What are various income tax benefits on housing?

Owned or rented, your house will give you different types of tax benefits

Neil Borate Jan 16, 2018

Owned or rented, your house will give you different types of tax benefits. We tell you about them here:

If you are a tenant

You can claim a tax deduction for the house rent you pay whether or not you get House Rent Allowance (HRA) from an employer. However, there are separate rules for these two situations:

1) You receive HRA

HRA or House rent allowance allows you to claim a deduction on the HRA that your employer pays you.

The HRA deduction is given to the least of the following three:

a) Actual HRA received.

b) 50% of gross salary for metros. A 40% for non-metros.

c) Actual rent minus 10% of salary.

Eg: If your salary is Rs 40,000 per month and you pay rent of Rs 10,000 per month. You receive HRA of Rs 10,000 per month. Your HRA deduction will be Rs 72,000 (Annual rent of Rs 120,000 – 10% gross salary of 480,000 which is 48,000).

2) You don’t receive HRA

If you are self-employed or you do not receive HRA, you can still get a deduction for house rent. This will be the least of the following:

a) Rs 5,000 per month

b) 25% of adjusted total income (total income minus capital gain and specific deductions)

c) Actual rent paid – 10% of adjusted total income  

Eg: If your total adjusted income is Rs 10 lakh and you pay an annual rent of Rs 240,000 (Rs 20,000 per month), your total deduction under this provision will be restricted to Rs 5000 per month.

If you own a house and have home loans

Home Loan Interest

1) If your house is self-occupied

The interest on your home loan is eligible for tax deduction under Section 24B up to Rs 2 lakh  

2) If your house is rented out

If the house is let out rather than self-occupied, there is no upper limit on the tax deduction on the home loan interest you pay for it. This deduction is also available for under construction properties. However, if the house is not constructed within 5 years of taking the home loan, the deduction is reduced from Rs 2 lakh to Rs 30,000 per annum.

Home Loan Principal

The repayment of principal on your home loan is eligible for deduction under Section 80C up to Rs 1.5 lakh. However, you get this deduction only after construction is complete and a completion certificate has been awarded. The deduction will also be reversed if you sell or transfer the house within a period of five years of getting possession of the same.

The entire amount of deduction you have claimed, for instance, Rs 1.5 lakh for 3 years (4.5 lakh) is added to your income in the year of sale. You can also claim the deduction on stamp duty and registration paid for the purchase of a house and this amount is also reversed if you sell the house within five years of purchase.

If you own a house and get rent

The municipal taxes you pay are allowed you as a deduction. In addition, the expenses you incur on activities such as fixing bulbs and repairing pipes are also given to you as a tax deduction under this provision. You do not have to add them up and provide bills to the tax authorities. Instead, 30% of the rent you get is allowed to you as standard deduction.

If you own and house and do not get rent

If your house is not self-occupied and is not rented out either, you will have to pay tax on deemed rent. This is the rent that similar properties in the locality will earn. On this rent, you can deduct the municipal taxes you have paid and get a 30% deduction for expenses (standard deduction).

Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.

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