A 30% deduction can be claimed from rental income

 The rental income from a property is taxable. Losses from house property can also be deducted from other income in the current year up to Rs. 2 lakh. Upon sale of property within five years, all deductions under Section 80C for repayment of home loans will be reversed and treated as income.

Currently, I am in the 30% tax bracket. Under Section 80C of the Income Tax Act, 1961, I am able to claim Rs. 1.50 lakh in full. Can I save further taxes by taking out loans from banks to purchase residential or commercial property and letting it out? Does it make sense to reduce my tax payment by offsetting interest payments or equating monthly installments (EMIs) to the bank?  

Answer: The tax benefits under Section 80C can be augmented by the tax benefits under Section 80CCD (1B) by investing Rs. 50,000 in your National Pension System (NPS) tier I account.

With regard to your question about tax benefits available for home loans, please note that any rental income earned from any property will be taxed under the “Income from House Property” head. 30 percent of the rent received can be deducted as a deduction. You can claim the full interest on loans for let-out properties without any limits under Section 24 regardless of whether it’s a residential or commercial property. The loss you incur under “Income from House Property” will, however, only be allowed up to Rs. In the current year, you will be allowed to set off a loss of 2 lakh against other income, and in the following eight years, you will be allowed to carry forward the unabsorbed loss to offset the income from house property.

Under Section 80C, you can take advantage of the benefit in relation to the repayment of the principal amount of your home loan up to a maximum of Rs. 1.50 lakh every year if you purchased residential property.

The bank gave me a loan of Rs. 50 lakh to buy a house worth Rs. 65 lakh in March 2018. Also included are stamp duty and registration fees. To repay the principal payment and interest until March 2022, I have claimed tax benefits. 

This house is now on the market for Rs. 80 lakh, and I plan to sell it this year for that price.  Are there any tax implications associated with this sale? For tax exemption purposes, I do not want to invest any money. Can you tell me how my tax liability will be calculated? 

Answer: 

Since you plan to sell the property after holding it for more than two years, the difference is taxable as long-term capital gains (LTCG). If you do not wish to invest any money for the purpose of availing any exemption, it will be taxed at a rate of 20.48 percent. There is no tax on the entire Rs. 30 lakh profit, but only on the capital gains indexed to the profit.  The taxable capital gain on the sale of a flat is determined after deducting the indexed cost of purchase. The cost inflation index for 2018 and the year in which the flat is sold will be used for this calculation.

If you sell a property within five years of the end of the year in which it was purchased, all deductions permitted under Section 80C of the Income-tax Act, 1961 for repayment of the home loan will be reversed and will be treated as income in the year of the sale. Under Section 24 under the head “Income from House Property,” there is no similar provision for reversing tax benefits on interest.

The author is a tax and investment expert from outlook India.

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