Tagged: Tax Benefits
ATM :: When home loan tax deductions can get revoked
There are lock-in periods that need to be observed in case you have claimed deduction against repayment of home loan
Ashwini Kumar Sharma | Last Published: Mon, Jan 08 2018. 08 20 AM IST | LiveMint.com
There are various income tax sections under which you can claim deductions for expenses and investment incurred by you during the relevant financial years. Such deductions help you to bring down the taxable income for the respective fiscal and consequently reduce your tax liability.
However, in many cases, a lock-in period is specified—under the section of the Act as well as the instrument against which you may have claimed a deduction. If you fail to observe the lock-in period, the deductions that you availed can be revoked.
Let’s read more about the lock-in periods that need to be observed in case you have claimed deduction against repayment of home loan principal amount.
The deduction on home loan
If you take home loan for purchase or construction of a house, the capital repayment and interest paid on the home loan qualify for deduction under separate income tax sections. While principal repayment qualifies for deduction under section 80C of the Income-tax Act, 1961 and has an overall limit of Rs1.5 lakh a year, the interest payment on home loan qualifies for deduction under section 24(b) of the Act, with an overall limit of Rs2 lakh a year. There is an additional deduction of Rs50,000 for interest payment on home loans under section 80EE for the first-time homebuyers.
Lock-in period
While there is no lock-in period for deduction claimed against interest payment on home loan under section 24(b) or 80EE, the section 80C(5) (relating to repayment of principal) of the Act stipulates that if you sell your house within 5 years from purchase or date of possession, the deduction claimed on principal repayment during previous years gets revoked. In this case, all the deductions claimed for home loan principal repayment under section 80C during the previous years too have to be clubbed together and added to income of the year of sale, and be taxed accordingly.
Let us assume you had bought a house in May 2014 with a home loan, and had claimed about Rs4 lakh under section 80C over the last 3 financial years—FY2014-15 to FY2016-17. If you sell the house now, the entire Rs4 lakh claimed earlier as deduction under section 80C will get added to your income for FY2017-18 and you will have to pay tax on the total income as per the income tax slab applicable to you.
Apart from home loan principal amount, the stamp duty and registration fee paid for registration of property also qualify for deduction under section 80C in the year of purchase. If you had claimed stamp duty and registration fee as deduction, you need to observe the 5-year lock-in in these cases too.
If the property is sold before 5 years, the deductions claimed against stamp duty and registration fee will get revoked and get added to the income of the year of sale and tax accordingly.
So, before you decide to sell your house, keep the lock-in criteria in mind. Else, your tax liability may increase considerably in the year of sale.
Source: https://goo.gl/9fHJsS
ATM :: Things to know before investing in ELSS
India Infoline News Service | Mumbai | December 30, 2017 18:41 IST
Learn about ELSS investment & answer to all your questions like what is ELSS, how to invest in ELSS, tax benefits in ELSS at Indiainfoline
Equity Linked Savings Scheme or ELSS funds are a type of mutual funds whichbase their returns from the equity market. These funds are tax saving in nature and are eligible for a tax deduction of up to Rs1.50 lakhunder Section 80C of the Income Tax Act. Below are a few things that an investor must know before investing in ELSS funds.
What is ELSS?
ELSS schemes are a category of mutual funds promoted by the government in order to encourage long term equity investments. Under this scheme, most of the fund corpus is invested in equities or equity-related products.
Types of ELSS:
There are two categories in ELSS mutual funds i.e. dividend and growth.
The dividend fund is further divided into Dividend Payout and Dividend Reinvestment. If an investor opts fordividend payout option, he receives the dividend which is also tax-free,however,underthe dividend reinvestment option, the dividend is reinvested as a fresh investment to purchase more shares.
Under the growth option, an investor can look for longterm wealth creation. It works like a cumulative option whose full value is realized on redemption of the fund.
How to invest in ELSS?
One can invest in ELSS via two methods i.e. lumpsum or SIP.
SIP or Systematic Investment Plan, is a process where an investor needs to invest a fixed amount of money every month at a specified date. SIP inculcates a disciplined approach towards investing in an investor. SIP also gives the benefit of rupee cost averaging to an investor.
What is the lock-in period in ELSS?
ELSS funds have a lock-in period of three years. Whencompared to EPF, PPF, NSC and other prevalentinvestments under Section 80C, ELSS has the shortest lock-in period.
What is the benefit of tax in ELSS?
The primary purpose of any investment is to gain deductions under income tax for wealth creation. ELSS funds fit that bill perfectly. An investor gets a doubleedged benefit of tax saving and wealth creation at the same time. Dividends earned from ELSS funds are also exempted from tax. ELSS funds also provide the benefit of long term capital gains as they have a lock-in period of three years.
What is the investment limit of ELSS funds?
One can start investing in ELSS mutual funds with a minimum amount of Rs500, and there is no upper limit on how much a person can invest in ELSS funds. However, the tax saving ceiling is only up to a maximum of Rs1,50,000 a year.
What are the risks involved in ELSS funds?
ELSS mutual funds do not have ironclad guarantee over returns, as theygenerate their earnings from investments in the equity market. Nevertheless, some of the best performing ELSS mutual funds have given consistent and inflationbeating returns in the longrun. This quality is not possessed by the other fixed income tax saving investments like PPF andFD.
Conclusion
ELSS mutual fund investment has now become a popular tax saving investment under Section 80C, and it is also ideal for retirement planning and wealth creation coupled with the benefits of lower lock-in period, SIP method of investment, rupee cost averaging risk and no tax on dividends or the benefit of capital gains. ELSS funds should be taken into account by every investor while planning their investment goals.
Disclaimer: The contents herein is specifically prepared by ‘Dalal Street Investment Journal’, and is for your information & personal consumption only. India Infoline Limited or Dalal Street Investment Journal do not guarantee the accuracy, correctness, completeness or reliability of information contained herein and shall not be held responsible.
Source: https://goo.gl/wGHgDF
ATM :: Planning your Taxes and your Loans
To avoid last-minute hassles, it is always good to plan taxes and loans in advance.
Sep 15, 2017 06:29 PM IST | MoneyControl.com
In order to avoid any last minute hassles while filing your tax returns, you need to ensure that you plan your taxes in advance. If you have the right foresight and plan your loans and taxes properly, then you can surely save a lot of money.
Here are some key details on planning your taxes and loans…
Salary restructuring
There are a few components which can help in bringing down your tax liability. For this, you need to reallocate your salary. Like medical expenses which are reimbursed by the employer, certain food coupons, house rent allowance, leave and travel allowance etc., should be used efficiently to bring down your tax liability.
Proper use of tax exemption
There are several tax saving options under 80C and 80D. Under 80C, you have options like NSC, PPF, a premium of life insurance, 5-year FD with banks and post office etc. 80D includes premium paid in Mediclaim policies.
Your tax plan and financial plan must go hand in hand
Your tax-saving plan has to be in tandem with your financial plan. Opt for tax-saving options which will contribute to achieving your financial goal.
The loan factor
There are loans which can actually help in reducing your tax burden. So, you should ensure that you make use of this benefit to the maximum.
Exploiting the loan factor:
If you are planning to take a home loan for buying a home, then restructure it in the best possible way as it can give you tax benefits. Under Section 80C, the principal repayment of housing loan can give you a deduction of up to Rs 1,50,000 and under Section 24B, the interest paid on a housing loan can get you a deduction of up to Rs 2,00,000.
Now, if the home loan amount is huge, then it may cross the tax exemption limit. In such cases, you can opt for a joint loan with spouse or parents or siblings. This will help both the individuals to get the tax benefit. It, thus, becomes a useful tax-saving option for the entire family. It should be noted that stamp duty and registration charges that are paid while transferring the property are also eligible for income tax deduction under the Section 80C.
If you take a loan to buy a second home, then to you can get the advantage of tax deductions under Sections 80C and 24B. Under Section 80C, the principal loan amount will be considered and under Section 24B, the interest paid towards the loan will be considered.
Education loan can also be taken for self or for your spouse or children. You can get tax benefits if you take the loan from a scheduled bank or a notified financial company. You can easily claim a deduction for payment of interest. The tax benefits can be enjoyed for a maximum period of eight years or on the term of the loan repayment.
Personal loans also come with the tax advantage. Personal loans which are taken for renovating or repairing home are helpful. Personal loans taken to make down payment of home loan will also give you the advantage of tax benefit.
To sum up…
Thus, there are different ways and means of reducing your tax liability. Loans give you the dual advantage. They take care of your financial needs i.e., buying a home or higher education of your children and at the same time, they also give you the much needed tax-benefit. So, explore all the pros and cons of the various loans and use them to plan your taxes effectively.
Source: https://goo.gl/FAj4J9
ATM :: A quick guide to hastening your home loan repayment
By RoofandFloor | UPDATED: JULY 17, 2017 14:00 IST | The Hindu
The thought of owing someone a debt is an uncomfortable one for most of us. When the amount owed is large, as in the case of home loans, the cognitive discomfort can be significantly greater. Additionally, the monthly financial burden of paying EMIs and housing loan interest isn’t exactly everyone’s cup of tea. To counter this, many homeowners choose to prepay their home loans.
There are multiple schools of thought when it comes to prepaying a home loan. However, there is no one-size-fits-all approach, and the decision must be made considering both financial and personal aspects.
Merely making the decision to prepay your property loan doesn’t solve your problem, though. Figuring out how to save up for prepayment is the key to succeeding without financial discomfort.
If prepaying your home loan is an option you’d like to consider, here’s a short guide on how you can make that happen.
Consider the decision
Determine whether prepayment is right for you. Home loans offer tax benefits that need to be taken into account. For instance, the housing loan interest (upper limit of Rs 2 lakh) can be deducted from taxable income. However, if your interest amount exceeds the upper limit, prepayment could save you the additional cost. Every individual’s situation is unique and should be assessed carefully before making the choice.
Fortify your backup
Get your financial safety net in place before committing to prepay the home loan. A general rule of thumb is to have the following taken care of:
• Emergency funds (medical or otherwise)
• Backup savings for EMIs and regular expenses in case of loss of employment
• Children’s education funds
• Other recurring financial liabilities
Plug the leaks
Scrutinise your financial records to identify where you tend to haemorrhage money. They usually show up in the form of unnecessary frills such as credit cards with additional privileges (that you don’t use), unused memberships (clubs, gyms and recreational establishments), loans with high-interest rates (here refinancing is an option) and so on. Eliminating these situations will improve your disposable income and thereby your savings.
Get creative
Saving up to prepay home loans can be simplified with some thought. Consider replacing your expensive forms of entertainment and recreation with creative, cost effective solutions. Tighten the purse strings as far as possible to boost your monthly savings.
Hike up the EMIs
This is a simple yet effective option. Even marginal increases in EMI payments can help reduce the principal amount. This helps reduce the tenure of the home loan. Reduced home loan tenure then results in lower total home loan interests.
Utilize windfalls
Consider partial repayments from unexpected sources of income such as bonuses, gifts from family and so on. Check with your bank regarding the number of partial repayments allowed beforehand (usually there is no such limit).
Supercharge your savings
Consider investing in a reputed mutual fund with reasonably good returns meant purely for home loan prepayment. Returns are higher than normal savings accounts while the tax payable is far lower than other forms of savings such as fixed deposits.
The choice to prepay a property loan should be made rationally and be backed by careful planning. Hasty, emotion-driven decisions could seriously hamper your overall financial wellbeing.
This article is contributed by RoofandFloor, part of KSL Digital Ventures Pvt. Ltd., from The Hindu Group
Source: https://goo.gl/gYFXTh
ATM :: Home loan tax reliefs often missed by taxpayers
By Preeti Motiani | ECONOMICTIMES.COM | May 11, 2017, 10.55 AM IST
The Union budget of 2017 brought mixed bundle of joy for the taxpayers. While the section 80EE was re-introduced, holding period was lowered which brought cheers for the taxpayers, on the other hand, the individuals claiming a loss on the let out property or deemed to be let out property were left in shock.
Many of you who already own a second house or looking to buy a new house might give a look at the rules listed below to receive the often missed benefits.
