Residential real estate has always been a favourite investment avenue for investors seeking excellent returns on their investment. Increase in the income of middle-class and the rapid rate of urbanisation is playing a significant role in increasing the demand for residential properties across the country. But due to increasing prices of residential real estate, making an outright purchase is not possible. As a result, most investors avail a home loan to finance the transaction. With the easy availability of home loans from various financial institutions in India, it has become easier for you to become a property owner and avail various benefits associated with it.
Investing in a residential project is a significant financial decision that has a huge impact on your finances. You must, therefore, look for opportunities to maximise the benefits from this investment. When you invest in a real estate project, you can make some substantial savings that you can earn from this investment. Here are the major tax benefits available to you on making an investment in a residential project: -
1. Tax benefits on Principal Repayment of the Home Loan
You can claim an income tax deduction of up to Rs. 1.50 Lakhs on the repayment of the principal component of your home loan. This deduction is available against properties which are under your self-occupation. In case you are availing a second home loan for the purchase of another property, there is no deduction available under Sec 80C. This exemption limit is not applicable if your property is under construction. Though, you can avail of this exemption if the property is vacant or has been rented out.
2. Tax Benefits on Interest Repayment of the Home Loan
As per section24 and Section 80EE of the Income Tax Act, your eligible income tax rebate on the interest component of the home loan as well. The maximum tax exemption limit allowed is up to Rs. 2 Lakhs and up to Rs. 3 Lakhs for senior citizens. This exemption is available also for properties which are under construction, and the construction has been completed within five years of taking the loans. In case of the second home loan, the interest exemption limit is up to Rs. 2 Lakhs or the actual, whichever is lower. If the interest paid is more than Rs. 2 Lakhs, it can be carried forward for up to eight years as a set-off against rental income from the house.
3. Tax Benefit on Home Improvement Loans
If the said house is owned by you but has been rented out, then you can claim a 30% flat deduction on the rental income irrespective of all the expenses incurred in the maintenance of the house. If the said house is under your occupation, then you will not be able to avail any deduction on the rental income. As per section 24 of the Income Tax Act 1961, you can avail up to Rs. 30,000/- deduction on the interest paid on home improvement loan. No deduction is available on principal repayment. This deduction is subject to the maximum permissible limit of Rs. 1,50,000/- under the section. This includes the interest paid on home loan as well as interest paid on home improvement loan.
4. No Tax on notional rent from second house property
As per the announcement by the finance minister in budget 2019, now any individual who owns two residential properties can now claim both of them as self-occupied. Thus, there is no need to pay tax on notional rent from the second house property. This will help the property owners save a significant amount of money on their tax liabilities if they do not have a home loan against any of the properties mentioned above.
5. Rollover benefit of Capital Gains Tax
The rollover benefits of capital gains will now be available against investment in 2 residential houses. This rebate would be applicable only when the total capital gain is not more than Rs. 2 crores. This benefit would be available only for once in the lifetime of an individual. Herein, those individuals who have to sell a property and invest it in two houses can now get significant relief.