Regardless of
the class or income that one belongs to, the Indian investment approach often
focuses in buying real estate and gold. While purchasing and selling
commodities like gold is a rather simple affair, the ball game is completely
different when one starts to think about buying property. Buying, owning and
eventually selling a home can be a daunting process and needs to be approached
intelligently to make sure that you minimize your tax outgoings as much as
possible.
·
Minimizing Tax while Buying
a Home
Even if you have
closed on what you feel is the most affordable
property in Lucknow, your home is without doubt the biggest purchase you
will make in your life. The government recognizes this and hence allows IT
deductions in case you are buying your home on a loan. Borrowers are allowed to
claim a tax deduction under Section 80C for an amount up to INR 1.5 lakhs. In
addition to this, note that if the property is self-occupied, you will be able
to take benefit of Section 249 (b) for an amount of INR 2 Lakh for interest on
the home loan. If the property is not self-occupied, you can get the entire
interest you pay to the lender deducted from your income.
To be able to
truly benefit from these laws, it is recommended that a married couple take a
joint loan that is divided into equal proportions. This allows each spouse to
claim complete tax deductions for the interest and the principle. This holds
true even for a parent and a child choosing to purchase a property together.
·
Minimizing Tax when Selling
a Home
When you sell a
property, you will be expected to pay tax on the profits you make. Furthermore,
if the property has been sold within three years of its acquisition, you will
need to also pay what is known as the Short Term Capital Gains Tax (STCG). In such
a sitation, the profits are added to the income and then you are taxed based on
the IT slab that you fall into.
If your property
is held for over three years, you will be expected to pay a Long Term Capital
Gains Tax (LTCG) which is 20% tax + surcharge and cess after adjusting all the
gains due to inflation. This is calculated with the help of the inflation index
which is issued by the government.
If you want to
save the entire amount of tax due, the easiest route to take is to use the
proceeds that equal the long term gains to purchase a new affordable property in Lucknow. This purchase should be
made within one year before the sale date or two years after the sale date.
Furthermore, you are given a leeway of three years in case the property is
still under construction.
Remember
that while calculating the short term or long term capital gain tax on the sale
of the property, you have the right to deduct any amount spent on the
improvement of the property and the cost of acquiring the asset. This includes
costs such as legal fees, brokerage and stamp duty.