1. You can claim tax benefit on interest paid even if you missed an EMI.
Section 24 of the I-T act mentions the word interest payment “payable” on housing loan. It means that even if you have missed the EMI payment in a year you can still claim the tax benefit on it. It can be claimed as a deduction so long as the interest liability is there.
Kuldip Kumar, Partner and Leader – Personal Tax, PWC says, “One should retain the copy of the interest certificate issued by the lender i.e. bank or NBFC specifying the amount of loan, interest due etc. as this will help in case of any questioning from the tax department.”
The principal repayment deduction under Section 80C, however, is available only on actual repayments.
2. Principal repayment tax benefit is reversed if you sell before 5 years.
While the finance minister may have provided a relief by reducing the holding period to 24 months to qualify for the long-term capital gains but if you sell a house within five years from the date of purchase, or, five years from the date of taking the home loan, the tax benefit gets reversed.
“The deduction claimed will be added back to the income of the taxpayer in the year in which the property is sold,” says Archit Gupta, founder, Cleartax.com
However, the loan amortisation calculations are such that the repayment schedule has lower component of principal repayment in the initial years of the home loan and the tax reversal rule only applies to Section 80C. Also, the benefit of lowered holding period for capital gains will apply from April 1, 2018, AY only.
3. You are eligible for tax break only when you are a co-borrower and co-owner.
You cannot claim a tax break on a home loan even if you may be the one who is paying the EMI. For instance, there may be a situation when you’re paying the EMI of a home loan for the property which is owned by your parents or spouse.
“However, when the house is in the joint name and funded by both the spouses by a way of housing loan, both husband and wife can avail the separate deduction for the interest payments and principal repayment of such loan,” says Kumar.
Even if you own a property with your spouse, you can’t claim deductions if your name’s not on the loan book as a co-borrower.
4. You can claim pre-construction period interest for up to 5 years.
Any interest paid on the borrowing during the construction of a house is eligible for tax relief only after you have received the completion certificate.
“Interest paid during the construction period can be claimed as a tax deduction in five equal instalments starting from the year in which construction of the property is completed. The total tax benefit will be annual interest payable + 1/5th of the pre-construction period “says Gupta.
While filing returns for the AY 2017-18, the maximum limit for the self-occupied property is Rs 2 lakh. In the case of let out property, there is no limit.
The union budget 2017 has removed this anomaly and put the cap of Rs 2 lakh on the let out property. The same will be effective while filing the returns for next year i.e. 2018-19.
5. Re-introduction of the Section 80EE
To provide an additional relief to the homebuyers, the section 80EE has been reintroduced with effect from April 1, 2017. The maximum deduction available has been reduced from earlier of Rs 1 lakh to Rs 50,000 now.
However, this deduction comes with certain restrictions which need to be satisfied while availing this deduction. The conditions are:
a) The home-owner/s should be first time buyer even if the property is bought in the joint ownership,
b) The loan value must not exceed Rs 35 lakh and property value should not exceed Rs 50 lakh, and
c) The loan must be sanctioned by a financial institution during the period April 1st, 2016 to March 31st, 2017.
Archit Gupta, Founder & CEO, Cleartax.com says, “If the taxpayers are able to meet conditions for both of section 24 and 80EE, their taxable income can be reduced by 2.5 lakhs in FY 2016-17 return filing.”
6. Processing fee and other charges are tax deductible.
Most taxpayers are unaware that charges related to their loans such as processing fees or prepayment charges qualify for tax deduction. As per law, these charges are considered as interest and therefore deduction on the same can be claimed.
“Section 2(28A) of I-T Act defines interest as interest payable which includes any service fees and other charges in any manner in respect of money borrowed,” says Kumar.
Therefore, it is eligible for deduction under Section 24 against income from house property. Other charges also come under this category but penal charges do not.
Also, any payment made towards stamp duty and registration fees incurred by the individual are also tax deductible as per the section 80C(2) (xviii) (d) of the act.
7. Loans from relatives, friends and employer are eligible for tax deduction.
If you have taken a loan from friends and/or relatives to acquire a house then you can claim a deduction under Section 24 for interest repayment on loans. You can also claim a deduction for money borrowed from individuals for reconstruction and repairs of property.
“A taxpayer would need to obtain a certificate from the relative which would contain the details such as the amount of interest payable, amount of loan taken, specifying the property details for which loan is taken,” says Kumar.
However, one must remember that this rule is only applicable for interest repayment. You cannot avail the tax benefits available on the principal repayment on that part of the loan borrowed from your relatives, friends and employer.
Further, a lender, in this case, your relatives and friends must disclose the interest earned on such transaction while filing their income tax returns.
Source: https://goo.gl/3hozR4
NTH :: New Income Tax Rules On Home Loan Come Into Effect. Details Here
Now the limit that can set off against the loss from rented house property has been restricted to Rs. 2 lakh per annum.
Edited by Surajit Dasgupta | Last Updated: April 09, 2017 16:48 (IST) | NDTV Profit
The government has changed income tax rules that could increase the tax outgo of those who have taken a home loan for a property that has been rented out. The amount that could be set off on home loans for rented property has been reduced. Earlier, in case of rented property, the loss from house property – which is basically the interest paid on home loan minus rental income – was allowed to be adjusted from income without any limit. This helped significantly reduce tax liability. Now the limit that can set off against the loss from rented house property has been restricted to Rs. 2 lakh per annum. This came into effect from April 1, 2017 (assessment year 2018-19).
However, on rented properties, the interest paid above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years.
For example, your interest outgo on a second property is Rs. 5 lakh in a particular year. Assume that you are earning a rent of Rs. 1.5 lakh annually from the property. Such buyers, as per the current rules, are allowed to adjust the difference of Rs. 3.5 lakh (Rs. 5 lakh interest minus Rs. 1.5 lakh). But from the next financial year, they will be allowed deduction of just Rs. 2 lakh. The remaining amount of Rs. 1.5 lakh (Rs. 3.5 lakh minus Rs. 2 lakh) can be carried forward up to eight financial years and be adjusted later.
Tax experts say that some high net worth individuals – who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially – would be particularly hit from this new tax rule.
Note: Income tax rules say that those who own more than one property can only treat one of them as self-occupied and the rest have to be assumed to be rented. Income tax has to be paid on notional rent.
From April another tax rule related to the properties will also change. The new tax rule will help bring down tax liability from property sale. The holding period of a property for qualifying under long-term gains will get reduced to two years, from three years currently. As per current tax norms, if a property is sold within three years of buying, the profit from the transaction is treated as short-term capital gain and is taxed according to the slab rate applicable to him/her. So reducing this time period to two years will bring down tax liability.
Thus, after two years, the transaction will be able to qualify for long-term capital gains, thus lower taxes. Under long-term capital gains on immovable properties, the profit is taxed at 20 per after indexation. Under indexation, inflation during the holding period is taken into account and thus the purchase price is adjusted, reducing the tax burden on the property seller. There are also other benefits for the seller under the long-term capital gains tax. If the gains are invested in some select government investment schemes, the tax liability goes down significantly.
Source: https://goo.gl/N8K3mp
NTH :: Income Tax Rules On Home Loan To Change From Saturday. Details Here
Tax experts say that some high net worth individuals, who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially, would be particularly hit from this new tax rule.
Written by Surajit Dasgupta | Last Updated: March 28, 2017 09:01 (IST) | NDTV Profit
Interest paid above Rs. 2 lakh on rented properties can be carried forward for 8 years from April 1.
To address the anomaly of interest deduction in respect of let-out property vs self-occupied property, the government has changed income tax rules, which will come into effect from next financial year April 1, 2017 (assessment year 2018-19). In this regard, the government has cut down tax benefits borrowers enjoyed on properties let out on rent. According to current tax laws, for properties rented out, a borrower could deduct the entire interest paid on home loan after adjusting for the rental income. On the other hand, borrowers of self-occupied properties get Rs. 2 lakh deduction on interest repayment on home loan.
However, on rented properties, effective from April 1, interest paid above Rs. 2 lakh can be carried forward for eight assessment years. Since the interest component of home loan repaid in initial years is higher, experts say that the borrower may not be able to fully adjust the interest paid as deduction even in subsequent years.
For example, your interest outgo on a second property is Rs. 5 lakh in a particular year. Assume that you are earning a rent of Rs. 1.5 lakh annually from the property. Such buyers, according to the current rule, are allowed to adjust the difference of Rs. 3.5 lakh (Rs. 5 lakh interest minus Rs. 1.5 lakh). But from the next financial year, they will be allowed deduction of just Rs. 2 lakh. The remaining amount of Rs. 1.5 lakh (Rs. 3.5 lakh minus Rs. 2 lakh) can be carried forward up to eight financial years and be adjusted later.
Tax experts say that some high net worth individuals, who used to buy properties on loan and were able to set off the full interest liability against the lettable value of property and thus bring down their tax liability substantially, would be particularly hit from this new tax rule.
From April another tax rule related to the properties will also change. The new tax rule will help bring down tax liability from property sale. The holding period of a property for qualifying under long-term gains will get reduced to two years, from three years currently. As per current tax norms, if a property is sold within three years of buying, the profit from the transaction is treated as short-term capital gain and is taxed according to the slab rate applicable to him/her. So reducing this time period to two years will bring down tax liability.
Thus, after two years, the transaction will be able to qualify for long-term capital gains, thus lower taxes. Under long-term capital gains on immovable properties, the profit is taxed at 20 per after indexation. Under indexation, inflation during the holding period is taken into account and thus the purchase price is adjusted, reducing the tax burden on the property seller. There are also other benefits for the seller under the long-term capital gains tax. If the gains are invested in some select government investment schemes, the tax liability goes down significantly.
(Know Your Tax Liability Here)
Source: https://goo.gl/jwT9V2
ATM :: Are you aware of the home loan benefits women enjoy in India?
Searching a dream home remains very much in the mind of the people as it gives them the assurance of their stay for lifetime. The same assurance is not possible with a rented accommodation.
By Rishi Mehra | Published: March 9, 2017 2:39 PM | The Financial Express
Searching a dream home remains very much in the mind of the people as it gives them the assurance of their stay for lifetime. The same assurance is not possible with a rented accommodation.
In the pursuit of your dream home, you invariably rely on a home loan which can be availed for as long as 20-30 years. Since the home loan tenure is so long, the eventual loan cost from the customer end can be very high. But that can reduce in the case of a woman borrower. So, stay tuned as we take through the benefits that women borrowers can enjoy in the case of a home loan.
Lower Interest Rate
The interest rate holds the key to a cost-friendly home loan journey. Home loans are invariably in large amounts for a longer duration. So, if the interest rate is on the higher side, your pocket can get pinched. A slight difference in the interest rate can reduce the flow of interest outgo substantially in a period of 20-30 years. In addition, the monthly installment will also come down. A women borrower enjoys a concession of 0.05% in the interest rate from most banks in India. Let’s see the interest rate offered to women borrowers by several lenders in India.
Interest Rate Offers of Different Lenders (Suppose Loan Amount is Rs 50 lakh and Tenure Equals to 20 years)
From the table, you can see a saving of around 38,000 for women borrowers over male applicants.
Reduction in Stamp Duty
Stamp duty does form the part of the property cost. And a difference of a few percentage can make a huge difference in your home ownership cost. The lenders finance a home loan at about 80%-90% of the property cost. As far as stamp duty goes, it differs from one state to another. Particularly, when women buy a property, the stamp duty generally remains lower. A concession of 1%-2% is generally applicable. So, on a property worth Rs 60 lakh, a woman borrower can save around Rs 60,000-1,20,000.
Tax Benefits
Like the male counterparts, women borrowers can also be eligible for a tax deduction on the home loan repayments. The maximum tax deduction allowed in the principal and interest repayments is Rs1.5 lakh and Rs2 lakh, respectively. Women borrowers applying for a home loan along with their husbands can receive the tax deduction in an equal proportion.
These are some of the benefits that women borrowers enjoy in the case of a home loan. But choose a lender that can offer you a loan at a much lower interest rate than its competitors.
