Raja Housing Info - Ready to Move House Gets Tax Benefits

When you don’t have much choice, shopping becomes simple. This implies while purchasing a house as well. If you’re planning to purchase a house, the important decision you have to take is whether to go for a under construction one or ready to move house.

PRICE

A ready to move house will cost more, if property type, location, size and neighborhood are same. The reason is transparent. For the possession you don’t have to wait and also can save the rent. A cost of under construction house will be less, but if you opt for that you have to keep paying the interest on home loan and also rent on your present house.

Compare two properties, one ready to occupy and other to be ready by next three years but costing 25 percent less. The annual outflow, assumptive 80 percent house worth as loan, are going to be virtually same within the initial 3 years if down-payment amounts are constant. The purpose is that the tax breaks that you are going to be eligible for within the total purchase and zero rent outgo.

TAX

One must purchase their first house in life as soon as possible to gain from tax deductions and to save rent. Claiming deductions is not so easy for an under construction house, says experts.

This is how related tax laws work. The principal amount paid up to Rs 1 lakh is deducted from income under Section 80C of the Income Tax Act. The interest paid for a loan is entitled for deductions up to Rs 1.5 lakh on the first house under Section 24(b) of the IT Act (the whole interest payment can be deducted for the second home from the income that is earned from it).

For the properties which are ready these deductions are permitted. An under construction property is not eligible for Rs 1 lakh deductions available for principle payments. When the property is under construction the interest paid can be deducted in five equal installments.

A huge number of buyers are not eligible for the tax deduction of Rs 1.5 lakh on interest payment, with projects slows a standard rather than an exception.

Previous financial year’s interest paid will also become qualified for deductions. Pre- construction interest of one-fifth can be added to the interest paid during the year, and over the next four financial years the rest will be included.

However, when the loan is huge, deductions on pre-construction interest does not make much sense. This is because principal payments and interest of present year will cut off the tax deduction limit. If you’re in 30 percent tax bracket you can save Rs 45,000.

SERVICE TAX

If a developer is selling a property in a group housing project before it is ready for possession, a 12.36 percent of service tax is charged on a part of price. There is no such tax if the carpet area of the property is up to 60 sq.ft.

For the property which is not exceeding 2,000 sq.ft in area or if the properties worth is of Rs 1 crore, than only on 25% of the price the service tax is applicable. The effective service tax is 3.09%.

The service tax is calculated on 30 percent of the cost, for the high-end properties, which means 3.71 percent is the effective rate. If the property is ready to occupy than it’s not necessary to pay this tax.