Income Tax benefits of owning a Home in 2024

Being an owner of a house property in a metropolitan city is a big relief. You can concentrate on buying other luxurious assets and putting your hard earned money into more productive uses. This is in addition to the endless pride of ownership and the potential of appreciation in the value of your house. However, this is not all, you can also enjoy various tax benefits. The same are as follows:

1. Claim losses:
   • In case of a self-occupied house (i.e. occupied for personal residence) or unoccupied* throughout the year, the gross annual value would be NIL. This means, there is no income from house property provided the owner derives no other benefit from that property.

 
*Unoccupied property is a property which cannot be occupied by the owner due to the following reasons:

• employment at another place; or
• business or profession at a different place

 
and such person resides at another place in a building not belonging to him
 

• However, in case of a self-occupied property, you cannot claim the following expenses as the gross annual value is itself NIL:

1. Payment of municipal taxes
2. 30% flat deduction (for expenses related to the property, which is otherwise allowed)

Thus, the Indian tax laws does not allow you to claim a loss by placing the above limitations.

However, it is worthwhile to note here that this limitation is removed in case of deduction of interest paid on borrowings for home loan. In other words, you will be allowed a deduction on account of interest. Let us see how:
 

Particulars	Deduction of interest
Acquisition or construction of the property is completed within 3 years from the end of the financial year in which the amount was borrowed	Actual interest subject to maximum of INR 2 lakhs*
Repair, renewal or re-construction	Actual interest subject to maximum of INR 30,000

 

*for claiming deduction of INR 2 lakhs, you would have to furnish a certificate from the financial institution, specifying the amount of interest payable.
 
Pre-construction or pre-acquisition interest is also allowed over a period of 5 years in equal annual installments commencing from the year of acquisition or completion of construction.
 
For example,
 
If a person takes a loan of INR 10,00,000 for construction of property on 1^st October, 2014. Interest was payable @ 10% per annum. The construction was completed on 30^th June, 2015. No principal repayment has been made upto 31^st March, 2016.
 
In the instant case,

• Interest for the year (1^st April 2015 to 31^st March, 2016) = 10% of INR 10,00,000 = INR 100,000
• Pre-construction interest= 10% of INR 10,00,000 for 6 months (from 1^st October 2015 to 31^st March, 2016) = INR 50,000

This pre-construction interest is to be allowed in 5 equal annual installments of INR 10,000 from the completion year i.e. Financial year 2015-16.

• Total interest allowable in the year would be INR 110,000 (100,000+10,000)

 
Thus, in case of a self-occupied house, the above interest deduction would result into a loss under the head house property. Now this loss can be adjusted in the same year with any other head of income like income from business profession, income from other sources, income from salary, etc thereby reducing your total taxable income and subsequently the tax amount.
 
Consider the following example,
 

Particulars	Amount in INR
Income under head “House Property”
Interest on loan claimed for a self-occupied property	175,000
Loss under head “House property”	(175,000)
Income under head “Salary”	800,000
Less: Set off of loss under head “House property”	(175,000)
Net income under head “Salary”	625,000
Income under head “Other sources”
Interest on Fixed deposits	300,000
Total income	925,000
Less: deductions under section 80C-PF	150,000
Total taxable income	775,000
Tax on above taxable income	82,400

 

If your house is rented, there is no maximum limit of INR 200,000 and entire interest can be claimed as a deduction.

2. Deductions under section 80C: This is not all, you can also claim deduction under section 80C on principal payment towards home loan upto INR 150,000, in the year of payment. Even stamp duty charges are allowed as a deduction under section 80C.

 

3. Benefits on sale: Even on selling the house, you can claim various deductions as follows:

• Section 54: If you have reinvested the amount of long term capital gains* within a period of:
  1. one year before or 2 years after the sale: in the purchase of another residential house property in India; or
  2. within 3 years of sale: in the construction of another residential house property in India

then, the amount of capital gains on sale would not be taxable.
 
Furthermore, the new residential house property should not be sold or otherwise transferred within 3 years of sale.
 
*Assets held for a period of 36 months or less is termed as short term capital assets and assets held for a period of more than 36 months is termed as long term capital assets.
 
For example,
 
A person purchased a residential house property on June 10, 2009 for INR 15,00,000. He sold this property for INR 50,00,000 in September 2015. He purchased another residential house property in India in October 2015 for INR 40,00,000.
 
Now since the house is sold after a period of 36 months from its date of purchase, it would be treated as a long term capital asset and the following would be the capital gains chargeable to tax:

 

Particulars	Amount in INR
Sale consideration	50,00,000
Less: Indexed cost of acquisition (since the asset is long term) 15,00,000 * 1081 (CII for FY 2015-16) 632 (CII for FY 2009-10) CII- cost inflation index	25,65,664
Long term capital gains	24,34,336
Less: deduction under section 54 *	24,34,336
Net long term capital gains	NIL

 
*since cost of new house is more than the long term capital gains, entire capital gains would be exempt

 
Read More:
Home Loan Income Tax Benefits 2018
 
Now, if the new house property is sold on April 2016 for INR 85,00,000, then the following would be the chargeable as short term capital gains in the year of sale, i.e. financial year 2016-17:
 

Particulars	Amount in INR
Sale consideration	85,00,000
Less: cost of acquisition (40,00,000-24,34,336)	15,65,664
Short term capital gains	69,34,336

• Section 54F: If you have reinvested the amount of net sale consideration on sale of any long term capital asset except a residential house property, within a period of:
  1. one year before or 2 years after the sale: In the purchase of another residential house property in India; or
  2. within 3 years of sale: In the construction of another residential house property in India

then, the amount of long term capital gains would be exempt.

For example,

A person purchased jewellery on September 13, 2009 for INR 500,000. He sold the jewellery for INR 12,00,000 in November 2015. He purchased a residential house property in India in December 2015 for INR 25,00,000.

Now since the jewellery is sold after a period of 36 months from its date of purchase, it would be treated as a long term capital asset and the following would be the capital gains chargeable to tax:

Particulars	Amount in INR
Sale consideration	12,00,000
Less: indexed cost of acquisition 5,00,000 * 1081 (CII for FY 2015-16) 632 (CII for FY 2009-10)	8,55,221
Long term capital gains	344,779
Less: deduction under section 54F*	344,779
Taxable Long term capital gains	NIL

 

*Since cost of new residential house is more than the net sale consideration of the jewellery, the entire capital gains are exempt
 
Here again, the new residential house property should not be sold or otherwise transferred within 3 years of sale.
 
In other words, if in the above case, the residential house property acquired is sold on December 2016 for INR 50,00,000, then the following would be the chargeable as short term capital gains in the year of sale, i.e. financial year 2016-17:

 

Particulars	Amount in INR
Sale consideration	50,00,000
Less: cost of acquisition	25,00,000
Short term capital gains	25,00,000
Long term capital gains exempt earlier, now taxed	3,44,779

 

• Section 54EC: If you have reinvested your capital gains from sale of any long term capital asset in purchase of long term specified bonds, then also your capital gains from the sale of original house would be exempt, i.e. would not be taxable. However, you need to invest in these bonds within a period of six months from the date of the sale and the maximum deduction allowed is 50 lakhs.

 

Thus, it can be seen how beneficial owning a house can be and thus everyone should make use of these benefits.