(The author is Founder and CEO, Wishfin)
Source: https://goo.gl/7ileQz
POW :: Tax saving season is here: These are the best ELSS mutual funds
Suresh KP | Feb 15, 2017, 05.48 PM | Source: Moneycontrol.com
Investing in tax saving ELSS mutual funds would help you to save tax u/s 80C as well as giving superior returns.
Many of the tax payers are looking for various options to save income tax u/s 80C. While there are several options to save tax, one of the attractive ways is to invest in tax saving funds, technically known as ELSS.
What are tax saving funds?
Equity Linked Saving Scheme (ELSS) or tax saving funds provide tax exemption u/s 80C along with higher returns compared to any other tax saving option. Investments in ELSS upto Rs 1.5 lakh bring in tax deduction under section 80C.
Compared to other tax saving schemes like Tax saving FD, PPF, NSC etc, ELSS offers higher returns. However, a point to note is that these returns are not guaranteed. These ELSS have low lock in period of 3 years. Other instruments have lockin period ranging between 5 years to 15 years.
After taking into account these benefits lets look at five ELSS that can be considered as good investment options to save tax and create wealth.
1) Reliance Tax Saver Fund
This MF scheme objective is to generate long term capital appreciation from a list of stock portfolio and invests predominantly in equity and equity related instruments in India. This scheme has provided 20.3% annualized returns in last 5 years. Even in last 3 years, this scheme provided 30% annualized returns. This scheme is ranked by Crisil as Rank-3 (1 is vergy good performer and 5 is weak performer)
2) Axis Long Term Equity Fund
This tax saving scheme aims to generate regular long term capital growth from a diversified portfolio of equity and equity related securities in India. This mutual fund scheme is the top performer in the ELSS funds over five years time frame. This scheme has provided 21% annualized returns in last 5 years. Even in last 3 years, this scheme provided high returns of 24.9% annualized returns. This scheme is ranked by Crisil as Rank-4 (1 is vergy good performer and 5 is weak performer)
3) DSP BR Tax Saver Fund
The mutual fund scheme aims to generate medium to long-term capital appreciation from a diversified stock portfolio of equity and equity related securities along with tax savings. This mutual fund scheme is the top performer in the ELSS funds.This scheme has provided 20.4% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 26.6% annualized returns. This scheme is ranked by Crisil as Rank-1 (1 is vergy good performer and 5 is weak performer)
4) Birla SL Tax Relief 96 Fund
This mutual fund scheme aims for long term capital appreciation by investing upto 80% in equity and balance in debt related instruments. This scheme has provided 19.1% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 25.6% annualized returns. This scheme is ranked by Crisil as Rank-2 (1 is vergy good performer and 5 is weak performer).
5) Franklin India Tax Shield Fund
The MF scheme aims medium to long term growth of capital along with income tax rebate. This scheme has provided 17.5% annualized returns in last 5 years. Even in last 3 years, this scheme provided good returns of 24.3% annualized returns. This scheme is ranked by Crisil as Rank-3 (1 is vergy good performer and 5 is weak performer).
Smart investors would invest in a good ELSS mutual funds which helps them to save tax and also provides high returns compared to any other tax saving options.
The author of this article is founder of Myinvestmentideas.com.
Source:https://goo.gl/MxYfdc
ATM :: Real Estate is dead – long live Real estate
By Harsh Roongta | Facebook post
Ok – I admit that the headline is to grab your attention. But in this budget the finance minister has proposed several clever changes in the tax laws that will discourage investments in multiple properties yet at the same time encourage first time home buyers to buy their homes rather than live on rent.
Currently 4 factors drive investments in multiple real estate properties. First- Real estate is the only asset class left that still easily allows laundering of large unaccounted “black” income. Second – most investors have the ability to take loans for buying a residential property. Third – these loans are very cheap as the interest paid on these loans is fully tax deductible and the resultant loss can be set off against business income or salary income. Fourth- the “capital gains” on sale after 3 years are treated in a concessional manner and can be completely tax free if reinvested in another property and become fully laundered after the second round of investment.
The proposed changes hit at the first and the third factors. The restrictions on receiving any cash in excess of Rs. 3 lakhs is bound to create difficulties in paying and/or accepting large sums of cash that are typically required on these kinds of property purchases. Another factor is the effective removal of the tax deductibility of home loan interest on multiple properties makes the home loans much more expensive. I think these 2 factors will have a far greater negative impact then the small positive factor of making the long term capital gain period at 2 years instead of 3 years earlier. These kind of properties are rarely held for decades and hence the other positive factor of change in indexation date will have no impact on holding of multiple properties.
Once the impact of these factors sink into the market it will have a further adverse effect on the already low demand for high value properties. Meanwhile the government has already announced a slew of measures to encourage the buying of reasonably sized (650 sq ft carpet area or around 1000 sq ft – saleable area or a decently sized 2 BHK flat) affordable homes in urban areas. Full details of the new subsidy scheme are still awaited. If newspaper reports are to be believed then households having income of upto Rs. 18 lakhs per year will also be eligible for a one time subsidy of around Rs. 2.20 lakhs through their home loan lender. The existing subsidy scheme is well designed with no restriction on sale of the houses bought under the scheme nor is there a limit on the value of the houses or the loan amount. The limits are only on household income and flat size. It also requires that it should be the first purchase for the household and the women of the house should be the owner or joint owner and the house should be in an approved project. It’s a scheme that is already working well for lower income households (income upto Rs. 6 lakhs per annum) and there is no reason it will not work equally well for the wide swathe of middle income households that are expected to be covered. Developers are also given tax benefits on profits from affordable home projects. Both these things can create a massive demand for “affordable” homes. Hence Real Estate is dead. Long live Real estate.
Source: https://goo.gl/MAzzoZ
POW :: Franklin India Taxshield: Old warhorse with a commendable record – Buy
NALINAKANTHI V | January 28, 2017 | Hindu BusinessLine
The fund has contained market downsides well while making the most of rallies
As we enter the final quarter of the current fiscal, tax saver funds are now in focus. If you haven’t made your tax saver investment yet, you could use the next two months to invest in tax saver mutual fund schemes.
If you are looking for a fund with a consistent track record, old warhorse Franklin India Taxshield is an option to consider. Of course, equity tax saver schemes are only for those with a moderately high risk appetite and investment horizon of at least three years, since you cannot redeem your investment before that. Even though the lock-in period is three years, this fund will better suit investors with a minimum time frame of five years. Lumpsum investment may be a better option, given the lock-in period.
Launched in 1999, Franklin India Taxshield is among the most consistent performers in the equity linked saving schemes (ELSS) category. Over the last five years, the scheme’s daily one-year return has been higher than its benchmark, the Nifty 500 Index, almost 90 per cent of the time. It scores well on a risk-adjusted performance basis too, with a Sharpe ratio of 0.93. While this is a tad lower than that of peers such as Axis Long Term Equity (1.05) and Birla Sun Life Tax Relief 96 (0.97), it is higher than the average of funds in the category of 0.8.
While the fund has delivered benchmark-beating returns across three, five and ten-year time frame, its performance over a one-year period slipped due to the correction in banking and pharma stocks during September-October 2016. The fund has marginally reduced exposure to these two themes.
Strategies that worked
The fund has been able to contain downsides well during market falls and this has been on three counts.
One, higher large-cap slant compared to other funds in this category cushioned it during turbulent phases.
Second, the fund’s focus on quality stocks and strategy to stay away from momentum stocks also possibly aided performance during down cycles. Moving into defensive themes such as pharma and IT also shielded the fund from volatility.
Likewise, during recovery rallies too, the fund has managed to beat the benchmark by a considerable margin. Right sector shifts aided performance during the pull-back rallies.
Consider this — during the August 2013-March 2015 period, the fund gained nearly 110 per cent. This is higher than the 80 per cent gain for the benchmark during the same period.
Increasing exposure to cyclical themes such as financials, automobiles and industrials provided a leg-up to the fund’s performance.
The fund has managed good returns despite a relatively high expense ratio of 2.48 per cent. Peer funds such as Axis Long Term Equity (1.98 per cent), ICICI Prudential Long Term Equity (2.3 per cent) and Birla Sun Life Tax Relief 96 (2.29 per cent) have had a lower expense ratio.
Over a nine-month period, the fund has increased exposure to cyclicals such as financials, oil and gas, power and auto.
Stability in the economy post remonetisation and recovery thereafter should aid the fund’s performance. It has also reduced exposure to pharma stocks, which have been bogged down by regulatory woes.
Source: https://goo.gl/RJ0eK9
NTH :: Higher tax breaks on home loans likely
NEW DELHI | Sidhartha & Rajeev Deshpande | TNN | Jan 15, 2017, 01.16 AM IST | Times of India
The government is looking to provide higher tax incentives on home loans to boost demand and prop up the faltering realty sector that has been further hit by demonetisation.
Sources indicated some concessions may be offered in the Union Budget to increase the tax benefit on payment of interest beyond the annual Rs 2 lakh, a measure that is expected to provide a fillip to the employment-intensive segment and please taxpayers.
The move to enhance the tax concessions comes soon after the Centre prodded banks to pare interest rates, including on home loans, in the wake of massive inflow of deposits. The government is, however, yet to make up its mind on reworking tax slabs.
Sources said the extent of increase on home loans had not been worked out. In the past, too, the government has been favourable towards demands from the construction sector given it is employment generating and helps boost demand for cement, steel and other construction material.
While there is an expectation that the Modi government could reach out to the middle class through tax concessions, there is a view in the government that expected gains from demonetisation will flow only from the next financial year and the Centre may have to loosen its purse strings to boost public spending.
Companies which were already holding back on capacity addition due to high debt and low demand, are unlikely to rush in with fresh investment over the next few quarters given that consumers are holding back purchases post demonetisation. The real estate sector, affected by a spate of delays and low demand in the wake of high interest rates, has been particularly hit by demonetisation.
A recent study by consulting firm Knight Frank estimates a 44% fall in demand, resulting in revenue loss of Rs 22,600 crore since November 8 when Rs 500 and Rs 1,000 notes were scrapped.
Source: https://goo.gl/JMq4Y3
NTH :: Use housing society letter for loan interest sop: ITAT
TNN | Updated: Oct 31, 2016, 04.50 AM IST | Times of India
MUMBAI: In a recent order, the income tax appellate tribunal’s Mumbai bench has held that to claim an interest deduction against a home loan, a taxpayer is not required to submit a completion certificate from any government authority as proof of having obtained possession within the stipulated time period; in this case, three years from the end of the financial year during which the loan was taken. A certificate from the housing society is sufficient evidence, ruled the ITAT, a body that resolves income tax disputes.
The order will come as a major relief to home buyers facing litigation over deductibility of interest on home loans.
Under the Income-Tax (I-T) Act’s Section 24, interest paid on home loans is allowed as a deduction, subject to a yearly cap. Over the years, this cap been enhanced to Rs 2 lakh from Rs 1.5 lakh.
However, to claim deduction, possession of the residential property must be obtained or its construction completed in five years from end of the financial year during which the loan was taken.
The Finance Act, 2016, has increased this period to five years from the earlier three. When interest on a home loan is allowed as a deduction, it reduces the total taxable income, resulting in a lower I-T outgo.
In this case before the ITAT, relating to the financial year 2006-07, Sudhakar Mody bought a flat from Marathon Realty by availing of an IDBI Bank home loan. He claimed a deduction of interest of Rs 1.5 lakh, which was then the maximum amount allowed as a deduction each year. However, the I-T officer asked Mody to furnish a completion certificate from a government authority. As this was not furnished, the interest deduction claim was denied. This act of the I-T officer was upheld by the commissioner of I-T (appeals).
The tax tribunal observed that the flat was ready by October, 2006, and that a soft possession had been given to the flat owner. Further, Mody had obtained the flat’s final possession on March 24, 2007-before the end of the financial year on March 31. As evidence of the possession, Mody had furnished to the commissioner of I-T (appeals) a certificate from the housing society.
