can claim upto 2 lakh tax on the interest amount and 1.5 lakh tax on the principal amount.
So, investing in a property is a legal way to save your taxes if your property is above 10 lakhs besides making others investments as well. Talk to a financial legal advisor and get the validated proposals on how you can save your taxes.