Homebuyers to benefit from tax breaks announced in Budget 2020

The real estate industry in India has transformed significantly over the last few years. Several reform policies are changing the business landscape in the realty segment, as the Indian government has become proactive in taking necessary measures to streamline sales. Budget 2020 has given property owners many reasons to be happy.

The government has introduced tax breaks in the new budget, along with lower prices in certain markets, and this is likely to foster greater sales in the coming months. All the key players in the industry, including the developers, agents, and property buyers are ecstatic over the new policies. In fact, they can now breathe a sigh of relief, given that property prices are now continually soaring in different locations across the country.

Here are certain aspects you should look into, as they would prove beneficial to you when you get a new home.

Tax benefits on the principal amount

Traditionally, most of the property buyers seek home loans from financial institutions, particularly banks, when they get a new home. They pay monthly EMIs or Equated Monthly Instalments. This includes both the principal amount and the interest. The property buyers need to pay off the sum, obtained on adding the interest to the original amount borrowed each month.

For property owners who do not choose to go for the simplified tax regime while calculating the personal income, they would be allowed to deduct the principal from the gross total income. Under Section 80C, this is subject to an overall cap, while other investments can add up to INR 1.5 lakhs.

What you should be knowing about home loan incentives

Most of the people willing to buy new properties would be seeking bank loans. Therefore, you should be aware of the incentives that you can avail when you get these new properties.

  • Even if you take a loan from a friend, employer or private lender, you are eligible to enjoy a deduction. However, this deduction would be calculated not on the principal amount, but only the interest of the loan. However, you need to obtain a certificate from the creditor to avail of this benefit.
  • Investing in under construction projects has become cheaper. As per the tax laws, you can claim the total interest that you pay during the pre-delivery period in the form of a deduction. This can be availed in five instalments of equal amounts. This would be starting from the fiscal when the construction work is completed.
  • In other situations, it would be calculated from the time when you actually acquire the apartment. In general, the date of possession of the apartment is considered while calculating the tax. For self-occupied properties, the maximum deduction that you can claim has an upper cap of INR 2 lakhs.
  • It would be wise to purchase a new property jointly with your spouse. In this case, each of you can enjoy a tax deduction of INR 2 lakh on the interest, on the interest that you fund. On the other hand, if you have a son or daughter who is presently working, the bank would split the amount of loans in three ways. In this case, all the three people can enjoy a deduction of INR 2 lakhs each on a property that is self-occupied. In the process, you can save a significant amount of money.
  • Homeowners should be aware, that they do not have to pay any notional rent to the taxable income of a property that they own as a second – self-occupied home. Therefore, in case you do not get a good tenant, you can continue occupying it yourself. However, this benefit is available only for two properties. In case you decided to buy a third house, you would not be eligible to enjoy the advantage. If you own another house but do not rent it out, it will be taxable on the deemed value. In this situation, the tax is calculated on the basis of the market rent.
  • The upper cap on losses on the property that can be adjusted with other income sources is INR 2 lakhs. In case you find it difficult to manage the interest of INR 2 lakhs under any head of income, you can carry forward the surplus interest for a duration of eight assessment years.

Evidently, the real estate market looks favourable for property buyers as view of budget 2020. It would be wise to make the investment now.

How will real estate buyers benefit in the new tax regime?

The Indian government has announced a dual tax lab option to the individual tax payers. tax payers can now select between the new and the existing tax slab option. Under the budget 2020, the FM has proposed to abolish 70 types of tax exemptions out of 100.

The government has also proposed to introduce Section 115BAC in the IT Act. The Hindu Undivided Families (HUFs) will come under this set of norms. If any of the salaried professionals opt for the new scheme, he or she will not be able to enjoy the prime benefits of the Leave Travel Assistance (LTA), Standard Deduction or House Rent Allowance (HRA). Self-employed and salaried people cannot enjoy the deductions under Section 80 C when it comes to repayment of home loans and other eligible items. Besides, the taxpayer will have to sacrifice the deductions under Section 24(b), related to the home loan interest on self-occupied properties.

The new tax slabs will increase the disposable income for individuals which will revive the consumption cycle in the realty sector and jump start the economy. With the additional savings, individual investments in housing, especially in the affordable housing segment could see an improvement in the near future.

The finance minister has also announced several steps to boost infrastructure growth in the country.The National Infrastructure Pipeline now includes 6,500 projects across the country and the finance minister has also announced the allocation of Rs 27,300 crores for industry and commerce in FY21. The development of strategic national highways has also been announced, which will lead to further development in the real estate sector.

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