It is illegal to occupy a flat without an Occupancy Certificate by the local authority and moreover also be prosecuted
The ITAT held the taxpayer had obtained possession of the flat within the stipulated time period. The ITAT further stated: “The proviso to Section 24 of the I-T Act nowhere states that the taxpayer should furnish a completion certificate from the appropriate government authorities.”
The certificate from the housing society was held by ITAT as sufficient proof of the flat’s possession. In its order dated October 19, the ITAT concluded that the taxpayer was entitled to his claim for deduction of interest against a home loan of Rs 1.5 lakh.
Source: https://goo.gl/HzB1Ll
ATM :: Six things about home loan incentives you didn’t know about
Chandralekha Mukerji | ET Bureau | October 5, 2016
2016 is looking to be one of the best years for home buyers.
More tax benefits, rate cuts on loans, stagnant property prices, new launches in the ‘affordable’ segment with freebies and attractive payment schemes.
Many of you will be looking to take advantage of these benefits and buy a house.
While hunting for a house at the right price, you’ll be haggling with the bank to cut a loan deal too.
Even if you get a discount on both, your tax bill can burn a hole unless you know the rules well. Here goes a list of six lesser known and often-missed tax benefits on home loan.
You can claim tax benefit on interest paid even if you missed an EMI
Unlike the deduction on property taxes or principal repayment of home loan, which are available on ‘paid’ basis, the deduction on interest is available on accrual basis.
Meaning, even if you have missed a few EMIs during a financial year, you would still be eligible to claim deduction on the interest part of the EMI for the entire year.
“Section 24 clearly mentions the words “paid or payable” in respect of interest payment on housing loan.Hence, it can be claimed as a deduction so long as the interest liability is there,” says Kuldip Kumar, partner-tax, PwC India .
However, retain the documents showing the deduction so that you can substantiate if questioned by tax authorities. The principal repayment deduction under Section 80C, however, is available only on actual repayments.
Processing fee is tax deductible
Most taxpayers are unaware that charges related to their loan qualify for tax deduction.
As per law, these charges are considered as interest and therefore deduction on the same can be claimed.
“Under the Income Tax Act, Section 2(28a) defines the term interest as ‘interest payable in any manner in respect of any money borrowed or debt incurred (including a deposit, claim or other similar right or obligation)’.
” This includes any service fee or other charge in respect of the loan amount,” says Kumar. Moreover, there is a tribunal judgement which held that processing fee is linked to services rendered by the bank in relation to loan granted and is thus covered under service fee.
Therefore, it is eligible for deduction under Section 24 against income from house property .Other charges also come under this category but penal charges do not.
Principal repayment tax benefit is reversed if you sell before 5 years
You score negative tax points if you sell a house within five years from the date of purchase, or, five years from the date of taking the home loan.
“As per rules, any deduction claimed under Section 80C in respect to principal repayment of housing loan, would get reversed and added to your annual taxable income in the year in which the property is sold and you will be taxed at current rate,” says Archit Gupta, CEO, ClearTax.in.
Thankfully , the loan amortisation tables are such that the repayment schedule is interest heavy and the tax-reversal rule only apply to Section 80C.
Loans from relatives and friends is eligible for tax deduction
You can claim a deduction under Section 24 for interest repayment on loans taken from from anyone provided the purpose of the loan is purchase or construction of a property.
You can also claim deduction for money borrowed from individuals for reconstruction and repairs of property .
It does not have to be from a bank. “For tax purposes, the loan is not relevant, the usage is.
” The taxpayer should be able to satisfy the assessing officer how the loan has been utilised for constructing or purchasing a house property and completion of construction was within five years and other conditions are met,” says Gupta.
“The interest charged should be reasonable and a legal certificate of interest should be provided by the lender along with name, address and PAN,” says Gupta.
This rule, however, is only applicable for interest repayment.You will lose all tax benefits for principal repayment if you do not borrow from a scheduled bank or employer. The additional benefit of Rs 50,000 under Section 80EE is also not available.
You may not be eligible for tax break even if you are just a co-borrower
You cannot claim a tax break on a home loan even if you may be the one who is paying the EMI. For one, if your parents own a property for which you are paying the EMIs, you can’t claim breaks unless you co-own the property.
“You have to be both an owner and a borrower to claim benefits. If either of the titles are missing you are not eligible,” says Gupta. Even if you own a property with your spouse, you can’t claim deductions if your name’s not on the loan book as a co-borrower.
You can claim pre-construction period interest for up to 5 years
You know you can start claiming your home loan benefits once the construction is complete and you receive possession.
So, what happens to the installments you made during the construction or before you got the keys to the house? As per rules, you cannot claim principal repayment but interest paid during the period can be accrued and claimed post-possession.
‘The law provides a deferred deduction on the interest payable during pre-construction period. The deduction on such interest is available equally over a period of 5 years starting from the year of possession’, says Vaibhav Sankla, director, H&R Block.
Source: https://goo.gl/TJVT1y
ATM :: Can You Claim Both HRA And Home Loan For Tax Exemption?
In some cases, the Income Tax Department may question the tax exemption taken on both HRA and home loan, says an expert.
Written by Surajit Dasgupta | Last Updated: October 10, 2016 10:36 (IST) | NDTV Profit
- HIGHLIGHTS
Income tax exemption on both HRA, repayment of home loan can be claimed
However, taxman could ‘closely monitor’ such a situation, says an expert
Income Tax Department may disallow one of the claims, he adds
Yes, you can claim income tax exemption on both house rent allowance (HRA) and repayment of home loan. If you are living in a house on rent and servicing home loan on another property – even if both the properties are located in the same city – you can claim tax benefit for both.
But “this situation could be closely monitored by the Income Tax Department particularly where the amounts are relatively higher and may also disallow one of the claims if sufficient explanations are not available”, says Amit Maheshwari, managing partner at Ashok Maheshwary & Associates LLP.
- Mr Maheshwari cites some cases when the tax department may not raise questions:
When the person may have moved from rented house to own house during the year or vice versa - When the person’s own house could be smaller in size and the person may have moved to a bigger house rented by him/her
- When the children of the person may be studying in the locality of the rented house and during the year it was not possible for him/her to change the school and consequently he/she was not able to move to the new house bought
But in some other cases, the Income Tax Department may question the tax exemption taken on both HRA and home loan, Mr Maheshwari adds.
“Hence, in all such situations, the individual has to ensure that the related documentations (like lease deeds, possession/completion letters, etc.) and justification regarding the same are readily available with him/her if the such query is raised,” Mr Maheshwari says.
Salaried individuals who live on rent can claim HRA to lower taxes. It is partially exempted from taxes. However, if the individual does not live in a rented accommodation, HRA is fully taxable.
The deduction on HRA is the lowest of the following under Section 10(13A) of the Income Tax Act:
- Actual HRA received from the employer
- 50 per cent of (basic salary + dearness allowance) for those living in metro cities (40 per cent for non-metros)
- Actual rent paid less 10 per cent of salary
On the other hand, if you are servicing a home loan you can claim tax benefits on principal and interest payments. Principal repayment, under Section 80C of the Income Tax Act, is exempted up to Rs 1.5 lakh. And on interest repayment, exemption can be claimed up to Rs 2 lakh, under Section 24.
In this year’s Budget, the government had announced an extra deduction of Rs 50,000 on the interest component of home loan for first-time buyers, where the loan does not exceed Rs 35 lakh and the value of the property is up to Rs 50 lakh.
Source: https://goo.gl/SVJdfz
ATM :: Register the property as soon as you book
Arvind Rao | Aug 27, 2016 09:56 PM IST | Business Standard
Flexible payment schemes offered for under-construction property can lead to tax issues when the owner sells it. It’s not clear in the Income-Tax Act whether the seller should take the indexation benefit from the date of getting possession of the house or if it can be calculated based on each instalment paid after registration.
The flexible payment started with 80:20 scheme, where a buyer pays 80 per cent of the home value upfront either from his own funds or through a loan. The remaining is paid on possession. At present, there are many complicated variants of it such as 5:10:30:25:20:10 to help buyers to pay for a house without taking a home loan. In most cases, the agreement for the flat is registered on payment of one or two instalments that establishes the buyer as a legitimate owner and prevents the developer from selling the house to another buyer when the rates go up.
But when the owner sells the property bought through the flexible payment scheme, calculation of capital gains tax can get complicated if a person holds the property for more than three years, which makes it a long-term capital asset.
The Income Tax Act says that in case of computation of long-term capital gains, the tax payer can index the cost of acquisition of the property since the date of acquisition to the date on which it has been sold.
Indexation is done with the help of a Cost Inflation Index, which is notified every year by the tax authorities. The first year when such an index was notified was in 1981-82 at a base value of 100 and the index notified for 2016-17 is 1,125. If an individual purchases a house for Rs 20 lakh and sells it at Rs 50 lakh, he is liable to pay capital gains tax on the profit made, which is Rs 30 lakh in the example. But the buyer can reduce this liability by using Cost Inflation Index. The longer one holds the property; the lower would be the tax outgo.
The complication
The correct method of calculating capital gains came up before the Mumbai Income Tax Tribunal, which was pronounced in July 2016. The taxpayer had declared long term capital gains on sale of property at Rs 29,02,270 after considering the indexation benefit of Rs 19,93,232.
The tax payer had become a member of a housing society in 1993 and was later allotted a flat in 1994. The housing society constructed and allotted flats to all the members. The taxpayer claimed that he had been paying proportionate cost of construction on various occasions from 1994 to 2006, as and when called upon by the society. While calculating the indexed cost of acquisition, the tax payer adopted the cost inflation index, corresponding to each year of payment.
The tax officer however held a different view. He argued that the property tax assessment bill issued by the municipal corporation showed that the said flat was assessed to property tax from January 1, 2007 and therefore the date of acquisition of the property was to be taken as January 1, 2007.
Accordingly, the tax officer’s cost indexation calculation was determined by adopting the said date, thereby increasing the tax burden on the seller. The officer calculated the taxpayer’s additional liability at Rs 4,71,074. The officer added this amount to the tax payer’s income. At the first level of appeal, the appellate authority confirmed the tax officer’s view and decided the case against the taxpayer.
Tribunal favours the taxpayer
At the Tribunal, the tax payer put forth his case that the benefit of indexation of cost should be granted to him right from 1994 when he started making payments and not from January 1, 2007 when the house was first subjected to property assessment.
The tax officer argued that a property can be said to be acquired only after its possession is handed over to the buyer, and therefore adoption of date as the one he considered is justified.
On considering the merits of the case, the tribunal observed that the society in question was allotted land by Maharashtra Housing and Development Authority or Mhada and the conveyance deed was made in favour of the society in 1994. Being a member of the society, the tax payer was allotted a flat and was issued the share certificate in 1994. It was also observed that an allotment letter for the specific flat was also issued to the tax payer in 1995.
The Tribunal was of the opinion that it is not necessary that the taxpayer must become an owner by way of conveyance deed for the purpose of computing capital gains. As the tax payer had acquired the right to obtain a specific flat in the society in 1994 itself, the indexation of the cost of acquisition of the flat has to be granted with respect to the initial date of 1994, subject to the fact that the indexation be applied to each instalment as and when the same was paid. The case, therefore, was decided in the favour of the tax payer.
Implications
The case provides an extremely useful tax planning measure for those who plan to purchase an under-construction house. They must register the property as soon as possible and become the legal owners. If they sell the property after holding it for more than three years after completion, they will get the indexation benefit even for the instalments paid.
A registered agreement provides definitive details of the property such as flat number, floor, size of the flat, etc. On the contrary, merely having allotment letter, which do not define the flat, will not be helpful. In the past taxpayers with allotment letters did not get any relief in similar cases.
The case in question had stronger facts: A society already existed and the taxpayer held share certificates. These principles should equally apply to buyers in under-construction projects who would become society members post completion.
- TAX RELIEF
Calculating capital gains on property bought in flexible payments scheme can be complicated when the owner sells it - Income-Tax Act lacks clarity on whether the seller can calculate capital gains from the date of property registration or from the date of possession
- Mumbai I-T Tribunal has ruled that date of possession is not necessary
- Buyers should therefore register property as early as possible, which establishes them as legal owners
- Buyers with allotment letters, which do not define the flat, have failed to get relief from tax authorities in the past
The writer is a chartered accountant and financial planner
Source: http://goo.gl/aEWUPj
ATM :: Can you claim both, HRA as well as home loan benefits?
