Hidden Benefits ofHousing Loan!
Housing loan, in first instance it is like a burden to repay a certain amount to be paid in periodical intervals even though it is used for construction/purchase of house. But, when it comes to Tax calculation it will be beneficial to tax payer that, he can deduct the interest paid on account of housing loan. Primarily interest repaid can be deducted from house property income and from the value of house (if you have more than one house) while computing wealth tax.
Let’s check it’s implication in income from house property
According to income tax act a person receiving income from house property can deduct certain amount under section 24 as standard deduction (other than municipal tax paid in the case of let out property) from the income from house property.
Standard deduction prescribed under section24 is as follows
In the case of let out property (ie. Which is given on rent)
- 30 % of annual value of the house, and
- Interest on loan, taken for purchase, construction or repair of the house
- Interest on loan paid prior to the previous year in which the house is completed is allowed in five equal installments
In the caseof self occupied house (ie which is used by the person for his residence or due to his profession, business, employment carried at any other place, he was not able to reside in his house )
- 30 % of annual value of the house, and
- Interest on loan to a maximum of Rs 30,000(for loan taken before 31/3/1999) or Rs 1, 50,000 (for loan taken after 31/3/1999)
What if the person owns more than one house
Under these situation, any one of the house should be opted as self-occupied and you can claim deduction for a maximum of Rs 1,50,000 and other houses should be treated as let out property (even if they are not actually let-out) and you can claim the whole of the interest paid against notional rent(an amount of money noted in accounts as rent where the company owns the building it is occupying and so does not pay an actual rent-qfinance) or actual rent received. Under the proposed Direct Tax Code, the interest on house property will be allowable only if the other property is let-out. Further, house properties which are not let out for more than 300 days will attract wealth tax liability depending on the circumstances.
For example- if you own four residential house property-then any one of the house property will only be considered as Self-Occupied property and the remaining three house property will assumed to be let-out.
Let’s check it’s implication in wealth tax
Under wealth tax all properties kept as stock in trade or used for the purpose of business or profession is exempt from tax. Further, residential properties let-out for a minimum period of 300 days are also exempt from wealth tax (rental income from such property will come under income from house property).
In addition, one house of the individual or Hindu undivided Family (HUF) is also exempted from wealth tax
What if the person owns more than one house
You can choose any one of the residential property to be exempted from wealth tax and other residential properties(which are let out for a period less than 300days) taken together with other assets is more than Rs. 30 lakhs, you will have to pay wealth tax.