You Can Claim Deduction Of 30% From Rental Income

I fall in the 30 per cent tax bracket. I fully claim Rs. 1.50 lakh under Section 80C of the Income-tax Act, 1961. Is there any way I can save further taxes, like by taking loans from banks to buy residential or commercial property and let it out? Can I offset the interest payment or equated monthly instalment (EMI) to the bank and reduce my tax payment?  

Answer: In addition to the tax benefits under Section 80C, you can avail the tax benefits under Section 80CCD (1B) by investing Rs. 50,000 in your National Pension System (NPS) tier I account. 

As far as your query on tax benefits available for home loan is concerned, please note that the income whic h you earn from letting out any property shall be taxable under the head “Income from House Property”. From the rent received, you will be allowed a deduction of 30 per cent of the rent received. In respect of the interest on loan taken for such let out properties, you can claim the full interest for such loans without any limits under Section 24 whether the property bought is residential or commercial. That said, you will be allowed to set off loss under the head “Income from House Property” only upto Rs. 2 lakh against other income during the current year, and the unabsorbed loss, if any, will be allowed to be carried forward for set off against the income from house property in eight subsequent years. 

You are also allowed to claim the benefit in respect of repayment of principal amount of home loan within the overall limit of Rs. 1.50 lakh under Section 80C every year if you have bought a residential property.

I had taken a home loan of Rs. 50 lakh from a bank in March 2018 to buy a house worth Rs. 65 lakh. This includes the stamp duty and registration charges, too. I have claimed the tax benefits for repayment of the principal payment and for interest till March 2022. Now I am planning to sell this house for Rs. 80 lakh during the current year. What are my tax implications on profits made on this sale? I do not want to invest any amount for availing tax exemption. How will my tax liability be calculated? 

Answer: Since you are planning to sell the property after having held it for more than two year years, the difference shall be taxed as long term capital gain (LTCG) after indexation. Since you do not want to invest any money for availing any exemption, the same shall be taxed at 20.48 per cent. Please note that the entire Rs. 30 lakh of profit will not be taxable, but only the indexed capital gains.  Your taxable capital gains shall be arrived at after deducting the indexed cost of purchase of the flat from the net sale consideration. This will be calculated with reference to the cost inflation index of the year 2018 and the year in which you sell the flat. 

Please note that if the property is sold within five years from the end of the year in which it was acquired, then all the deductions allowed under Section 80C of the Income-tax Act, 1961 for repayment of the home loan shall be reversed and treated as income of the year in which you sell such property. Please note that there is no similar provision for reversal of tax benefits on interest allowed to you under Section 24 under the head “Income from House property.” 

The author is a tax and investment expert

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