Income tax laws allow tax payers to claim various benefits, with respect to the house occupied by the assessee – whether it is owned by you or taken on rent. Conditions for claiming are…
By: Housing.com/news | Retrieved on 27th July 2016 from Moneycontrol.com
Income tax laws allow tax payers to claim various benefits, with respect to the house occupied by the assessee whether it is owned by you or taken on rent.
Conditions for claiming tax benefits on house rent allowance The tax benefit on house rent allowance (HRA) is only available to a person, who receives HRA from his employer and is not available to a self-employed person. To avail of this benefit, the employee should have incurred the expenditure on rent, with respect to a residential house property occupied by him/her. The benefit of HRA is not available on rent paid for a residential house that is occupied by any other person, irrespective of whether he is dependent on the assessee or not. It is also not available, in cases where the accommodation is either partly or fully owned by the assessee himself.
So, if an employee lets out the property to his employer and the employer in turn, allots the same to the employee and recovers some rent on this account, the HRA benefit cannot be claimed. Likewise, if the employee is a joint owner of a property and pays some rent to the other joint owner/s of the property, the HRA benefits on such payment cannot be claimed.
According to rule 2A of the income tax rules, the benefits of HRA shall be restricted to the lowest of the following three amounts:
(a) HRA actually received.
(b) Excess of rent paid over 10% of basic salary.
(c) 50% of basic salary in case the employees is in any of the four metro cities, or 40% in case he resides in any other place.
The law does not stipulate that HRA benefit cannot be claimed, if the tax payer owns a house and is already claiming tax benefits with respect to a housing loan.
Conditions for claiming tax benefits on home loans The main condition, for the allowance of the deduction on the principal and interest components of a home loan, under Section 80 C and Section 24(b), is that the person should be the owner of the house property. Tax benefits under Section 80 C, are only available for home loans taken from specified persons, for a residential house. Interest benefits are available on residential and commercial properties and on money borrowed from banks or from anyone else. Moreover, the interest on money borrowed for a let-out property is fully deductible. For a self-occupied house property, the benefit on interest is restricted to Rs two lakhs per year.
Claiming HRA as well as home loan benefits The laws allows a tax payer to have more than one house property. However, he has to opt for only one such property as self-occupied and offer notional rent, on the other properties for tax. By the same legal provision, it can be inferred that in addition to the rented house occupied by the tax payer, he can have one more house property as self-occupied. If the house property owned by the tax payer is in a city other than his place of work, there would not be any problem. However, if the property is in the city where the rented property is situated, it may be logically difficult to establish that the tax payer is occupying both the houses.
(The author is a taxation and home finance expert, with 30 years’ experience)
Source : http://goo.gl/shtKCC
ATM :: Seven reasons why you should buy a home while you’re young
Buying a home early in life helps home buyers.
Kishor Pate CMD, Amit Enterprises | Retrived on 12 July 2016 | Moneycontrol.com
There are lots of arguments for and against buying a home early in life, but the rationale for doing so is, in fact, the strongest and most convincing.
1. In the first place, the longer the tenure of a home loan, the lower the EMIs are. EMIs are calculated on the basis of the loan amount and how long the borrower can logically repay the home loan. In India, the retirement age is 60, and banks will consider this as the age by which the borrower must under any case close the home loan if he or she has not done so already. The longer one defers the decision to avail of a home loan to buy a property, the bigger the EMIs become.
Also, it is easiest to get approved for a home loan when one is young. Lenders are eager to provide home loans to young people because they are at the beginning of their careers, and will doubtlessly grow in them over the ensuing years. Their financial viability – and therefore their future ability to service a home loan – is therefore at its highest point.
2. In fact, the eligibility for a home loan is even higher for young married couples taking out a joint home loan. This is by far the most desirable lending scenario for banks. They are assured that two instead of only one income stream will back the home loan proposal, and the fact that two instead of one borrower are involved decreases their risk. Taking a joint home loan also helps a couple to close down the financial commitment of a home loan much faster, allowing them to focus on other investments earlier in life.
3. Another advantage of purchasing a home early in life is that it becomes easier to pay off the outstanding amount on a home loan with accumulated savings later in life. This opens up the opportunity to upgrade to a bigger, better-located home is the future – which is what most Indians aspire to do at some point.
4. Today, many newly-married couples are deferring their plans to have children until they have had a chance to enjoy some unfettered years together. Such a decision also works very well for such couples from the point of view of home purchase. It means that they can make a big down payment on their home before children and their education become an additional financial responsibility. A bigger down payment reduces the EMI burden, meaning that they can close their home loans faster.
5. It is also important to note that the earlier one buys a home, the longer it has to appreciate in value. Given that the annual appreciation of a well-located residential property can be to the tune of 15-20%. This results in a huge incremental increase of the investment value of such an asset.
6. It also makes much more sense to invest one’s hard-earned money in an appreciating asset rather than pay monthly rentals for which there are no returns at all. Repayment of a home loan also brings with it the financial advantage of income tax breaks. These are an added benefit which the Indian Government has provided with the express purpose of encouraging young citizens to invest in self-owned homes and thereby safeguard their and their children’s future.
7. Finally, it makes much more sense to pay monthly EMIs on a home loan, into an investment-grade asset, rather than pay monthly rent which is nothing but an expense with absolutely no returns on investment.
The above reasons should present a convincing argument for making the important decision of buying a home early in life. The New Age ‘logic’ that it is better to live on rent simply does not hold water if one considers the multi-faceted advantages of investing in a self-owned home while one is young. It is true that it requires financial discipline to service a home loan, but this very desirable quality can never come too early.
Source : http://goo.gl/iGEZw9
ATM :: Should you invest your money or use it to prepay home loan?
By Narendra Nathan, ET Bureau| 9 May, 2016, 12.29PM IST | Economic Times
If you have an outstanding home loan, and happen to have just received an annual bonus or any other lump sum payment, should you use it to prepay your loan? Or, should you invest it to meet some other goals? Assess the following conditions to arrive at the right decision.
The first variable to be considered is psyche: some people may not be comfortable with a large housing loan and to reduce their stress they may want to get rid of the loan burden at the earliest. For them, settling the question of how to use their bonus is simple: just pay off the loan. Gaurav Mashruwala, Sebi-registered investment adviser, categorically states: “You should pay off the home loan at the earliest. Several unfortunate happenings— job loss, death of the earning member, serious illness, etc—can cause trouble during the 10-15 year loan period. Treat it as a mind game and not a numbers game.”
Tax benefit is the next variable. If a home loan does not seem like the sword of Damocles hanging over your head, it makes sense to continue with the regular EMI schedule. This is because of the tax benefits that a home loan offers. The principal component of the EMI is treated as investment under Section 80C. The interest component is also deducted from your taxable income under Section 24. The annual deduction in respect of the interest component of a housing loan, for a self occupied house, is limited to Rs 2 lakh per annum.
You won’t be able to claim deduction on interest paid above Rs 2 lakh. So, if your annual interest outgo is higher than Rs 2 lakh, it makes sense to prepay the loan, and save on future interest payment. For example, the annual interest on a Rs 70 lakh outstanding loan, at 9.5%, comes out to be Rs 6.65 lakh. After taking into account the Rs 2 lakh deduction under Section 24C, the interest component will fall to Rs 4.65 lakh, and bring down the effective cost of interest from 9.5% to 8.64%, even for the people in the 30% tax bracket.
You can, however, optimise the tax benefits if the loan has been taken jointly, say, with your spouse. “If joint holders share the EMIs, both can claim Rs 2 lakh each in interest deduction,” says Harsh Roongta, Sebi-registered investment adviser. In case of joint holders share the EMIs, both can claim Rs 2 lakh each in interest deduction,” says Harsh Roongta, Sebi-registered investment adviser. In case of joint holders, there is no need to prepay if the outstanding amount is less than Rs 40 lakh.
There is no cap on deduction in lieu of interest paid on home loan, if the property is not self-occupied. “Since there is no cap for interest on loan against second or rented out homes, there is no need to prepay it,” says Naveen Kukreja, CEO and Co-founder, Paisa Bazaar. Bear in mind, by prepaying your loan, you may also forego future tax benefits. For instance, if by prepayment, you bring down your outstanding loan amount to Rs 20 lakh, your annual interest outgo for subsequent years may fall below Rs 2 lakh. Thus, you won’t be able to avail of the entire tax-deductible limit and, in such a scenario, prepayment may not be a good strategy. Also, building an emergency fund, if you don’t have one, should take a priority over prepaying the housing loan: “Make sure that you have a contingency fund in place before opt for prepaying your home loan,” says Roongta.
The third key variable is returns from investment of the lump sum at hand. As a thumb rule, you should go for investment, instead of prepayment, only when the post-tax return from the investment is likely to be higher than the effective cost of the housing loan. For investors in the 30% tax bracket, and whose outstanding home loan balance is less than Rs 20 lakh, the effective cost of loan is only 6.65%. Since there are several risk-free, tax-free debt options such as PPF, Sukanya Samruddhi Yojana and listed tax-free bonds, which offer higher annualised return than this, it makes sense to invest in them.
All the debt products mentioned above are long-duration products. If your risk-taking ability is higher and time horizon is longer, you can consider investing in equities, which can generate better returns “It’s sensible for long-term investors (five year-plus holding period) to go for equities, provided they are savvy and understand the risks involved there,” says Kukreja.
There are some home loan products that provide an overdraft facility of sorts and help you maintain liquidity. All you have to do is to park the surplus money in these products and not bother with whether it’s a prepayment or not. It’s like prepayment with the option of taking out that money, in case you need it in future for personal use or for investment purpose. The strategy of maintaining the housing loan interest close to Rs 2 lakh per annum can also be managed by these special loan products. And even if you are going to invest, the SIPs can go from this account.
“I park my bonus and do SIPs in equity from the loan account,” says Kukreja. Most banks charge more for these special loan products. “Though the stack rate differential is more, you can bring it down by bargaining with the banks,” he adds.
Source : http://goo.gl/3ce3eL
ATM :: As govt rolls back EPF withdrawal norms, 5 reasons to stay invested
PF withdrawal norms dropped: There could be good reasons to keep your money with the EPFO unless you need it for a specific purpose and you have no alternative sources to meet those expenses.
By: Sarbajeet K Sen | Updated: April 20, 2016 5:25 PM | Indian Express
Employee Provident Fund members may have won the battle against the government’s move to impose restrictions on EPF withdrawal, but should they rush to take out the money if eligible to do so?
There could be good reasons to keep your money with the fund unless you need it for a specific purpose and you have no alternative sources to meet those expenses.
Here are a few reasons why you should consider staying invested in with the Employee’s Provident Fund Organisation (EPFO).
Provides old-age income security: The main purpose of contributions to EPF is to create a corpus for the golden years of the members. The corpus created through compulsory savings should be looked at as a fund that would provide financial security at old age. It should not be withdrawn unless for specified emergency purposes. Besides, there is provision for pension and insurance under EPFO.
High rate of interest: EPFO has set the interest rate for 2015-16 at 8.8 per cent, which makes it one of the most lucrative fixed-income savings instruments. This is even better than Public Provident Fund (PPF) which now gives an annual interest of 8.1 per cent. Hence, financial advisors often suggest voluntary increase in EPF contributions from the employee side beyond the mandatory 12 per cent of basic.
Compounding for more years builds large corpus: With the money being compounded at a healthy interest rate the fund can help generate a corpus at retirement can be substantial. A quick calculation shows that an average monthly contribution of Rs 5000 for 30 years at 8.8 per ent compounded annually will create a corpus of Rs 82.35 lakhs after 30 years. However, if the same it withdrawn after 25 years, you will get around Rs 54 lakhs and over 20 years the corpus will be substantially lower at Rs 32 lakhs.
