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Tax benefits of investing in real estate

September 12, 2018

Buying a home is a dream for many. Apart from steady appreciation and high returns, it also provides homeowners with security and peace of mind, which is a blessing on its own. Real estate, unlike other forms of investment, is tangible. The joy of stepping into a home that you own, is a feeling that cannot be surpassed. To make it more attractive than what it already is, the government of India also offers a plethora of tax benefits for home buyers, making real estate investment the most convenient option. Let’s take a look at a few of them.


Tax benefits offered with a home loan
First time home buyers can benefit from a wide range of tax benefits as per sections 80C, 80EE and 24(b) of the Income Tax Act. They can avail tax exemptions on both residential and commercial properties, irrespective of the development being under construction or ready to occupy.


Section 80C:
Section 80C provides homebuyers with the biggest benefit of saving taxes through a home loan. The amount paid towards the repayment of the principal loan amount is liable for tax deductions with a maximum cut off of ₹ 1.5 lakhs. Investors can enjoy these tax benefits irrespective of whether they are staying in the property or renting it out for secondary income.

Furthermore, Section 80C offers a wide range of benefits allowing you to claim charges like stamp duty, registration fees and other statutory expenses as tax deductions. These, however, can be claimed only if the house is fully-constructed and the homeowner has taken possession of the house.


Joint home loan:
If the home loan is taken under the name of two people, both parties can claim deductions up to ₹ 1.5 lakhs each for the principal amount and ₹ 2 lakhs each for the interest paid. This is especially useful for married couples, where both the husband and the wife can claim deductions. The couple can gain larger benefits against the interest of the home loan with an interest outgo of more than ₹ 2 lakhs per annum. However, under Section 80C, these benefits can only be claimed if the property is ready to be occupied.


Section 24(b):
According to Section 24(b), homeowners can avail deductions against the interest amount paid during both the pre-construction and the post-construction period of the property. For self-occupied properties that are under construction, one-fifth of the interest amount can be claimed up to a maximum of ₹ 2 lakhs. Post construction, homeowners can claim up to ₹ 2 lakhs against the interest paid.

On the other hand, if you are renting out the property once the construction is complete, the entire amount paid against interest for the home loan can be claimed as tax deductions with no upper limit.

This clause is also applicable on loans taken for the renovation of projects to boost the resale value of your property.​


Section 80EE:
Section 80EE is tailor-made for first time home buyers allowing them to claim an additional deduction of ₹ 50,000 apart from the ₹ 2 lakhs that you can claim on the interest of the home loan.  In order to be able to claim deductions under this section, homeowners must meet the following criteria:

  • The value of the home should be under ₹ 50 lakhs
  • The loan amount should be less than ₹ 35 lakhs

Furthermore, investors can avail this benefit till the repayment of the entire home loan.


Tax benefits of a second home
When you own more than one property, then one property is considered as self-occupied while the other is considered rented.

While investing in a second home, homeowners can only claim deductions for interest paid on home loans but not the principal amount. The interest paid against the home loan for the second property can be exempted from tax with no limit, provided the property is rented out.


Benefits from reinvesting
Adding to that, according to Section 54 of the Income Tax Act, investors can avail tax exemptions on long-term capital gains if the amount is invested on another residential property. A long-term capital gain is the profit earned when a property is sold after three years of ownership. However, this exemption is valid only if the second property is bought within two years of the sale of the first property. This clause is also valid on a second property that is being constructed, provided the construction is completed within three years of the sale of the first property.

These incredible tax benefits have made investing in real estate more attractive to people from all walks of life. Apart from being a long-term investment plan with guaranteed returns, it also provides a multitude of tax deductions that offer financial stability. Head out to the Brigade Group today and get one step closer to your dream home. You can also read our blogs on the pros and cons of buying vs renting a property and making the right choice between apartment and villas for further insights on investing in real estate. 


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