Part II: Tax related aspects of buying and selling real estate
Nov 23, 2013
Source : The Times of India


DELHI: I am planning to buy a house by raising loans from friends and relatives. Will I be eligible for tax benefit from all sources?

Interest payment to friends and relatives can be claimed u/s 24 but only against a certificate received from them. In the absence of the certificate, you would not be eligible for the deduction. The recipient of interest income who issues the certificate is liable to pay tax on the interest income that he receives. As far as the principal payments are concerned, they would not qualify for tax benefit as loans only from notified institutions and banks are eligible for such deductions.

My home is in Pune but I am residing in Delhi in a rented house. Can I take advantage of tax benefits from a home loan as well as claim House Rent Allowance (HRA)?

Yes, you can avail both the benefits at same time. For this you have to declare the home in Pune satisfies the condition of self occupancy while the home in Delhi comes within the exception of the self occupancy rule that the city of work is different.

Author’s View

Apart from above tax benefit, we should also consider following aspects before buying a house property:-

  • In case you are purchasing a property which is more than Rs 50 lakh, you need to deduct tax at the rate of 1 percent, this is a new requirement which you need to careful about.
  • The second important aspect is under section 54 of IT Act , if you sold a house property & utilize capital gain for purchase of new house property within 2 year of sale or before 1 year of sale then entire capital gain(upto cost of new house purchase) will be exempt from tax here you have keep in mind that for availing the capital gain exemption it is mandatory to held the sold out property at least 36 months before sale or transfer..
  • The second point is if you are making any borrowings for the purpose of purchasing house property then you can claim the interest as a deduction up to Rs 1.5 lakh. In the recent Budget there was an additional interest deduction of Rs 1 lakh, which was introduced under section 80ee subject to following conditions:-
    • The loan is sanctioned by the financial institution during the period beginning on 1st April, 2013 and ending on 31st March, 2014;
    • The amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees;
    • The value of the residential house property does not exceed forty lakh rupees;
    • The assessee does not own any residential house property on the date of sanction of the loan. but that will not be applicable in your case because in that case one of the conditions is that the house property should not be more than Rs 40 lakh.

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