Provides tax-free returns: EPF enjoys Exempt, Exempt, Exempt (EEE) status and hence it is not taxed throughout its life including contribution, accumulation and withdrawal. If tax-saving is factored in, the 8.8 per cent interest rate works out effectively to nearly 12.5 per cent interest if you are in the 30 per cent tax bracket. However, if you withdraw the corpus before completing five years as member and the amount is over Rs 30,000, you will have to pay tax as per your income slab.
Interest paid even in dormant accounts: The government has recently taken a decision to resume paying interest on ‘dormant’ EPF accounts. Earlier, if your money with EPFO had no contributions for over 36 months it was being categorized as ‘dormant’ and no interest was paid on it. That was a good reason to withdraw the money and invest it to other productive avenues. Not any longer. You can now retain the accumulation and earn healthy interest till retirement.
Source : http://goo.gl/mKmSU7
ATM :: Budget 2016: Times guide to personal tax
TNN | Mar 1, 2016, 04.36 AM IST | Times of India
Proposal (P): Increase the rate of surcharge on income exceeding Rs 1 crore to 15% from 12%.
Impact (I): This will raise the maximum marginal rate of tax to 35.54% from 34.61% on the ‘super-rich’.
P: Increase limit for tax rebate to Rs 5,000 from Rs 2,000 for resident individuals with a total income of up to Rs 5 lakh a year.
I: This will ensure an additional saving of Rs 3,090 for small taxpayers.
P: Raise deduction limit for rent paid by an individual who doesn’t have a house and isn’t entitled to HRA from the employer to Rs 60,000 pa from Rs 24,000 pa.
I: This will allow the individual to claim an additional deduction of Rs 36,000 pa, leading to a tax-saving of up to Rs 13,015.
P: Under the current provisions, dividend received by an individual from an Indian company is exempt from tax as dividend distribution tax (DDT) is already paid by the firm. It is proposed to charge the individual an additional tax at 10% on the dividend received in excess of Rs 10 lakh.
I: This will ensure that dividend earned by super-rich is also subject to tax in addition to the 15% DDT paid by Indian firms. The maximum effective tax that the dividends bear will be 32.21% (i.e. 20.36%+11.85%).
P: Make gains under the Sovereign Gold Bond Scheme, 2015, exempt from tax. Also, provide indexation benefit on transfer of the gold bonds.
I: This will give incentive for investing in gold bonds instead of the physical form.
P: For rupee-denominated bonds, give tax exemption to non-resident investors on gains arising from currency appreciation between the dates of issue and redemption.
I: This will attract non-resident investors to rupee-denominated bonds and help Indian companies raise funds abroad.
P: Don’t subject NRIs to higher rate of TDS due to unavailability of PAN if they fulfil certain conditions.
I: This will bring significant relief to NRIs.
P: Introduce e-assessment and do away with physical presence during tax hearings.
I: This will lead to an increase in paperless assessment and less face-to-face interaction between taxpayer and income-tax officers.
P: Increase the threshold limit for TDS in case of withdrawal of PF balances to Rs 50,000 from Rs 30,000.
I: Individuals with accumulated PF balances of up to Rs 50,000 will now not be subject to TDS on withdrawal.
P: Individuals with rental income less than the maximum amount not chargeable to tax should furnish Form 15G/15H for non-withholding of TDS.
I: This will bring huge relief to senior citizens and small taxpayers who have nil taxable income or income below the threshold limit but had to file I-T return to claim refunds of TDS deducted on rental income.
P: Include exempt income from long-term capital gains on sale of equity shares or equity-oriented mutual funds to determine whether an individual is liable to file I-T return.
I: To determine the requirement for filing a tax return, long-term capital gains on sale of equity shares or equity-oriented mutual funds that are exempt from tax also need to be included. Also, individuals with only exempt income from long-term capital gains on sale of equity shares or equity-oriented mutual funds will now be required to file return if the total exempt income exceeds the maximum amount not chargeable to tax (currently Rs 2.5 lakh).
P: Reduce the time-limit for filing of belated return to any time before the end of the assessment year or completion of assessment, whichever is earlier. However, allow a belated return to be revised within a year from the end of the relevant assessment year or completion of assessment, whichever is earlier.
I: This will reduce the time-limit for filing a belated return to one year from two years and encourage timely compliance. Revision of belated return will now be permitted, which was not possible earlier.
P: Amend advance tax payment schedule for individuals as (a) 15% of tax payable by June 15; (b) 45% of tax payable by September 15; (c) 75% of tax payable by December 15; and (d) 100% of tax payable by March 15.
I: This will increase the compliance burden.
P: Don’t subject to tax shares received by an individual in consequence of demerger or amalgamation of firms without adequate consideration.
I: This will bring uniformity in tax treatment of shares.
P: Exempt withdrawal in respect of contributions made on or after April 1, 2016, from a recognised provident fund and an approved superannuation fund, up to 40% of the accumulated balance.
I: This will increase the overall tax liability.
P: Exempt 40% of the total amount payable to individuals on closure/opting out of NPS.
I: Will reduce tax liability.
Source : http://goo.gl/tDeUEc
NTH :: Budget 2016: PPF stays on exemption list, only EPF interest to attract tax
Revenue Secretary Hasmukh Adhia said the Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries.
By: PTI | New Delhi | Updated: Mar 1, 2016, 14:11 | Indian Express
Seeking to dispel fears of the salaried class, the government today said PPF will not be taxed on withdrawal and only the interest that accrues on contributions to employee provident fund made after April 1 will be taxed while principal will continue to be tax exempt.
In an interview to PTI, Revenue Secretary Hasmukh Adhia said the Budget proposal to tax 60 per cent of employee provident fund (EPF) withdrawal will affect less than one-fifth of employees with high salaries.
The proposal, he said, is to tax the interest accrued on PF contributions made after April 1, 2016. “The principal amount will not be taxed and will continue to remain tax exempt on withdrawal. What we have said is 40 per cent of the interest accrued on contributions made after April 1 will be tax exempt and its remaining 60 per cent will be taxed.”
Source : http://goo.gl/NPl6WJ
ATM :: How to know if you are ready to buy a house
By Rishi Mehra | Feb 24, 2016, 08.49 AM IST | Economic Times
Buying a house is a big decision and you need to be financially and emotionally ready before you take the plunge. Here are some key things that will help you determine if you are ready to buy a house.
Down payment and Savings – In case you are buying a house without any loan, the foremost and perhaps the only thing one should determine is if you have enough savings to buy the house you want. If you are taking a loan, banks and financial institutions do not provide the entire amount of loan. It ranges from bank to bank, but in no cases does the loan exceed 90 % of the value of the house. In this case you will need about 10 % of the value of the house as savings to make a down payment.
Financial health in order – The foremost criteria to fulfill to even think of buying a house is to have good financial health. Banks have their own criteria to measure how much loan you are eligible for, but that should not be the factor to base your decision on. You should be able to calculate and figure out what the added pressure of a loan would do to your monthly expenses.
It is important to maintain a healthy debt-to-income ratio to ensure you do not default on your loans, which in turn will affect your credit score. A debt load of around 35% is considered ideal for a person, but a home loan can push it up to about 45 -50%. This can be a problem, but if you have additional sources of income, for example your spouse, the ratio can be higher.
Are you buying to sell – A house can be purchased to either live in it or as another investment instrument. It is often said real estate is a good investment vehicle – one that gives handsome profits. If you are buying to for your personal use, a home loan in most cases will stretch to about 20 years. This means about half your working age will go in servicing the loan.
It is important for you to gauge if you can handle a loan that has such a long tenure. In case you are looking at the house merely as an investment opportunity, you would need to give it about five years to show any significant return. Have a long hard look to figure out if you can afford the investment for at least about five years and the associated risks that go with such investment.
Tax benefits – A house purchased with a loan also has certain tax benefits, which tries to lessen the burden. These exemptions are not permanent in nature and can change when the Budget is tabled, but current regulations state that when the house purchased with a home loan is occupied by you, your family or is vacant, up to Rs. 2 lakh can be claimed as deduction in the interest amount paid. Similarly principal repaid up to a limit of Rs. 1.5 lakh can be claimed as a deduction under Section 80C. There are some additional criteria that you as a borrower will have to satisfy to enjoy these deductions, but do calculate and factor these in while making a decision to buy a house.
Employment condition – If you are salaried, ensure you have a steady job when taking a loan. If the home loan is of a long tenure, ensure that you do not retire before you finish servicing your loan. It is of little use if you keep this uncertainty on your head. In all cases you should look to prepay your loan much before its tenure gets over.
Extra expenses – There are always extra costs associated with buying a house. These may include stamp duty, payment for parking, society registration charges among others. In some cases you may need to do the interiors of the house, build kitchen, storage units among others. Factors these expenses in your budgeting and ensure you do not stretch yourself too thin.
Market condition – Lastly, have a look at the market condition, especially if you are buying a house as an instrument of investment. The real estate market is fickle and is often the first to be impacted in the case of an economic downturn. Have a careful look at the prevailing real estate market conditions and also the area you want to buy a house in.
(The author is co-founder of deal4loans.com)
Source : http://goo.gl/oIs5GW
ATM :: Should we focus on financial planning or just tax planning?
By Vivek Law | Last Updated: February 20, 2016 | 16:13 IST | Business Today
The Budget may not have much for you. So, it’s best to plan your finances in such a way that this does not matter. India is perhaps the only country where the Union Budget is almost like a carnival. What is otherwise meant to be a statement of the government’s finances is a lot more in India. It is also a vision statement of the government’s policies. But that is hardly the reason why every Indian citizen looks forward to it and why it is covered in a high-decibel manner across the media. The reason is: Tax.
Unlike in most countries, the government tweaks tax rates, exemptions and deductions, almost every year. Consistency is not our forte. It is, therefore, not surprising that we all stay glued to the TV to listen to the Budget speech to figure out whether we need to pay more taxes, which product will be cheaper or expensive and, above all, which new products will we now be able to invest in for saving tax. In India, it is the government that does our financial planning. It decides which products we should put our money in by identifying products that qualify for tax deduction. It keeps changing the list every year. And most citizens merely follow the direction given by the government as product manufacturers line up one product after another with one simple hook: “Save Tax”.
Never mind if the product is suitable for us or not. As long as it provides a tax break, we must buy it, we are told. And most of us take the bait and buy it too. Should we save tax? Of course we must. But should we focus on financial planning or merely on tax planning? Tax planning is an integral part of financial planning. The focus should be first on drawing up our financial plan. On finding out our earnings and expenses. On figuring out our Tax rates, exemptions and deductions are tweaked by the govt almost every year By Vivek Law goals in life. On figuring out our need for money in the short term (one-two years) and the long term (more than five years). Once this is done, we must figure out how much to put in equity and how much in debt. How much to set aside for buying our home and how much to set aside for gold. But before all this, have a health insurance policy, and if you have a dependant, a term insurance as well.
After this comes the bit about picking products. The remarkable thing about our successive governments has been how they have clubbed together everything in the bracket of products that allow us tax deductions and exemptions. So, for example, your children’s school fees as well as your provident fund are eligible in the same category. So are your insurance and equity-linked savings scheme (ELSS) investments. There is a separate category for health insurance as also for the National Pension Scheme.
In other words, once you have figured out your financial plan, putting aside money to make the most of tax breaks is easy. What can be dangerous is doing it the other way around. For example, if you do not need a ULIP or an endowment policy, and buy one just because your agent tells you that it gets you a tax break, it is disastrous for your financial plan. Similarly, putting all your money in a PPF account may not be prudent either. Sound financial planning is about asset allocation. Not putting all your eggs in one basket.
Financial plans are also not made for one year. Yes, one must look at one’s financial plan periodically but not change it every year just because the government decides to make changes to the tax-saving products’ list in every Budget. In fact, the government needs to get out of the business of deciding where we invest. It needs to segregate expenditure and investment and not put them in one basket. We are a nation of savers and are laggards when it comes to investments. So, what would I expect from the finance minister this Budget? Given the rather stressed condition of the finances, it would hardly be prudent to expect any great tax breaks from the finance minister. Instead, what would be easy to do is to simplify the sections under which we get our tax breaks. Put expenditure—school fee, home loan etc—in one basket and put core investment products—ELSS, ULIPs, PPF etc—in one.
