The enactment of The Real Estate (Regulation and Development) Act with effect from 1st May 2016 is a very positive development for home and property buyers in the country. The biggest feature of the Act is the establishment of a Real Estate Regulatory Authority that will regulate real estate projects in the country and protect the interest of property buyers. The salient features of the Act include:
2016 has turned out to be a good year for property buyers with the introduction of Section 80EE for first time home buyers. Under this section, a first-time buyer will enjoy an additional deduction of Rs. 50,000 on interest paid on the home loan provided the following conditions are fulfilled:
Of course, existing tax benefits for buyers shall continue. So, a home buyer can claim the following deductions:
Further, the buyer must deduct 1% TDS on the sale value if the price of the property is in excess of Rs. 50 lakhs. This amount must be deducted with the government or else both parties may face action from the tax authorities.
It is not enough to focus on the tax implications of purchase of property. One must consider the tax impact of sale of the property as well.
Firstly, selling a property within five years of its purchase will result in reversion of all Section 80C deductions claimed in the past years. So, if you claim deduction of Rs. 50,000 u/s 80C for four years and sell the home in the fifth year, then the Rs. 2 lakhs deductions claimed will be added to your taxable income of the fifth year.
Apart from this, you will have to pay short-term or long-term capital gains tax on the difference between the sale value and the property’s cost.
Gains from a sale done within three years of the purchase will be added to your taxable income and taxed at the applicable slab and tax rate.
In case of a sale after three years, the gains will be tax at 20% in case of Indexation or 10% in case Indexation is not utilized. However, one can avoid paying long-term capital gains by choosing one of the following options:
When choosing this option, you can deposit the capital gains in a Capital Gains Account and use it to buy or construct the home within the mandated period.
The new law combined with the additional deduction is a positive development that should encourage first-time buyers to consider shifting from a rented home to their own home at the earliest.
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