Tax deduction in Real Estate

Tax saving opportunities in real estate

Real Estate, it is the very common and traditional investment avenue for the investor. In last 4-5 year, it has performed fairly well against most of asset class. Most of us believe that it is safe and quick return generating asset. In realty, before any investment you should be aware of your tax benefit and tax liability both.

For example, if an individual sell the house within 3 year from purchase, the earlier claimed tax benefit completely reverse and you have to pay the short term capital gain tax as per your income tax slab. So in case if you sell property and think of 50% gain then kindly consider the tax liability also before selling your property. It is applicable to all type of properties whether self occupied property or let out property (LOP) or deemed let out property (DLOP). Let out property (LOP) means that property from which you are earning some income and DLOP means that property has not yet been let out for rent. These tax rules are not applicable on farm house as it is considered as an agriculture land.

If you have property from which you are getting rent income is consider as LOP. For calculate the tax liability, we have to first calculate the net annual value of the property. The following steps help you to calculate the net annual value (NAV) of the property:

Step 1: Compare the municipal value and fair rent. Fair rent can be obtain

            from the rent of properties under similar category. The higher value

            can be used but it should not exceed than standard rent. Standard

            rent fixed as per guideline of the Rent Control Act

Step 2: Actual rent value received from property

Step 3: Choose the higher value from the above 2 steps

Step 4: Calculate rent amount for those months when property was not

            Rented

Step 5: Calculate the difference of the value of step 3 and step 4. It is your

            Gross Annual Value (GAV).

Step 6: We will get the Net Annual Value (NAV), by deducting the paid and

            due municipal taxes from GAV.

In case of multiple properties, the highest GAV value property is considered as self occupied property.

Available tax deduction:

• The principal amount you pay for home loan can be also claimed under section 80(c) within the limit of Rs 1 lakh.

• Under Section 24(a), taxpayer can directly claim the 30% of NAV of the property as a tax deduction for maintenance of the property regardless whether the amount has been spend or not for the maintenance of property. It can be claim for LOP and DLOP property not for self occupied property.

• Under Section 24(b) interest paid for borrowed home loan, taxpayer can claim entire interest in case of LOP and DLOP property. In case of self occupied property there is limit of Rs 1,50,000 for tax deduction interest paid for borrowed home loan. This deduction can be claimed after complete construction of the property.

It is the vast subjective subject. For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com