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Falling property prices plus tax breaks = A new hope for home buyers

NEW DELHI: For those who have been eyeing a home for years, 2020 may be a good year to jump in. Home loan rates are down, as are property prices. Plus, you get tax breaks. Here's a look at how it gives a new hope for buyers.

TAX BENEFITS ON PRINCIPAL

Equated monthly instalments (EMIs) are typically divided into principal (the amount you take as loan) and interest (the cost of servicing the loan). In case you don’t opt for the new ‘simplified’ personal income tax regime, the principal is allowed as a deduction from your gross total income (subject to an overall cap under Section 80C with other eligible investments of Rs 1.5 lakh)

TAX BENEFITS ON INTEREST PAID

Interest payable on 'self-occupied' property is subject to a maximum deduction of Rs 2 lakh under the head 'income from house property'. This deduction is not available under the new ‘simplified’ personal income tax regime. This reduces your total tax liability. But to claim this, it is essential that 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 Rs 30,000. An additional tax deduction of up to Rs 1.5 lakh has been introduced for interest on home loan taken between April 1, 2019 and March 31, 2021, for buying a house with stamp duty value up to Rs 45 lakh. However, you should not own any other residential property at the time of sanction of loan. If you still haven’t bought your first home, do so at the earliest. This deduction is not available under the new ‘simplified’ tax regime.

If you have rented out property, the difference between rent you get after adjustment of municipal taxes, standard deduction and the entire interest on housing loan is your ‘loss from house property’ which you can set off up to Rs 2 lakh against your other income, say salary. Loss under the head ‘house property’, can be set off against other heads of income (including salary income) in the same year if you don’t opt for the new 'simplified’ personal income tax regime.

FIVE THINGS ABOUT HOME LOAN INCENTIVES YOU SHOULD KNOW

1) Even a loan taken from an employer, friend, private lender is eligible for deduction — but only the interest component and not the principal amount. And you’ll need a certificate from the lender.

2) 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 fiscal in which construction was completed or you acquired your apartment (generally this denotes the date of possession). Of course, the maximum you can claim as deduction per year continues to be Rs 2 lakh in case of selfoccupied property (but, you could be eligible for the additional interest deduction, as explained).

3) It makes tax sense to purchase the new apartment jointly — say with your spouse, then each of you is entitled to a deduction of Rs 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 Rs 2 lakh each on self- occupied property. Add to it the additional interest (if applicable for rented or deemed to to be let out property), and the savings can be significant.

4) No notional rent will be added to the taxable income of your second self-occupied house property. Thus, if you don’t find a ready tenant you can keep it self-occupied. Do note, that this leeway is available only for up to two houses. A third house which is not let out will still attract tax on its ‘deemed value’. In other words, tax will be calculated at expected market rent.

5) The total loss from house property which can be adjusted with any other income (salary, other source) has been capped at Rs 2 lakh. Further, if you are unable to set off the interest of Rs 2 lakh against any income head, the (surplus) interest which could not be set-off can be carried forward only for eight assessment years. Additionally, such set-off is possible only against ‘income from house property’. It becomes a sunk cost if you haven’t let out your house on rent.


Comments Section

  • - Mazhar Mohammad, Chartviewindia 04/01/2020Reply

    Intraday traders can look to go long if Nifty sustains above the 12,300 level for more than 30 minutes on Friday and look for a target of 12,390. Contrary to this, a strong close below 12,168 level may lead to weakness in Nifty

    • - Gaurav Ratnaparkhi, Sharekhan 04/01/2020Reply

      Nifty is now a stone’s throw away from its all-time high of 12,293. Structurally, it has climbed towards the upper end of the consolidation range i.e. 12,300. Once the 12,300 level taken out, it will march towards 12,350 and subsequently to 12,400, which is near the rising trendline and daily upper Bollinger Band. The 12,220-12,200 zone will act as immediate support

  • - Ashwin Patil, Senior Research Analyst 04/01/2020Reply

    Among two-wheelers, we prefer Hero MotoCorp as it is a proxy to the economy and rural growth, and an expected good Rabi crop output will drive sales in rural India (55% of volumes). We also like Bajaj Auto, which is now finding good traction in exports markets. On the PVs, we still like Maruti as it is a market leader in PV segment and has a wide array of models in all the segments. Its strength in the rural markets is also its positive. We also like M&M, as robust Rabi crop output and increased MSPs will trigger UVs as well as FES growth. Within the CV space we like Ashok Leyland which is away from any global headwinds. Any news on scrappage policy may lead to a sudden spur in CV stocks

    • - Chandan Taparia 04/01/2020Reply

      Nifty has been consolidating between 12,118 and 12,293 levels since last 11 sessions and now a decisive range breakout with followup action can drive the fresh leg of rally. The index has to continue to hold above 12,250 level to witness an up-move towards the 12,350-12,400 zone, while key support has shifted to 12,150 level

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