Hi, I am a first time home buyer, I have some tax related issues.

Q: How to save tax by doing investment on property?

Ravi S, Chandigarh

23rd January 2015

Property Tax in Chandigarh

property tax

investment advice

tax benefits on home loan

tax benefits

Follow Discussion

Also see discussions for

Chandigarh Property Tax Property Tax in Chandigarh

Replies (4)

Hi Ravi,

In my point of view, the ones who have a home loan in which they are a co-applicant and pay the EMI ,they can claim the entire deduction on interest as well as principal repayments. If the home is self-occupied, the total year interest deduction would be restricted to Rs 2 lakh. I am also assuming that you would continue to pay the entire EMI until the loan is fully repaid.

Samarjit, Chandigarh

23rd January 2015

Comment

Hi All,

Steps to calculate the annual rental income from the property -

1-Deduct the amount of property taxes paid during the year in respect of such property,
2-From the net value so arrived, make an ad hoc deduction for repairs and maintenance of the property computed at 30 per cent of the net value.
3-Deduct the amount of interest payable on loan taken for purchase or construction or repairs or re-construction of the house. Note that there is no limit on the amount, which can be claimed as deduction as interest on such loans in case the property is rented out.

Anu Dhiman, Chandigarh

24th January 2015

As per my knowledge, the second property would fetch significant tax benefits, especially when 80 per cent of its cost is funded by loan. There is no limit on the deduction on interest on loan taken for the 2nd property assuming it would be not be a self-occupied property. Considering this, often it makes sense to buy the same in the name of the earning spouse who can enjoy the associated tax benefits fully. However, the non-earning member can be a co-applicant.

Jasbir Singh, Chandigarh

23rd January 2015

Comment

Hi Mr Ravi S,

Yeah Mr Baljeet Singh you are right. As per my knowledge, if you have some spare money then you can either invest the same or repay your loan. If you can earn post tax return on your investment which is higher than the effective interest rate, you should consider investing than repaying. On the other hand, if you expect to earn a post tax return of lower than the effective interest rate on your housing loan you should consider pre-payment of the loan.

Harleen K, Chandigarh

23rd January 2015

Comment

Hi Guys,
Little note to make here. Recently I came to know that interest payable during the pre-construction period is available as deduction equally over 5 years starting from the year in which possession of the property is acquired. However, note that for the self-occupied property, the total interest deduction in a year cannot exceed Rs 2 lakh.

Kalki K,

23rd January 2015

Hi Mr Ravi,

I understood your issue. So according to me, you have to first calculate your effective rate of interest on your housing loan. For example, if you are in 30 per cent tax bracket and the rate of interest on your housing loan is, say 10 per cent pa then the effective interest rate for you is 7 per cent per annum assuming the entire amount of housing loan interest is being claimed as tax deduction.

Baljeet Singh, Chandigarh

23rd January 2015

Comment