Home Loan Tax Benefit FY2017-18, AY2018-19

Home Loan Tax Benefit FY2017-18, AY2018-19

Tax Benefits	On Principal Repaid	On Interest Paid
First Home – Self Occupied	Actual principal repaid subject to a maximum of Rs. 1,50,000 (Rs. 2 lakh for senior citizens) can be claimed as investment eligible for tax deduction under section 80C.	Actual home loan interest paid subject to a maximum of Rs. 2 lakh (Rs. 3 lakh for senior citizens) if house construction completed within 5 years from the end of the financial year in which loan is taken If construction of house not completed within five years then Rs. 30,000 is tax exempt Additional exemption of upto Rs. 50,000 on interest paid for loans upto Rs. 35 lakh with cost of home upto Rs. 50 lakh.
First Home – Rented/ Vacant (deemed to be let out property)	Upto Rs. 1,50,000 (Rs. 2 lakh for senior citizens) eligible for tax deduction under Section 80 C. The deduction is available only if the property owner is staying in a different city for work.	·         For current assessment year 2018-19: Exemption on interest has been capped at lower of two, a) Rs. 2,00,000 or b) actual interest paid for all properties owned by a tax payer.
Second Home or Additional Property	None	·         For current assessment year 2018-19: Exemption on interest has been capped at lower of two, a) Rs. 2,00,000 or b) actual interest paid for all properties owned by a tax payer
Under Constrn.	None	·         The interest paid can be claimed in equal parts in five financial years post completion or handing over of property within the overall annual limit of Rs. 2 lakh.

Tax Benefit on Home Loan Principal Repayment

For first residential property which is self occupied, rented or vacant

How to avail home loan tax exemption

• Principal repayment of up to Rs. 1.5 lakh (Rs. 2 lakh for senior citizens) can be clubbed under the overall limit for tax saving instruments eligible under Section 80C to claim tax benefit of upto Rs. 50,985 per annum

• Deduction available for purchase or construction of first residential property which is self occupied or is rented as the tax payer has to live in a different city due to his work

• Any amount paid towards partial or full prepayment of home loan is also eligible for tax benefit 

 

Tax Benefit on Home Loan Interest

For first self occupied home 

How to avail home loan tax exemption

• Annual interest component of up to Rs. 2 lakh (Rs. 3 lakh for senior citizens) can be claimed as deduction against income under section 24
• Tax liability can be reduced by upto Rs. 67,980 depending upon your tax slab
• Additional exemption of up to Rs. 50,000 can be claimed as deduction against income from FY 2016-17 and AY 2017-18 on first home provided the sanctioned loan amount is upto Rs. 35 lakh and cost of house is upto Rs. 50 lakh
• Available for purchase/ construction/ repair/ renewal/ reconstruction of a residential house property
• Benefit available only for self occupied property
• Deduction is available on an accrual basis and not on a payment basis. Hence, deduction under Section 24 can be claimed on yearly basis even if no payment has been made during the year but interest has accrued

For under construction property before possession

According to Section 24 of IT Act, you can claim deduction against the interest amount that you have paid on your residential property during the pre construction period.

• Similar Deduction not available on principal repayment under Section 80C, for payments done during pre construction period
• Total interest paid during the pre construction period can be claimed as tax deductible in five equal installments during five successive years from the year in which construction is completed and property is handed over to you.
• Total allowable deduction stands capped at Rs. 2 lakh per year for self occupied house.
• There is no limit on interest that can be claimed as tax deductible in case of let out property and deemed to be let out property for Assessment Year 2017-18. However, from AY 2018-19, there will be a limit of Rs 2 lakh on amount of total interest that can be claimed against income from let out or deemed to be let out property
• Tax deduction during construction period is not allowed for loan taken for repair or renewal of a residential property.

For rented or vacant property

Tax treatment on vacant property

• Vacant property - As per Income Tax rule (Section 24), you will be required to account for deemed rent on the property as taxable income. Deemed rent is notional rent based on market rental values in the vicinity. Interest paid on loan taken to buy the property can be set off from the taxable income. In FY16-17 (AY 17-18), 100% of the interest is eligible for deduction on such properties. Starting from FY17-18 (AY18-19), the interest benefit cannot exceed Rs. 200,000 per individual.
• Property not self occupied for reason of employment, business or profession in different place or other city - As per Income Tax Rule (Section 24) tax deduction allowed is capped at Rs. 2 Lakh.
• Property is part self occupied and part is rented out - The interest must be spilt in proportion of the size of the two parts and tax benefit shall be split proportionately.

