Owning a home can be a huge dream for most of the individuals. However, owning a home comes with a lot of responsibilities. Various kinds of taxes emerge with the transaction of the property. Sometimes the amount that is payable as tax can be a healthy amount and it is important that you understand the various legal exemptions that are available to you and use them to your greatest benefit.

The residential property is taxed under the head ‘income from house property’ and the person responsible to make the tax payment is the owner who exercises the legal right over the property. The housing property has been divided into three main categories for tax purposes and this includes, self-occupied properties, rented properties, and the inherited property.

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What Home selling expenses are tax-deductible?

A person may incur various taxes in the purchase and sale process of a property. Capital Gain Taxes are levied on the seller based on the capital gain he received from the sale of capital assets. The land has been considered as a Capital asset for taxation purposes as it has appreciable values. It is very important that you time your selling process to avail of the maximum benefit.

If you sell your property within less than 24 months from the purchase of the property, then you may be liable to pay short term capital gain taxes for which exemptions are not available. If you sell your property after holding the property for a period of more than 24 months, then you are eligible for the exemption under Section 54 of the Income Tax Act for long term capital gains.

If the sale of the property takes place before 5 years of the purchase, then all the exemptions received at the time of purchasing the property will be reversed. Only the deduction under Section 24 on the interest payable will not be reversed. In order to avoid tax, you are required to reinvest the entire capital gain incurred by you. On the failure to reinvest the entire amount, the remainder could be taxed. You may reinvest in another home (Section 54) or in specific bonds approved by the government (Section 54EC). The buyer also incurs tax such as TDS, stamp duty charges, and registration charges in the transfer.

How much tax rebate is available on a home loan?

The various sections of the Income Tax Act that provide rebates include section 80C, section 24, and Section 80EE. Section 80C provided a deduction on the principal payment for a maximum amount of Rs. 1.5 lakhs. Section 24 provides tax benefits on the interest amount that is payable up to Rs. 2 Lakhs.

Section 80EE provides additional home loan interest tax for first-time buyers up to an amount of Rs. 50,000. There are two main components in the EMI that are payable on the home loan availed called the principal amount and the interest. The IT Act provides benefits to both these components.

  • Section 80C

The deduction that is provided under Section 80C of the IT Act provides benefits to the person availing bank loan on the principle amount up to an amount of Rs. 1.5 lakhs on repayment. This benefit can be claimed by including the stamp duty charges and the registration charges. However, this benefit can only be availed once in a lifetime.

  • Section 24

The deductions under section 24 of the IT Act is provided on the interest amount that is payable. A deduction up to an amount of Rs. 2 Lakhs can be availed and can be only applicable to properties whose construction works are completed within a period of 5 years. The failure to complete the construction works within this time will result in a claim of Rs. 30,000 only.

  • Section 80EE

The benefits under section 80EE are applicable to new or first time home buyers. They are entitled to a deduction of Rs. 50,000 on the payable interest in every financial year. It is mandatory that the loan amount should not exceed Rs. 35 Lakhs, in order to avail the benefits and the value of the property, must also fall within Rs. 50 Lakhs.

  • Other conditions to follow:

The exemptions are granted only on the property in which construction works are completed within a period of five years. It is also granted on ready-to-move-in houses. If you sell your property within a span of five years, then these exemptions availed can be reversed and added to your income.  In order to avail the maximum benefit of the home loan exemption, you may rent out your house. If you continue to stay in a rented house while availing a home loan, then you may also claim tax benefits under House Rent Allowance (HRA) as well.

How to claim stamp duty exemption?

While purchasing or constructing a house on the property, a person is responsible to make a payment on the stamp duty taxes along with the registration charges. The stamp duty charges are levied by the state government on the agreed price or the current market value of the property, whichever is higher.

Thus it becomes important that the person knows the exemptions to the stamp duty that is provided under the IT Act. The Stamp duty and registration charges which are incurred in the process of transfer can be subjected to deductions under Section 80C of the Income Tax Act. The maximum amount that is permitted to be deducted under this section is Rs. 1, 50,000.

You can claim this deduction only in the year in which the actual payment is made. For example, you purchase a property on the 30th of June 2020. Then claim on the exemption from the stamp duty can be availed only in the financial year 2020-2021. An individual and a Hindu joint family can avail of this benefit in their income tax return.

Some expenses are not included under this deduction such as the additional cost incurred in the alteration, renovation, etc. after the completion certificate has been obtained or after the house has been occupied by the buyer or is rented out. If the house is purchased by joint owners, then they also claim benefits under section 80C to the extent of their share in the property.

Conclusion

Summing up, the purchase of a residential property is a dream for many individuals. However, it comes with lots of expenses attached to it. There are various taxes that are imposed on both the buyers and sellers during the sales transaction. Thus it is important to understand the various tax burdens in selling and buying the property. The tax amount imposed by the government can be a healthy sum, thus it is also important to understand the various providers of the Income Tax Act that provide exemptions from taxes or deductions in the tax amount in order to attain maximum satisfaction from the transfer.