Investment in house property
Senior tax professional
Ernst & Young
Ashish, an entrepreneur living with his parents, recently got married to a techie, employed with an MNC. Ashish approached his tax consultant with a proposal to invest in a house property through a home loan. To his surprise, he found that he and his wife could save income tax of at least R2 lakh. Here is the summary of the issues thrown at the consultant and the opportunities he put before Ashish:
Can my wife and I jointly claim tax benefits on the same property?
Yes, both you and your wife can claim deduction of interest paid on home loan. In case of a self-occupied house property, both husband and wife can claim up to R1,50,000 each, thereby resulting in considerable reduction in your taxable business/salary income.
If we shift to another city, can my wife claim HRA in addition to the interest benefit?
Since your parents will continue to stay at the existing property, it is possible for your wife to claim HRA in addition to the interest deduction.
If I sell the property, can I claim interest as deduction from my sale value?
A recent ruling has confirmed that interest paid on house property is considered as amount incurred for purchasing the property and, accordingly, can be claimed as deduction from the sale value for computing capital gains. In addition to deduction from business/salary income, it can be reduced from the sale value.
Is there any tax benefit on the stamp duty paid and repayment of principal amount of home loan?
Stamp duty, registration and other fees paid at the time of purchase and the amount of principal repaid can be claimed as deduction up to R1 lakh each for you and your wife. The deduction will further reduce your taxable business/salary income. However, the limit of R1 lakh includes investment in other specified investments/tax savings, viz., Provident Fund, life insurance, etc.
How do I save tax on the gain from the sale of the house property?
If the property is held for more than three years, you can save taxes by investing the amount of gain in purchase or construction of another house property or invest in specified bonds.
Are there any taxes applicable other than property tax and how can I save them?
House property is considered as one of the assets for levying wealth tax. Wealth tax is levied @ 1% of the net wealth (after deducting loans) exceeding R30 lakh for each individual. One house is exempt from wealth tax. A second and subsequent houses are exempt from wealth tax, if they are used for business or let out.
Views expressed are personal