How to avail tax exemption

• In case you own more than 1 property, one of which is self occupied and others are rented out or lying vacant, till Assessment Year 2016-17, entire interest paid on such property can be set it off from rent received or deemed rent on such properties
• In case the interest on home loan together with other deductible expenses (such as repairs, house tax, standard deduction of 30% on rented property etc) is higher than rental income/ deemed rental income, the loss can be adjusted against other income heads including salary income, business income, interest income; thus reducing the overall tax liability.
• In case there is unabsorbed loss even after these adjustments, same can be carried forward for up to 8 years to be adjusted against taxable income in future years.
• Starting FY2017-18 (AY 2018-19)- the maximum set off for interest paid on all properties, including self occupied, rented and vacant properties has been capped at Rs. 200,000 per taxpayer, irrespective of the number of properties owned by the individual.

Joint home loan tax benefit : for co-applicant, co-borrower and joint owner

If the home loan that you have taken is in joint names then you can save more tax as compared to when you have taken home loan individually.

• Each applicant and the co-applicants (any number) can avail tax benefit individually for a property in which they are joint owners
• Each applicant and co-applicant can separately claim a maximum tax deduction of Rs. 1.50 lakh per annum for principal repayment under Section 80C and Rs. 2 lakh per annum for interest payment, under Section 24. However, the total tax benefit by all joint owners cannot exceed the total principal repayment and interest payment during the year.

Budget 2017-18 for AY 2018-19

In the union budget announced on 1st Feb 2017, the Finance Minister has made three significant changes with respect to income tax benefit on home loan and capital gains on sale of house property.

• Change in long term capital gains definition - Upto 31st Mar 2017, any property sold within 3 years of purchase used to attract short term capital gains tax at marginal tax rate (30%). Starting FY 2017-18, a house property sale will qualify under long term capital gains if it is held for a minimum period of 3 years instead of 2 years and hence, be eligible for concessional tax rate of 20% with indexation benefit or 10% without indexation benefit. Further, the long term capital gains so accrued shall continue to be eligible for tax exemption by way of investment under capital gains bonds under section 54E. For more, refer to

·         ·  Maximum interest exemption for tax benefit on home loan capped at Rs 2 lakh including that on rented property - Earlier, interest paid on capital borrowed to purchase a house or any other property for investment purpose (property that was not self occupied but was let out or lying vacant) was eligible to be set off from rental income without any limit. Further, loss as a result of interest expense being more than the rental income was eligible to be set off from income under any head such as salary, business or interest. From FY 2017-18 and AY 2018-19, the maximum allowable deduction for interest on house property has been capped at Rs. 200,000 (Rs. 2 lakh only).This limit of Rs. 2 lakh is applicable to each tax payer and is the maximum deduction available for interest paid on all properties owned by the tax payer. However, this provision is not applicable for entities that are in the business of owning real estate.
For more details, refer to the latter part of this page under the heading "Deduction of interest paid on home loan taken to purchase a property that is either rented out or not self occupied." 

·         ·  TDS on rent paid by individuals – So far, only the corporate entities were required to deduct TDS at 10% on rent paid in excess of Rs. 2 lakh per annum. As per Budget 2017, effective 1st June 2017, individuals, professionals and businessmen will also be required to deduct TDS at the rate of 5% on rent paid in excess of Rs. 50,000 per month.

Taxability of Gift U/s 56(2)(Vii) AY 2018-19

Taxability of Gift U/s 56(2)(Vii) AY 2018-19

Gift is usually used to convert black money into white money. To stop practice of converting black money into white money a section 56(2)(Vii) introduced by Finance Act , 2009 and amended by Finance act , 2010. This section deals with law of taxation of gift.

Provision Contained in Sec-56(2)(Vii)-

Where an individual or HUF receives in any previous year, from any person or persons-

(a)  any sum of money, without  consideration , the aggregate value of which exceeds Rs. 50,000/-, the whole of the aggregate value is taxable,

(b)  any immovable property,-

I.        without consideration, the stamp duty value of which exceeds Rs. 50,000/-, the stamp duty value of such property is taxable,

II.       received for a consideration which is less than the stamp duty value of the property and difference is more than Rs.50,000/- then such difference is taxable

(c)  any property other than immovable property,-

I.        without consideration, the aggregate fair market value of which exceeds Rs. 50,000/-, the whole of the aggregate fair market value is taxable,

II.        received for a consideration which is less than the aggregate fair market value of the property and difference is more than Rs.50,000/- then such difference is taxable

 

Analysis of Section- 56(2)(Vii) Read with section of Capital Gain Section 50C, Sec-47.    

