How To Take Tax Benefits By Buying A Property: Commercial Or Residential
Buying a property is a huge financial decision. However, the Indian tax authorities offer certain deductions and benefits for buying a residential or a commercial property on a loan. These benefits can help reduce your overall tax outgo and help repay the property loan with relative ease. In this article, we will talk about how you can take tax benefits from buying a property, commercial and residential.
Let’s start with a residential property.
Tax benefits from buying a residential property on a loan
When you avail of a home loan, you make monthly repayments in the form of an EMI or Equated Monthly Installment. An EMI has two components – the principal and interest. The Income Tax Department offers tax benefits on both these components. Here are the different sections under which you can avail of tax benefits on a residential property loan:
Under this section, you can claim a tax deduction of up to Rs.1.5 lakh per annum on the principal component repaid via the EMI. You can also claim the stamp duty and registration charges once.
Under this section, you can enjoy a tax deduction of up to Rs.2 lakh per annum on the interest component repaid via the EMI. For under-construction properties, it is important to note that this benefit is available only if the property is constructed within 5 years. If the construction takes longer, the maximum amount you can claim is only Rs.30,000.
If you are a first-time homebuyer who is buying a house worth Rs.50 lakh or less and availing of a home loan of less than Rs.35 lakh, then you can claim an additional deduction of Rs.50,000 on the interest component every year.
Some points to remember while availing of tax benefits on a residential property loan:
- Tax benefits are available only on properties that are ready to move in or if the construction is about to get completed.
- If you sell the property within five years of taking possession, then the tax benefits are reversed and added to your income.
- For jointly-held properties, each co-owner can avail of the abovementioned benefits, provided the co-owners are also co-borrowers of the loan.
Now, let’s look at a commercial property purchase.
Tax benefits from buying commercial property on a loan
When you buy a commercial property on loan, you can avail of certain tax benefits as prescribed by the Income Tax Department. There are two sub-heads under which you can claim tax benefits as explained below:
"Annual Value" is the amount of rent you can receive on your property. According to the Income Tax rules, commercial property owners can claim a standard deduction of 30% of the annual value for repairs, insurance, electricity, water supply, etc., if they are letting out their property. This is regardless of whether you incur the expense or not.
According to Section 24 of the Income Tax Act, 1961, commercial property owners who have taken a loan to buy, construct, repair, or reconstruct can avail of a tax deduction of Rs.2 lakh on the interest component repaid via EMI. In the case of commercial property, processing fees and any prepayment fees can also be included under the interest component.
Any taxable income from commercial property is added to the annual income of the assessed and taxed as per the applicable income tax slabs. If the taxable income is negative, then the assessee can set it off against income from other heads in the same financial year (up to a maximum of Rs.2 lakh). If the loss can’t be set off or if the loss is greater than Rs.2 lakh, then the loss can be carried forward for up to eight years for setting off against future income.
It is important to remember that there is no deduction allowed under Section 80C of the Income Tax Act, 1961, for the repayment of the principal amount of a commercial property loan.
Things to remember before you buy property, commercial or residential
- Ensure that you analyse the neighbourhood regardless of whether you plan to purchase a commercial or residential property. A well-connected locality with the required amenities can result in higher rent and better capital appreciation.
- Read about the future plans for the area. If the government is planning to construct flyovers or metro stations that can result in a drop in demand for the area, then your investment might not generate expected returns.
- Buying property involves a lot of costs. Make sure that you are aware of all associated costs involved in buying and maintaining the property.
- Tax laws can change. Ensure that you are aware of the latest tax benefits offered by the government when you decide to buy a property.
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- BramhaCorp Smart: With one-of-its-kind studio apartments for new-age living, BramhaCorp has created smart homes for Generation Z.
- The Collection: If you are looking for upper-crust living, then The Collection at New Kalyani Nagar, Pune offers style and substance under one roof. This gem from BramhaCorp includes fully personalised 2/3 BHK ultra-luxurious residential apartments.
- BramhaCorp Business Park:Perfect office spaces in New Kalyani Nagar, Pune. The BramhaCorp Business Park offers services and facilities catered to suit the requirements of modern-day entrepreneurs.
- Boulevard Towers:This property by BramhaCorp breaks all stereotypes of commercial properties in India. Located at the heart of the city in Pune Camp, Boulevard Towers makes accessibility a breeze from any corner of the city.