The purchase of a dream home is one of the most significant turning points in everyone’s life. A home loan is the practical source of funding to realize this desire. Property acquisition is a significant financial choice. The Indian tax authorities do, however, provide some home loan tax benefits for those who borrow money to purchase either residential or commercial property. These advantages can lower your overall tax burden and make it easier to pay back the mortgage. However, there aren’t many notable distinctions between residential and commercial properties when it comes to receiving home loan interest tax benefits.
Let’s talk about residential property.
Tax advantages of borrowing money to purchase a home
You pay back your house loan each month in the form of an EMI. Both the capital and interest make up an EMI. On both of these components, the Income Tax Department provides tax advantages. The various interest taxes for residential property loans are available under the following sections:
The principal component of the loan that is repaid through an EMI is eligible for a tax deduction of up to Rs. 1.5 lakh per year under this provision. Additionally, you may make a single claim for stamp duty and registration fees.
A tax deduction of up to Rs. 2 lakh can be claimed annually under this provision for the interest component of EMI repayments. It is crucial to remember that this advantage is only available for properties that are currently under construction if they are finished within 5 years. Only Rs. 30,000 can be claimed as the maximum amount if the building takes longer.
Every year, you are eligible for an additional deduction of Rs. 50,000 on the interest component if you are a first-time purchaser purchasing a home for Rs. 50 lakh or less and taking out a home loan for less than Rs. 35 lakh.
The following are some considerations for a loan for residential property:
- Only properties that are vacant and under construction or that are ready for occupancy qualify for tax incentives.
- The tax savings will be reversed and added to your income if you sell the property within five years of taking ownership.
- Each co-owner of a jointly owned property may take advantage of the aforementioned benefits, provided that they are also co-loan borrowers.
Let’s examine the buying of a commercial property.
Tax advantages of borrowing money to purchase commercial property
You can take advantage of specific tax advantages that the Income Tax Department has set forth when you purchase commercial real estate with borrowed money.
Your property’s potential rental income is expressed as an “Annual Value.” If a commercial property owner rents out their property, they are permitted to deduct 30% of the annual value as a standard deduction for maintenance costs, insurance, power, water supply, etc. No matter if you pay the expense or not, this still applies.
A tax deduction of Rs. 2 lakh can be claimed by commercial property owners who have taken out a loan to purchase, build, repair, or reconstruct their property under Section 24 of the Income Tax Act of 1961. Processing charges and any prepayment charges for commercial property may also be accounted for in the interest component.
The assessed annual income is increased by any taxable income from commercial property, which is then taxed in accordance with the appropriate income tax slabs. The assessed may offset any negative taxable income in the same fiscal year with positive income from other heads of business (up to a maximum of Rs.2 lakh). Losses that cannot be offset or that exceed Rs. 2 lakh may be carried forward for a maximum of eight years in order to offset them against future income.
Things to consider before purchasing real estate, whether commercial or residential
- Whether you want to buy a commercial or residential property is sure to research the neighbourhood. Higher rent and better capital growth can be attained in a location with the necessary amenities and good transportation.
- Make sure you are informed of every expense related to purchasing and maintaining the property.
- Make sure you are informed of the most recent tax incentives provided by the government.