I.        Any transfer of capital assets under gift, will or an irrevocable trust is not taxable under head Capital Gain. It is not regarded as transfer U/s 47.

II.        Any distribution of capital assets on the partial or total partition of a Hindu Undivided Family is not taxable under head Capital Gain. Because it is not regarded as transfer U/s 47.

III.       As per Sec-50C, where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of State Government for the purpose of payment of stamp duty, such value deemed as full consideration.

Graphical representation of above provisions ( like a capsule to understand above provisions

GIFT Graph Example of above discussed provisions:-

1. Lucky has a property, which he has purchased on 01-04-2004 of Rs. 10,00,000/-. Later on he gifted the property to Bharti (Donee) on 31-03-2015. On date of gift Stamp duty/Fair market value of said property was Rs. 25,00,000/-.What is tax implication in the hands of Lucky (Donor) and Bharti (Donee).?

Solution-

In the hands of Lucky (Donor)

There is no capital gain tax in the hands of lucky because gift transfer is exempted U/s 47 of the income tax act and other reason is that there is no sale price exist.

In the hands of Bharti (Donee)

Gift is taxable in the hands of Bharti under the head “Income from other sources” under section 56(2)(Vii). Because stamp duty value/ Fair market value of the property is in excess of Rs. 50,000/-. Hence whole stamp duty value/ Fair market value is taxable in the hand of Bharti.i.e 25,00,000/- is taxable.

2. In above example if Lucky sold property to Bharti at Rs. 20,00,000/-. Other things remains same then what tax implication in the hands of Lucky and Bharti.?

Solution-

In the hands of Lucky

If property sold is an immovable property then Section 50C would be applicable, hence Capital Gain = 25 lakh-10 lakh= 15 lakh is taxable.( Subject to indexation)

If property is other than immovable property then section 50C does not apply, hence Capital gain = 20 lakh- 10 lakh .i.e 10 lakh is taxable.

In the hands of Bharti-

Stamp Duty value or fair market value of the property is excess of Rs. 50,000/-. Consideration paid is less than stamp duty value/ fair market value and difference between stamp duty value/ fair market value is in excess of Rs. 50,000/-. Hence it is taxable in the hands of Bharti.

Taxable amount = 25 lakh – 20 lakh = 5 lakh is taxable under the head “Income from other Sources”

Exemptions in relation to Gift

Provided further that Sec-56(2)(Vii) does not apply to any sum of money or any property received-

I.        From any relatives, or

II.        On the occasion of the marriage of the individual, or

III.        Under a will or by way of inheritance, or

IV.        From any local authority as defined in the explanation of Sec-10(20), or

V.        From any fund or foundation or university or other educational institutions ,or hospital or other medical institutions or any trust referred in Sec-10(23C) ,or

VI.        From any trust or institutions registered under section 12AA of income tax act.

I have used the word “Property” many times. Property means the followings capital assets of the assessee, namely:-

i.        Immovable property being land or building or both,

ii.        Shares and securities

iii.        Jewellery

iv.        Archaeological collection,

v.        Drawings,

vi.        Paintings,

vii.        Sculptures,

viii.        Any work of art,

ix.        Bullion.

Meaning of Relative (Specified persons):-

i.        Spouse of individuals,

ii.        Brother or sister of individual,

iii.        Brother or sister of the spouse of the individual,

iv.        Brother or sister of either of the parents of the individual,

v.        Any lineal ascendant or descendant of the individual,

vi.        Any lineal ascendant or descendant of the spouse of the individual,

vii.        Spouse of the person referred to in above clauses.

Section 56(2)(Viia) :- Gift received by firm or closely held company:-

Where a firm or closely held company received from any person or persons shares of a closely held company –

a) Without consideration, the aggregate fair market value of which exceeds Rs. 50,000/-, the whole of the FMV of such shares.

b) For a consideration which is less than FMV of shares and difference between consideration or FMV exceeds Rs. 50,000/- , then such excess shall be taxable.

Points need to be remember :-

1)    Gift received from relative is exempt.

2)    Gift received on the occasion other than marriage from non specified person shall be taxable under the head income from other sources.

3)    Money received whether in cash or cheque in excess of Rs. 50,000/- from non specified persons shall be taxable.

4)    Gift received in contemplation of death is not taxable.

5)    There is no tax implication if HUF receives gift from any member of the HUF or purchase assets at lower price than stamp duty value/ Fair market value.

6)    As per Hindu law HUF can not make gift to any one.