For those who have been eyeing a home for years, 2017 may be a good year to jump in. Home loan rates are down, as are property prices. Plus you get tax breaks
Five things you need to know about house property
Even a loan taken from an employer, friend, private lender is eligible for deduction--but only on interest and not principal. And you'll need a certificate from the lender
Booking an apartment which is under construction is sometimes cheaper. I-T law permits you to claim the total interest paid during the pre-delivery period as a deduction in five equal instalments starting from the financial year in which the construction was completed or you acquired your apartment (generally this denotes the date of possession).Of course, the maximum you can claim as a deduction per year continues to be 2 lakh, in case of self-occupied property
It makes tax sense to purchase the new apartment jointly say with your spouse, then each of you is entitled to a deduction of 2 lakh for interest funded by each of you, as explained above. In case you have a working son daughter and the bank is willing to split the loan three ways, all three can avail deduction up to 2 lakh each on self occupied property
If you have a second house, it makes better tax sense to rent it out rather than keeping it empty . An empty second house will still attract tax on its `deemed value'.In other words, tax is calculated at expected market rent
Expenses towards repair and maintenance are not allowed as a deduction income from house property . However, a standard deduction @ 30% of gross value (generally the rent received) is allowed to compensate for repair and maintenance expenses of a house property . This is allowed irrespective of actual expense. Also, deduction towards municipal taxes paid during the financial year is allowed irrespective of the year to which it pertains. The above is not applicable to self-occupied property
Tax benefits on principal
Equated monthly instalments (EMIs) are typically divided into principal (the amount you took as loan) and interest (the cost of servicing the loan) Principal is allowed as a deduction from your gross total income (subject to an overall cap of 1.5 lakh with other eligible investments)
Tax benefits on interest paid
Interest payable on `self occupied' property is subject to a maximum deduction of 2 lakh under the head `Income from house property'. It can be set off against other income, which includes salary income, in the same year. This reduces your total tax liability. But to claim this, it is essential that the acquisition or construction is completed within 5 years from the end of the financial year in which the loan was taken; else the deduction will be limited to 30,000 Additional deduction of 50,000 for interest paid shall be allowed for first-time buyers if certain conditions are fulfilled
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