What are the tax benefits associated with owning a rental home?
“You may pay taxes. But there’s no law that says you gotta leave a tip.” ~Morgan Stanley advertisement.
Every year, we see a majority of investors, cringing under the burden of taxes levied on their assets or investments. This is particularly evident in the case of property owners; unaware of the various tax benefits available to them while filing for tax returns. If we are to look closely; it is in fact,t the realty businesses that benefit most, from tax deductions (more so, when it involves multiple let out properties), in comparison to any other investments.
So let’s get crunching down to facts and figures, as this is the right time to be educated on the numerous tax benefits offered to property owners, self-occupied and/or let out. Here are some of the major ones, to be kept in mind before investing in a property:
A standard 30% deduction on the net annual value of a property (NAV=Gross Annual Value – Property tax), can be claimed as tax relief under Section.24 of the Income Tax Act.
Tax Benefits on Home Loan Interest:
Under Section.24 of Income Tax Act, homeowners can claim deductions of up to 2lakhs on home loan interest payments, with regards to the construction/purchase of self-occupied properties. However, owning let out properties can rebate a huge tax bonus, as owners are allowed to claim the entire deduction on home loan interest without any tax exemptions.
Tax Benefits on Principle Repayment:
Principle repayments on home loans for self-occupied/let out properties are deductible up to Rs.1.5 lakhs as per Section 80C. Other expenses related directly to the transfer, such as stamp duty and registration charges are also deductibles under Section 80C, subject to maximum deduction of Rs.1.5 lakhs.
Note: In order to completely avail these deductions, you ought to be following these underlying conditions:
- The home loan must be for purchase or construction of a new house property.
- The property must not be sold in five years from the time of possession.
Tax Benefits for first-time homeowners under Sec.80EE:
The Income Tax department in recognition of first-time homeowners, recently added a new Section to the Income Tax Act, i.e. 80EE; allowing them an additional Rs.50,000 to be claimed as deductions for interest on home loans. Of course, these deductions go hand in hand with the benefits that come under Section24 and 80C.
Benefits provided by Property Management Companies:
Property management companies file for TDS (Tax Deducted at Source) on rent, which is a 10% deduction from the rents that exceed Rs.1.8 lakhs per annum. TDS on rent can be reimbursed by the government if the individual annual income does not exceed Rs.2.5 lakhs. They also take care of major repairs on a rental property which are also tax deductible and can be claimed back the very same year. Some of the tax deductible repairs include broken windows, repainting, fixing gutters, floors or, leaks and plastering.
Such rebates on home expenses have become part of The Income Tax Act, in order to improve housing among middle class families all over India. Rentprop4u offers you a hassle free task of documenting all your paperwork, property repairs, and tax filings.