23 January, 2024
4 mins read
Renting or selling a property are significant transactions that an assessee can make during the financial year. These proceedings attract tax liabilities on individuals. In the context of Indian Income Tax, understanding the details of property tax, such as TDS for the purchase of property, regular tax deductions, etc., is crucial for taxpayers.
This blog delves into the core aspects of real estate tax deductions on house property income and income from the sale of property, with specific references to sections of the Income Tax Act.
Property tax in India refers to the annual amount paid by a property owner to the municipal corporation or local government of their area. This tax is levied on the value of the property and is used for the maintenance and development of local amenities and infrastructure.
Under the Income Tax Act, there are specific provisions that allow taxpayers to claim a property tax deduction in income tax. These include:
Tax deduction on home loan interest under section 24 allows a standard deduction of 30% on the net annual value of the property. It is applicable irrespective of the actual expenditure incurred on the property only against rental income.
Taxpayers can claim a deduction on the interest paid on a home loan for purchasing, constructing, or renovating a property. For a self-occupied property, the limit of deduction is set at ₹2 lakhs. For let-out property, there is no upper limit on the amount of interest that can be claimed as a deduction.
It is important to note that the total amount of deduction under section 24 cannot exceed the total amount of house property income.
Moreover, the buyer needs to deduct TDS on a flat purchase (at the time of purchase) if the amount exceeds ₹50 lakhs.
Capital gains arising from the sale of property are also subject to specific tax deductions under the Income Tax Act. These include deductions under Sections 54, 54F, and 54EC, among others. These sections provide relief by allowing the reinvestment of the capital gains into specified assets or property, thereby reducing the tax liability.
For instance, under Section 54, if a taxpayer sells a residential property and reinvests the capital gains into another residential property, then the gains up to the cost of the new property are exempt from tax.
Similarly, Section 54EC allows for tax exemption on capital gains if they are invested in specified bonds. Hence, to reduce property tax, search for reinvestment options.
In the Indian Income Tax framework, claiming deductions on property tax online can significantly reduce tax liability. Here’s a simple guide on how to claim property tax deductions on house property and the sale of property.
1. Keep all property tax receipts for the financial year in the individual’s name.
2. Determine the Gross Annual Value (GAV) of the property. It is the rent received for rented properties and nil for self-occupied ones.
3. Subtract any municipal taxes from the GAV to find the Net Annual Value (NAV).
4. Apply a 30% standard deduction on NAV for maintenance.
5. Deduct home loan interest from NAV, up to ₹2 lakhs for self-occupied and no limit for rented properties, subject to an overall cap of ₹2 lakhs loss under "Income from house property".
6. Fill in the income or loss from house property in ITR-1 or ITR-2 forms.
1. Determine capital gains or losses by subtracting the indexed cost of acquisition (adjusted for inflation) from the sale price of the property.
2. To claim deductions on capital gains:
3. If gains are not reinvested before filing the return, deposit them into a Capital Gains Account Scheme at a nationalised bank to claim exemption. Utilise this for property purchase or construction within the specified time.
4. Keep all relevant documents like sale deeds, bank statements, and investment proofs.
5. Declare the capital gain or loss in a tax return. Mention exemptions under Section 54/54EC in the 'Exempt Income' section using ITR-2 or ITR-3 forms.
With this, an assessee can also take Tax Deductions Under Section 80C while filing their Income Tax Return to reduce the overall tax liability.
Property tax and related deductions in the context of Indian Income Tax are critical components for taxpayers, especially those involved in property transactions with Piramal Aranya or any other project. Taxpayers should consult with a tax expert to understand these provisions effectively and ensure compliance with the tax laws.
Disclaimer- This article is based on the information publicly available for general use as well as reference links mentioned herein. We do not claim any responsibility regarding the genuineness of the same. The information provided herein does not, and is not intended to, constitute legal advice; instead, it is for general informational purposes only. We expressly disclaim /disown any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided herein.
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