(In association with Mail Today Bureau)
Source : http://goo.gl/2HrmoK
ATM :: Wrong Tax Deduction on Home Loan Can Result in Tax Penalties
NDTV Profit Team | Last Updated: February 12, 2016 12:42 (IST)
The purchase of a house, by taking out a home loan, is considered good by personal finance experts, who generally scoff at long-term liabilities.
A house, unlike other personal goods such as cars, is considered to be an asset. There’s tax benefit too. Home buyers can claim an exemption of up to Rs. 1.50 lakh on principal payments for home loan under Section 80C of the Income Tax Act.
Buyers can avail Rs. 2 lakh deduction paid towards interest component of home loan per year.
The above-mentioned benefits apply for self-occupied properties and not for under construction houses. Further, in case of a delayed possession, the tax benefits get reduced substantially. Many a times, tax payers – unaware of this provision – claim full tax benefits on their home loan and get notices from the tax department.
According to Section 24B of Income Tax Act, a person can claim a tax deduction of up to Rs. 2 lakh on the interest paid on a self-occupied house if the possession of the property is done within three years of taking the loan.
In case the possession is given after three years, then the amount of deduction is reduced to Rs. 30,000 per year.
This means in case of delayed possession (when houses are delivered three years after a home loan has been taken), buyers can claim only Rs. 30,000 (15 per cent of the current allowed deduction of Rs. 2 lakh) as exemption.
Those who unknowingly claim exemption can get into serious trouble and may have to pay huge penalties, experts say.
“If the home buyer in such cases still claims interest of Rs. 2 lakh per annum, the tax office could disallow the deduction of Rs. 1.7 lakh per annum which could result in additional tax and interest payable by the home buyer to the tax office. At their discretion the tax office can also levy penalty for claiming excessive deduction,” says Parizad Sirwalla, National Head-Global Mobility Services-Tax, KPMG.
The penalty in this case may range between 100 per cent and 300 per cent of the extra tax deductions claimed, says Amit Maheshwari, managing partner of Ashok Maheshwary & Associates.
Tax experts say that home buyers are getting tax notices for claiming over Rs. 30,000 deduction, despite delayed possession. “As people are getting the possession of the house which they booked five to seven years back now, tax department are scrutinising the returns and people are getting notices from the tax department for the same,” says Sudhir Kaushik, chief financial officer, Taxspanner.com.
Tax experts believe that Finance Minister Arun Jaitley in the budget should relook at the tax benefits offered on home loans. “It may be worthwhile to consider an amendment in the provision not limiting such deduction to Rs. 30,000 per annum in cases where the delay in completion of construction is caused on account of reasons beyond the control of the home buyer,” says Parizad of KPMG.
Tapati Ghosh, partner at Deloitte Haskins & Sells, said: “One of the measures that could be considered is the extension of time limit to 5 years at least for the under-construction properties.”
Source : http://goo.gl/AGvChJ
ATM :: Home loans: heavy liability but also big on tax benefits
Ashwini Kumar Sharma | Last Modified: Thu, Jan 28 2016. 03 09 AM IST | Live MInt
Borrowing money to buy a house not only gets you an asset but also helps you save on taxes along the way
Given the high property prices in metros, on an average an apartment having two bedrooms, hall, and kitchen of 1,200 sq. ft in an ordinary location will cost at least Rs.60 lakh or Rs.5,000 per sq. ft and or more. So, to buy such a house, most people take the help of a home loan, which usually forms 70-80% of the apartment’s value. This is probably the biggest loan that a person will ever take; thankfully, the related tax breaks are also significant. For example, a person servicing a home loan can claim deduction against principal repayment as well as against payment of interest. For investors, this enhances their profit margins. “Taking a home loan for investing in a residential property can significantly affect the buying decision,” said Amit Maheshwari, managing partner, Ashok Maheshwary and Associates, a chartered accountancy firm. Take a closer look at your home loan’s tax benefits.
Deduction on repayment
The equated monthly instalment (EMI) that you pay has two components, principal and interest. Both qualify for tax deduction under two separate sections of the Income-tax Act, 1961. Principal repayment can be claimed as deduction under section 80C of the Act, whereas interest under section 24(b).
Various other investments and expenses qualify for deduction under section 80C, which has an upper limit of Rs.1.5 lakh. However, section 24(b) provides exclusive deduction against interest payment on home loan. In this, you can claim deduction for interest payment on borrowed capital for the purpose of purchase, construction, repair, renewal or reconstruction of the house property. If home loan is taken for purchase or construction of a house, the exemption limit if the house is self-occupied is capped up to Rs.2 lakh, but there is no cap if the house is let out.
Take a joint home loan
Often borrowers take a joint home loan to enhance the loan eligibility. This is usually done along with spouse, parents, or in certain cases, with siblings. The tax benefit can be claimed by all the borrowers individually, provided they are co-owners of that property too. “When a property is purchased jointly, and the loan is co-borrowed, the deduction of Rs.2 lakh and deduction under section 80C (maximum Rs.1.5 lakh) is allowed to both the co-owners cum co-borrowers in the ratio of their ownership,” said Archit Gupta, chief executive officer and co-founder, http://www.cleartax.in. If you buy a property along with your spouse and both of you share equal rights over the property, you both are eligible to claim deduction equally. So, if the total payment in a year towards home loan is Rs.6 lakh, with Rs.1 lakh as principal and Rs.5 lakh as interest, both the borrowers can claim Rs.50,000 each under section 80C (against principal) and Rs.2 lakh each under section 24(b), if it’s a self-occupied house, or Rs.2.5 lakh each if it’s a let-out property.
Things to remember
You can only claim tax benefit on repayment of home loans once the property is complete. If you buy an under-construction property, you are not allowed to claim the deduction till the time the property is fully completed and you get possession.
“(But) pre-construction interest can be claimed in five equal instalments starting from the year in which construction is completed (within the overall limit mentioned above),” said Gupta. For instance, if you have paid Rs.5 lakh as interest on home loan during the construction period, you can claim Rs.1 lakh (one-fifth of Rs.5 lakh) each year, after you get possession of the house.
In case of a joint loan, typically lenders insist on borrowers opening a joint bank account to pay EMIs. Make sure each co-borrower contributes according to her respective share in the joint account. It helps to provide proof of contribution or payment to the taxman in case of scrutiny.
A home loan is a big liability, but it also offers substantial tax breaks. Understand these carefully so that you can make the best of the situation.
Source :http://goo.gl/S9Hve8
ATM :: Possession of house delayed? You may lose 85% tax benefit
Prabhakar Sinha | TNN | Feb 11, 2016, 02.46 AM IST | Times of India
As if the mental harassment of delayed delivery of a house is not bad enough, you could also be losing 85% of the tax benefit on your home loan, for no fault of yours.
A tax deduction of Rs 2 lakh per year is allowed against payment of interest on home loans, if the house is acquired within three years of taking the loan. In case the possession happens after three years, the permissible deduction falls to just Rs 30,000 a year — a reduction of 85%.
In the past couple of years most home deliveries have been delayed beyond three years from time of purchase, making the buyers ineligible for the tax deduction— a fact they would have not known at the time of taking the home loan.
Given the stress in the real estate sector, most builders are now committing deliveries after four years of booking, so home buyers lose out on a big chunk of the potential tax deduction.
For people in the top income tax bracket of 30% (annual taxable income of Rs 5 lakh or more) the benefit resulting from this provision will drop from Rs 60,000 to Rs 9,000 a year. On a home loan of Rs 50 lakh taken at 9% interest for 20 years the total loss through the entire repayment period will be Rs 8.81lakh.
Partner and national head of KPMG, Vikas Vasal, said the three-year possession condition was introduced to expedite construction of projects.
But, with most housing projects running late, the government must amend the relevant clause to ensure that the benefits do accrue to home buyers, he added. The deduction limit was raised from Rs 1.5 lakh to Rs 2 lakh in 2014-15.
“The income tax department must address the issue in a way that home loan takers are not disqualified from availing of the benefit for no fault of theirs,” says senior tax consultant Dinesh Kanabar.
Source : http://goo.gl/S0qqUL
ATM:: 9 smart ways to save tax
Babar Zaidi | TNN | Jan 11, 2016, 08.57 AM IST | Times of India
Do-it-yourself tax planning can be rewarding and challenging. Rewarding, because you can choose the tax-saving instrument that best suits your needs. Challenging, because if you make the wrong choice, you are stuck with an unsuitable investment for at least 3-5 years. This is where our annual ranking of best tax-saving options can prove helpful. It assesses all the investment options on seven key parameters—returns, safety, flexibility, liquidity, costs, transparency and taxability of income. Each parameter is given equal weightage and a composite score is worked out for the various tax-saving options.
While the ranking is based on a robust methodology, your choice should also take into account your requirements and financial goals. We consider the pros and cons of each option and tell you which instrument is best suited for taxpayers in different situations and lifestages. We hope it will help you make an informed choice. Happy investing!
ELSS FUNDS
ELSS funds top our ranking because of their tremendous potential, high liquidity and transparency. The ELSS category has given average returns of 17.8% in the past 3 years. The 3-year lock-in period is the shortest for any Section 80C option.
If you have already fulfilled KYC requirements, you can invest online. Even if you are a new investor, fund houses facilitate the investment by picking up documents from your house and guiding you through the KYC screening. ELSS funds are equity schemes and carry the same market risk as any other diversified fund. Last year was not good for equities, and even top-rated ELSS funds lost money. However, the funds are miles ahead of PPF in 3- and 5-year returns.
The SIP route is the best way to contain the risk of investing in equity funds. However, with just three months left for the financial year to end, at best, a taxpayer will manage 2-3 SIPs before 31 March. Since valuations are not stretched right now, one can put in a bigger amount.
SMART TIP
Opt for the direct plan. Returns are higher because charges are lower.
ULIP
The new online Ulips are ultra cheap, with some of them costing even less than direct mutual funds. They also offer greater flexibility. Unlike ELSS funds, where the investment cannot be touched for three years, Ulip investors can switch their corpus from equity to debt, and vice versa. What’s more, there is no tax implication of gains made from switching because insurance plans enjoy exemption under Section 10 (10d). Even so, only savvy investors who know how to use the switching facility should get in.
SMART TIP
Opt for liquid or debt funds of the Ulip and gradually shift the money to the equity fund.
NPS
The last Budget made the NPS attractive as a tax-saving tool by offering an additional tax deduction of Rs 50,000. Also, pension fund managers have been allowed to invest in a larger basket of stocks.
Concerns remain about the cap on equity exposure. Besides, the taxability of the NPS on maturity is a sore point. At least 40% of the corpus must be put in an annuity. Right now, the income from annuities is taxed at the normal rate.
SMART TIP
Opt for the auto choice where the equity exposure is linked to age and comes down as you grow older.
PPF AND VPF
It’s been almost four years since the PPF rate was linked to the benchmark bond yield. But bond yields have stayed buoyant and the PPF rate has not fallen. However, the government has indicated that it will review the interest rates on small savings schemes, including PPF and NSCs. If this is a worry, opt for the Voluntary Provident Fund. It offers that same interest rate and tax benefits as the EPF. There is no limit to how much you can invest in the VPF. The contribution gets deducted from the salary itself so the investor does not even feel it go.
SMART TIP
Allocate 25% of your pay hike to VPF. You won’t notice the deduction.
SUKANYA SAMRIDDHI SCHEME
This scheme for the girl child is a great way to save tax. It is open only to girls below 10. If you have a daughter that old, the Sukanya Samriddhi Scheme is a better option than bank deposits, child plans and even the PPF account. Accounts can be opened in any post office or designated branches of PSU banks with a minimum Rs 1,000. The maximum investment in a financial year is Rs 1.5 lakh and deposits can be made for 14 years. The account matures when the girl turns 21, though up to 50% of the corpus can be withdrawn after she turns 18.
SMART TIP
Instead of PPF, put money in the Sukanya scheme and earn 50 bps more.
