Income tax laws provide for various benefits when it comes to owning a home, whether it’s for a home loan or for claiming capital gains exemption by investing in a residential home. If one is not aware of these deadlines, one may simply miss the tax benefits available under the tax laws. Let’s discuss.
Possibility to claim a deduction for mortgage / borrowed money
You have the right to claim a deduction, up to 1.50 lakh under Article 80 C per year, in relation to the repayment of the principal of a mortgage, taken from institutions or entities specified. Likewise, you are also entitled to claim a deduction for interest paid for money borrowed for a house under section 24 (b). These two deductions, return of principal and interest, are only available when the property is in your possession and habitable. So, unless the construction of the house is finished and you have obtained it, you will not be able to claim this tax benefit even if you have already started repaying your mortgage through the EMI.
However, with respect to interest paid during the construction period, you can claim the total of that interest paid in five equal installments from the year you get possession within the specified limits described below. It is therefore important that you monitor the progress of construction to ensure that the tax benefits of the home loan are not lost.
Completion of construction within the time limit for claiming interest paid
You are allowed to claim a deduction for interest paid on money borrowed to buy / build / repair / renovate your home property. The amount of deduction available varies depending on whether the home ownership is self-contained or rented. You can claim a deduction for full interest in case the property is rented out, but with regard to the ownership of a detached house, the deduction is limited to two lakh rupees per year provided that the construction of the house or completed within five years from the end of the year in which the money is borrowed in the case of a self-built building or under construction reserved. If you fail to complete the construction within five years, your right to charge interest on the borrowed money drops considerably to Rs 30,000 in one year. It is interesting to note that this restriction does not apply in case of renting the house.
Please note that a person is only entitled to a maximum of two single-family homes and beyond that the additional property (s) is deemed to have been rented and you are required to offer the notional rent for tax . One is allowed to claim a maximum of thirty thousand or two lakh rupees for all independent properties taken together.
Although one is allowed to claim a deduction in respect of several properties of the house, there is a restriction of two lakh rupees of loss under the heading “Income from the property of the house” which can be compensated for. with other income during the year and the unadjusted loss of balance. is allowed to be carried forward for compensation with the income from the property of the house over the next eight years.
To request the exemption of capital gains
You can claim a long-term capital gains exemption if you invest in residential property within a specified time period under section 54 and section 54 F. Section 54 applies to gains long-term capital on the sale of a dwelling house while article 54 F applies with regard to long-term capital gains on the sale of any fixed asset other than a house of home. For Section 54, you must invest only the calculated long-term capital gains, but for Section 54F, you must invest the net consideration received.
In either case, you must buy a home within two years of the date the asset was sold. If you acquired a residential home in the year before the property was sold, you can claim these deductions. However, if you have your house built by yourself or if you book a residential house under construction, you get an extended period of three years.
However, if you fail to purchase / build the residential home within a specified time frame, you lose the earlier exemption claim and the amount of long term capital gains declared exempt earlier becomes taxable within the year. during which the period of three years from the date of the sale of the asset expires. You can still claim the deduction if you invested the required amount and did not get possession, but the matter may be subject to litigation.
If you sell or transfer the dwelling for which you have claimed the exemption under section 54 or 54F within three years, the long-term capital gains declared previously exempt become taxable as a plus – short-term values in the year in which you sell or transfer the house.
Resumption of tax benefits for mortgage loans when the house is sold before five years
If you received a tax benefit under section 80C with respect to the repayment of a mortgage, the tax benefits claimed are canceled if you sell the house within five years of the end of the year. during which the mortgage was taken out. So be careful when considering selling the home taken out with a mortgage as you may have to pay taxes by missing the deadline by a few months.
From the above discussion, it becomes clear that in order to claim and retain various tax benefits, one should be aware of the different time limits under income tax laws. If you are not careful with these legal deadlines, you may lose some of the tax benefits.
Balwant Jain is a tax and investment expert and can be contacted on [email protected] and @jainbalwant on Twitter
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