First-time home buyers, you must know this10 Mar 2016
If you have been thinking of buying your first property in the next financial year, then the Union Budget announced by the Finance Minister, Arun Jaitley, recently would give you some reasons to be happy. If financial experts are to be believed, a person who buys his first property in FY 2016-17 can save around Rs 5,92,000 from various sources. For the story, let's assume that the person falls under the highest tax bracket and is residing in a rented place for the purpose of an easy commute to his place of work. The property that he is purchasing is his first property.
Balakrishna Venkatramani, a certified financial planner at VENSIVA Financial Solutions, explains, "House Rent Allowance (HRA) is given to meet the cost of the rented house taken by the employee for his stay. The Income Tax Act allows for deduction in respect of the HRA paid to employees," he says.
Earlier, the extent of deduction allowed was Rs 2,000 per month or Rs 24,000 annually. "Now that limit has gone upto Rs 60,000 or Rs 5,000 per month. A person in the highest tax bracket can now save around Rs 18,540. That is 30.9 percent of Rs 60,000," he adds.
Note: An employee can claim exemption on his HRA under the Income Tax Act only if he stays in a rented house and is in receipt of HRA from his employer. In order to claim the deduction, an employee must actually pay rent for the house, which he occupies.
Section 80 C/Section 24
A deduction under section 80 C of the Income Tax Act is allowed for the gross income for the salaried individual. Under this deduction, a tax payer can claim deductions to the tune of Rs 1,50,000 for the principal repayment on the home loan taken for the purchase of the property.
He can also claim a further deduction of Rs 2,00,000 for the interest paid under section 24 on the same property. The FM has also given an additional benefit of Rs 50,000 on interest paid for first-time property buyers for loans upto Rs 35 lakh sanctioned during the next financial year, provided the value of the house does not exceed Rs 50 lakh.
Parul Maheshwari, a Mumbai based certified financial distributor, explains that under both the sections, a person who falls under the 10 and 20 percent tax bracket can save around Rs 41, 200 and Rs 82,400 respectively. "Assuming that he falls in the highest tax category or 30 percent tax net, he can save around Rs 1,23,600 annually, by purchasing his first property," she explains.
Service tax exemption
The budget also exempted developers from paying service tax for the construction of houses less than 650 sq feet. Rajiv Raj, co-founder and director, CreditVidya, informs, "On the lower side, the service tax is calculated at 14.50 percent on 25 percent of the total purchase price on the under-construction property. This service tax literally comes to 3.625 percent. Thus exemption of service tax on the under-construction property cost of Rs 50 lakh will amount to a saving of Rs 1,81,250 that is substantial."