Tax-implications on buying a new home in India

Taxes

oi-Roshni

By Roshni Agarwal

Published: Saturday, February 15, 2014, 11:45 [IST]

With a new home purchase you enhance your asset portfolio and accordingly as on other assets or investment bets, tax implication on property purchase follows. It is to be made clear that one of the property needs to be classified by the owner as a self-owned property the rules for which are detailed in the Section 23(2)(a) of the Indian Income Tax Act. With some exceptions, generally the property for which no earnings are realized by the home owner and which has not be let out in the previous year is to be set aside as the self-owned property for taxation purpose. The other property that is primarily not self-occupied is the let out property.

Understanding tax-implication on second home

In respect of the first home which has been secured through housing finance, deductions by way of Section 80C on the loan principal amount to the maximum of Rs. 1 lakh and Section 24 that provides tax relief to the maximum of Rs. 1.5 lakh on the interest amount can be claimed.

But for the second house depending whether it is under construction or purchased by home loan different provisions are laid out as thus that eventually determines an individual's tax liability for the second home.

If the home loan exist for the first home as well which is a self-occupied property, tax benefit under section 80C is not available. However, in respect of the interest payment there exists no cap so an interest amount is tax-deductible.

If the property purchased is to be constructed then for a limited period of upto 5 years until the property is under-construction, the amount paid as interest for the home loan is also tax-deductible to the maximum of 20%.

As the second purchased property has to be accounted as let-out property, tax benefit as follows can be availed. In a case when the owner of the second property earns an amount of Rs. 1.8 lakhs as the rental income after adjusting for taxes a deduction @ a standard rate of 30% is available which makes it Rs. 54,000. And in case you pay amount equivalent to Rs. 1.5 lakhs as interest for the loan for the second property.

Income from house property is calculated as the Rental Income- (Standard deduction amount + Interest Amount). In this case it is arrived at as 1,80,000- (54,000 + 1,50,000) = 1,80,000 - 2,04,000 = -24,000. The negative income means loss incurred on house property which can reduce your total tax liability. Also, the claim can even be made if the employer refuses to adjust the loss when filing the income tax return.

Wealth tax levied on second property

Second property also attracts a wealth tax of 1% on the valuation amount if it exceeds over Rs. 30 lakhs.

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