Investment In Real Estate For Tax Saving

Investing in real estate is touted as one of the most stable and rewarding forms of financial investment. As a homebuyer, you can avail of attractive returns not only in terms of rental income and capital appreciation, but also in the form of the many lucrative tax concessions offered against a home loan.

When you apply for a home loan, you are eligible for tax benefits under three sections of the Income Tax Act—Section 80C, Section 24 and Section 80EE. Under Section 80C, homeowners can avail of a tax exemption of Rs. 1,50,000 upon repayment of the principal amount. Tax exemptions of higher value (up to Rs. 2 lakhs) are also applicable on the repayment of the interest of home loan.

There are various scenarios in which you can avail of tax benefits against a loan. Here are some of them:

1. When you’re paying an EMI:

Under Section 80C and Section 24, you can claim tax benefits on the principal amount, interest amount, stamp duty, registration charges as well as the processing fee of the home loan.

2. When you rent out the home:

When the home is on rent, you can claim a tax deduction against the interest amount paid. Homes on rent can also claim tax deductions (with no upper limit) for a loan taken for repair/reconstruction purposes.

3. When you live in the home:

In a self-occupied home, the interest amount is eligible for tax deduction up to Rs. 2 lakh. The principal amount with a limit of Rs. 1, 50,000 is also eligible for deduction under Section 80C.

4. When you have joint ownership of a home:

In case of joint ownership of a home, you and the co-owner can claim two separate tax deductions in your respective ITR.

5. When you have taken a loan from a friend or family member:

If you have taken a loan from a friend or family member strictly for the purpose of buying a home, then under Section 24 you can claim tax deductions on the interest amount paid. However, the benefactor must issue a certificate confirming the receipt of the interest amount within the financial year.

6. When you have more than one home loan at a time:

In case you have signed up for more than one home loan at a time, the tax deductions towards repayment of principal amount are capped at Rs. 1.5 lakh. The interest amount paid, on the other hand, is eligible for a deduction up to Rs. 2 lakh.

7. When you a buy a home for the first time:

Under Section 80EE, you can claim special tax benefits if you are a first-time homebuyer and if the property has been purchased strictly for residential purposes.

8. When you invest in a second home:

Investing in a second home offers lucrative tax benefits. If you apply for a home for a second property, then the tax exemption that you get on the interest amount to be paid for the loan is without an upper limit. However, the exemption is applicable only if the property is used for rental purposes and not for self-occupancy.

9. When you reinvest long-term gains:

If you reinvest your long-term capital gains upon selling a home, into another residential property within 3 years of having sold it, then you will not have to pay any tax on the gains.

Investing in a home is a safe and sure way of availing a number of tax benefits. Make sure to research the market before picking a home loan that best serves your financial goals.