Indian people are often very fond of buying gold as well as real estate. While investing in gold is less taxing, investing in property is not as there can be a huge tax for house owners to pay at the time of both buying and selling property. There are of course well known ways to save tax while dealing in property. One such way is to sign up for insurance policies like the LIC Endowment Plan that can enable residence owners to save quite a bit of money on tax when they profit from the sale of a house. If you’re looking for home builders charlotte nc check out essexhomes.net.
How Can Save Tax while Buying Property?
When the Property is Not Self Occupied
When buying property, home owners can claim a deduction of as much as 150000 INR if they buy the property on a loan. This is allowed under Section 80 C of the Income Tax Act.
If the property happens to be a self-occupied one, then a tax deduction of 200000 can be claimed under section 24(b) of the IT Act. In case the property being bought is not self-occupied property, the purchaser can have the entire interest deducted from income.
There is of course a problem area that needs to be taken note of when looking to save tax upon the purchase of property. A house owner will not be able to claim tax benefits of any kind if the property he is looking to buy is one that is still under construction.
This is particularly important for loan customers to be aware of. When a property is under construction, the loan customer will not be able to claim deductions for the interest that he pays towards his home loan but can claim a deduction for the principle amount of the loan.
Once the property that has been bought has been taken possession of, the loan customer can go ahead and seek deductions for the interest paid as well. This can include the interest that was paid in the pre-construction period too.
Income tax deductions for home loan customers must be carried out in the form of 5 EMI’s or equal monthly installments beginning from the financial year in which the property was handed over to the customer.
When the Property is Self-Occupied
If the property concerned is the only house of the home loan customer, then there is no tax to pay. For people who have several houses which are neither occupied nor let out, the taxation process can turn out to be quite a tricky one.
In such situations, something known as notional rent value will have to be estimated by the home owner and a tax will then have to be paid on this notional rent value. The notional rent value must be arrived at by calculating the rent control legislation in the area where the house is situated, for a similar property as well by considering the property’s municipal value.
If rent allowance and housing loan deductions are both claimed, then this can turn out to be rather troublesome. If the house purchased and the house that is rented, are situated in different places, then HRA and loan deductions can both be equally claimed.
How can Tax be saved upon Sale of Property?
In order to avoid paying capital gains tax upon the sale of property, it would be worthwhile for sellers to invest in an LIC Endowment Plan. The LIC Endowment Plan can be bought by any person who is 35 years of age or older and who has been a conscious taxpaying citizen for the most part of his professional life.
The LIC Endowment Plan is generally a single premium plan. The minimum amount that is assured for claimants under the LIC Endowment plan is 50,000 while the maximum amount is unlimited.
The single premium LIC Endowment Plan is one that can be used to secure a loan as well. A tax saving certificate is provided for every LIC Endowment Plan customer that can be produced before the IT department officials in order to avoid payment of tax on the sale of property at the end of the financial year.