SENIOR CITIZENS’ SCHEME This is the best tax-saving instrument for retirees. At 9.3%, it offers the highest interest rate among all Post Office schemes. The tenure is 5 years, extendable by 3 years. Interest is paid quarterly on fixed dates. However, there is a Rs 15 lakh overall investment limit.
SMART TIP
If you want ot invest more than Rs 15 lakh, gift the amount to your spouse and invest in her name.
BANK FDS AND NSCs
Though bank FDs and NSCs offer assured returns, the interest earned on the deposits is fully taxable. They are best suited to taxpayers in the 10% bracket or senior citizens who have exhausted the Rs 15 lakh limit in the Senior Citizens’ Saving Scheme.
SMART TIP
Invest in FDs and NSCs if you don’t have time to assess the other options and the deadline is near.
PENSION PLANS
Pension plans from insurance companies still have high charges which makes them poor investments. They also force the investor to put a larger portion (66%) of the corpus in an annuity. The prevailing annuity rates are not very attractive. Pension plans launched by mutual funds have lower charges, but are MFs disguised as pension plans. Moreover, they are debtoriented plans so they are not eligible for tax benefits that equity plans enjoy.
SMART TIP
Invest in plans from mutual funds. They offer greater flexibility than those from life insurers.
INSURANCE POLICIES
Traditional life insurance policies remain the worst way to save tax. Still, millions of taxpayers buy these policies every year, lured by the “triple benefits” of life insurance cover, longterm savings and tax benefits. Actually, these policies give very little cover. A premium of Rs 20,000 a year will get you a cover of roughly Rs 2 lakh. The returns are very poor, barely 6% if you opt for a 20-year plan. And the tax-free income is a sham. Going by the indexation rule, if the returns are below the inflation rate, the income should anyway be tax free. The problem is that once you sign up for these policies, they become millstones around your neck.
SMART TIP
If you can’t afford to pay the premium, turn your insurance plan into a paid-up policy.
Source: http://goo.gl/DWqo4K
ATM :: Bearish real estate sector: Time to take a home loan?
Adhil Shetty CEO, BankBazaar.com | Source: Moneycontrol.com
Potential property buyers must keep a track of property prices, the home loan interest rates and the tax benefits associated with it. A comparative analysis can help arrive at the right answer.
Timing the market—whether in equity or real estate—is fraught with risk. Future prices can never be predicted with any degree accuracy that provides any comfort. However, in the real estate market, the price volatility is not as severe as in the equity market. Therefore, a buyer or an investor can still take a relatively sanguine bet on the future price movements in real estate.
As the situation stands today, buyers expect a further drop in property prices before they recover and start moving northward in a year or two. Not just that, they expect the interest rates to fall further and enter the sub-9% region. These are the two possibilities holding back many buyers from taking a plunge into the real estate market.
Often, it helps to know the likely impact on the buyer’s cash outflow and net savings under different circumstances—likely price fluctuations, interest rate movements and tax savings.
In an attempt to decode the impact of these market forces on your real estate investment, we outline different scenarios and evaluate the impact of these scenarios on a prospective buyer’s financial positions by analyzing three different cash flows: gains or losses from property prices fluctuations, home loan interest rate movements, and the total tax savings.
Scenario 1: Buy now, prices are down, rates are down, also get tax savings
One of the prime attractions for investors of investing in a home property is the potential tax savings under Sections 80C and 24 of the IT Act. However, when the real estate market is already bearish, any appreciation in property prices can offset the gains from tax savings.
So, it may be worthwhile to consider buying property now or in the near future when property prices are muted and interest rates have come down.
Suppose the property you intend to buy currently costs Rs. 50 lakh. If you were to buy this property today, you would take a loan of around Rs. 43 lakh (85% of the property price) for, say, a period of 20 years at a rate of interest of 9%.
Scenario 2: Buy later, prices remain down, rates may go further down, also get tax savings
Another option can be to wait for a few months to see if interest rates fall further while property prices still remain muted, therefore there’ll be three savings: on property price, on interest repaid on home loan, and on taxes.
Let us say the property price goes down to Rs 45 lakh after a few months. For this, your loan requirement would go down proportionately to Rs 38 lakh over a period of 20 years. Let us also assume that interest rates fall further to 8.5% after 6-12 months.
Scenario 3: Buy later, prices may go up, rates may go further down, also get tax savings
The final scenario is, while you wait for interest rates to fall further, property prices may appreciate in the meantime if demand starts picking up. This may potentially wipe out some of or all your gains from the lower interest rates and tax savings.
Assuming the price of the same property goes up to Rs 55 lakh after a few months, your loan requirement would shoot up to Rs 47 lakh, however at a lowered interest rate of 8.5% (assuming they have decreased further from the current 9%).
In all scenarios above, we have assumed that the average interest rate over the loan tenure of 20 years would be the same as it is in the first year.
Comparing the scenarios
Scenarios 1 versus 2: In scenario 2, you pay Rs. 5 lakh lesser for the property. You also pay Rs. 8.7 lakh lesser interest on your home loan over the next 20 years. However, your total tax savings also go down by around Rs. 70,000 as compared to Scenario 1.
Nonetheless, you make a net saving of around Rs. 13 lakh by waiting for the property prices and home loan rates to come down.
Scenario 1 versus 3: Now, while you wait for interest rates to fall further, what if the property price goes up to Rs. 55 lakhs. In this case, you pay Rs. 5 lakhs more for the property price, your interest cost over the 20-year period goes up by around Rs. 1 lakh as compared to Scenario 1. However, you get higher tax savings of around Rs. 31,000 than what you get in Scenario 1. As compared to Scenario 1, your net cash flows go up by around Rs. 5.7 lakhs despite the higher tax savings and lower interest rates.
From the above two examples, it is clear that even a small appreciation in property prices is enough to negate completely or reverse any gains from tax savings and lower interest rates. While awaiting further lowering of home loan interest rates is a fair expectation and a smart move, the buyer stands to gain only if property prices too go down simultaneously, or at worst, remain at current levels.
Source : http://goo.gl/Y6JdWT
ATM :: Which is the best home improvement loan?
Kavya Balaji | Thu, Oct 29 2015. 07 19 PM IST | LiveMint
Choose one based on interest rate, tenor, amount available and also limitations such as prepayment charges
Many owners decide to give their houses a makeover during the end-of-the-year festival season. If you, too, are looking to renovate your house but don’t know how to finance the expenses, you could take a look at the various loans available. Home improvement could include remodeling, painting, internal and external repairs, and even bigger construction work such as adding a floor.
What is it?
Home improvement loan is meant for renovating a house, and is given to a person in whose name the property is. Maximum tenure is typically 15 years and interest rates at present are in 9.5-10.5% per year range, depending on lender, loan amount and eligibility.
“Lenders normally fund close to 80% of the work estimate, which should be related to improvement or extension of the property,” said Rajiv Raj, co-founder and director, CreditVidya, a Mumbai-based credit advice and planning company.
For new customers, higher the loan amount needed, the lower would be the funding by the bank. For instance, at HDFC, a loan request of up to Rs.20 lakh would get 90% funding, if it’s between Rs.20 lakh and Rs.75 lakh, then 80% and if it’s over Rs.75 lakhs, the funding would be only 75%. “For an existing home loan customer of HDFC who wants to make improvements to the same mortgaged property, the loan amount can be up to 100% of the cost of repairs subject to total exposure not more than 80% of the property’s market value,” said a HDFC spokesperson.
The processing fee for these loans generally ranges between 0.5% and 1% of the loan amount.
You get tax exemption for these under section 24(b) of the income-tax Act. The interest paid on home improvement loan is tax deductible up to Rs.30,000 per annum. “Both the owner and co-owner are eligible for tax deduction on the interest paid on such loans,” said said Adhil Shetty, chief executive officer and co-founder, Bankbazaar.com. But this exemption comes under the same category as of home loan interest exemption, which stands at Rs.2 lakh.
There are no prepayment charges as “the new guidelines by the Reserve Bank of India (RBI) forbid banks to impose prepayment penalty on such improvement loans” said Shetty.
If you decide to go to the lender where you have an existing home loan, the process is likely to be quicker as required documents would already be with the lender. But your property would act as collateral for this loan.
“In addition to regular income and property documents, an Architect’s Certificate is taken with details of all the works to be carried out,” said Sumit Bali, senior executive vice-president, and head–personal assets, Kotak Mahindra Bank.
For salaried borrowers, the disbursement is also generally fast. “For those with ‘salaried’ profile, it takes 4-5 days from the day of submission of all requisite documents. For those with ‘self-employed’ profile, it takes 7-9 days,” said Bali.
Apart from a home improvement loan, there are some others that you can use.
Top-up loan
This is a loan that can be taken over and above an existing home loan. But it can be taken only after a certain number of years of the home loan being sanctioned. Most banks fix this at over 3-6 years. The interest rate is usually base rate plus a certain percentage. For example, at Bank of Maharashtra, top-up loans are offered at base rate plus 1.25%, which would work out to be 11.5% at present.
The maximum tenure is usually 15-20 years, depending on the tenure of existing home loan. “A top-up loan is almost like a personal loan, except that it comes with lower interest rates,though not as low as home loan rates,” said Shetty.
Most top-up loans are restricted to 70% of the property value. But the actual percentage would depend on the market value of the property and the borrower’s repayment ability. The processing fee is typically 0.5-0.75% of the loan amount.
You can avail tax deductions for a top-up loan also if purpose of the loan is home improvement. “If the loan is for, say, an additional parking space, which is part of property acquisition, the customer will be eligible for a tax rebate on both the principal and interest paid towards the top-up loan. This is included in the rebate she would avail from the current home loan,” said Shetty. Most banks levy no prepayment charges on top-up loans taken by individuals.
Personal loan
Personal loans are among the costliest credits available, as their interest rates range between 15% and 24% per annum. Prepayment charges are also high—2-5% of the principal outstanding. The maximum tenure offered is usually only 5 years, which means the equated monthly instalment (EMI) would be high as compared to loans with longer tenures. The processing fee is also on the higher side—2-2.5% of the loan amount. There are prepayment charges and a lock-in period to contend with. For instance, ICICI Bank charges 5% of principal outstanding as prepayment charge and you need to wait for 6 months before you can prepay. HDFC Bank does not allow part prepayment; foreclosure is available only after 12 months.
While expensive, personal loans are easy to get since no collateral is needed, paperwork is less and disbursement usually takes place in 2-3 days. Some banks also offer special rates to women customers, for example, Bank of India offers 0.5% concession on interest rate for personal loans to women.
Gold loan
If you are not eligible for a home improvement loan or personal loan due to, say, credit history or if the house is not in your name (it may be a family or ancestral property), you could consider gold loans. These are considered as an alternative to personal loans. Disbursement usually takes only 1-2 days, but the interest rate at 14.5-17% per annum is much higher than a top-up or a home improvement loan. With a gold loan, you get only get up to 80% of the value of gold, and the tenure is typically 12-15 months. This means that you need to pledge more gold for higher amounts and pay higher EMIs.
Loan against property
If you have finished paying your home loan, you could consider taking a loan against property (LAP). Even though LAP has better rates and longer tenures than a personal loan, it should be considered only if the amount needed for home improvement is big.
“By opting for LAP, the borrower is mortgaging an expensive asset—the house—for a small amount of loan, and she cannot use the value of the property to obtain any other credit that may be available in the market later,” said Shetty.
There is a limitation on the loan amount that can be disbursed and it may vary across lenders. “Total loan exposure is restricted to 60% of property’s market value for an existing customer and 50% of the property value for a new customer,” said the HDFC spokesperson..
Mint Money take
In terms of cost, a home improvement might be the cheapest and easiest form of credit, followed by a top-up loan. “Home improvement loans score over personal loans or LAP as the interest rates are lower and tenors longer,” said Raj.
If opting for any of these two loans, choose a floating rate over a fixed one as in current conditions, interest rates are expected to move downwards. Only floating rate loans have no prepayment charges.
Ideally, you should save for home improvement and avoid taking a loan. However, if you decide to borrow, remember that a comparison between institutions for interest rates and charges could result in significant savings.
Source : http://goo.gl/9pLNnh