Buying a property is the biggest purchase or investment most people make in their lifetime and the government realizes this. The government has allowed income tax deductions if property is bought on loan. The borrower can claim deductions of up-to 1.5 Lakh to 2 Lakh under the Income Tax Act on home loans. The entire interest can be directly deducted from income if the property is not occupied by the borrower. These above conditions are applicable even if the money is from the friends, family or private vendors.
The present market condition possesses a problem as there comes a delay of completion of projects. This in turn creates problems for the borrowers. The borrower cannot claim any deductions in interest if their house is not fully constructed. A buyer, on the other hand gets the benefit of principal amount. On possession, the borrower of the property could hereby claim the deductions for the interest paid during the pre-construction period. To take advantage of the current scenario, a couple should take a joint loan which allows each to claim full tax deductions for both the principle and the interest. This is also applicable for child and parent.
If the borrower has only one house and it is self occupied, there is no taxation in this case but if there are more houses and its neither let out nor occupied, the taxation here might get a little complex. In such a case, owner should get a national rent value and pay tax on it. A proper method is followed to calculate the the national value, taking into consideration the municipal corporation value of property and rent control legislation or the ongoing rent rates of locality.
If a person is trying to claim housing loan deductions and housing rent allowance(HRA) at the same time, it causes trouble. Many people claim HRA because they have a home in different city and they live in a different city. The department allows you to claim HRA in the same city also with genuine reasons, like if you have a home in suburbs in the city and you have your office in the city. While calculating the national value of your second home, you could deduct some taxes like municipal taxes and also an amount of 30 per cent of the value towards repair and maintainable.
When its the time for selling the property acquired, the tax to be paid is calculated on the profit generated. If it is sold within three years of acquisition, seller needs to pay Short tern Capital Gains(STCG) and the time period is more than three years, they need to pay long tern capital gains(LTCG), which is about 20 per cent plus surcharge and cess. The whole tax outgo can be saved if seller buys a new property equivalent to long term capital gains within one year prior to sale date. It the property is under construction the time period is three years. While calculating STCG and LTCG tax, one can deduct money on improvement and also for acquiring the assets such as stamp duty, legal fees and payment of brokerage.