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How to Save Tax On Buying A House In India

How to Save Tax On Buying A House In India
August 11
14:04 2014
Save Tax On Buying A House In India save tax How to Save Tax On Buying A House In India Save Tax On Buying A House In India

Save Tax On Buying A House In India

Everyone dreams of owning their own House property some day or the other which they can call their “home”. But with the increasing number scams and various different permissions required to build a house property it is very essential and necessary to check all the necessary paperwork and documents before buying the property. In this article we will look at the various documents that are to be checked before buying any house in India.

Here is the list of the documents that are to be checked and scrutinised before the purchase of any house property. The list will change depending on whether the property is new or a resale one.

Property documents:

  • Sale Deed, agreement of Sale. Original Share Certificate(s) issued by the society.
  • Land and Building tax paid receipts, possession certificate, and location sketch of property certified by revenue authorities.
  • Letter of allotment from Housing Board /Society/ Private builder.
  • Original receipts regarding advance payments towards purchase of flat.
  • Non encumbrance certificate for the last 12/30 years.
  • Original of land tax paid receipt and possession certificate issued by the revenue authorities.
  • Copy of permission from Appropriate Authority and approved building plan (and also key plan / floor plan incase of purchase of flats)
  • Original NOC under ULC Act 1976
  • Copy of the relative order in case of conversion of agricultural land.
  • Original No objection certificate from Housing Society / Builder
  • Detailed estimate of cost of of House

Letter from the Builder / Society /Housing Board intimating their account number and name of their bankers, for remittance of instalments.

Other documents:

  • In case of loan granted for purchase of plot of land, declaration by the borrower agreeing to construct the house within the stipulated period.
  • Lawyer’s report as per the standard format (Bank’s of Instructions)
  • Valuation report from empanelled valuer as per standard format.

However with the increase in the number of buyers in the market, the prices of properties have been steadily increasing over the period of time. Thus purchasing a property in such times without the help of someone. And this someone can be parents, relatives or a bank. Such monetary help from family or friends usually comes without any paperwork, but when it comes to bank the formalities are many and so is the paperwork. Here is the list of documents that needs to be submitted to banks for loan applications:

List of papers / documents applicable to all applicants:

  • Completed loan application
  • 3 passport size photographs (including those affixed in loan application)
  • Proof of identification: Electoral ID Card / Passport / Driving License / PAN card.
  • Proof of residence: Electoral ID Card / Passport / Electricity Bill / Telephone Bill.
  • Proof business address, in case of non- salaried borrowers
  • Statement of bank account for the last six months
  • Signature identification from present bankers
  • Personal Assets and Liabilities Statements in Bank’s standard format.
  • Brief write up of securities charged in respect of other loans availed from our Bank/other Banks/ Housing & Auto Finance Companies /other sources.

For Non Resident Indians/Person of Indian Origin borrowers:

  • Completed loan application
  • Passport size photographs (including those affixed in loan application)
  • Copy of passport including page containing visa stamping
  • Copy of valid work permit.
  • Copy of employment contract ( and English translation duly attested by employer / consulate / embassy /our foreign office if it is in any other language )
  • Latest salary certificate in original or proof of income in case of self employed / professionals.
  • Copy of identity card issued by the employer.
  • Proof of residence (driving license / utility bills etc.)
  • Copy of continuous Discharge Certificate in respect of applicants employed in merchant navy.
  • Brief write up on employment profile for the last 10 years.
  • Brief write up on the company / institution where employed i.e. its constitution, activity.
  • Employee base sale / net profit (approx.) etc.
  • Statement of overseas bank account for the last six months which reflect credit of salary, savings etc.
  • Power of Attorney, if applicable, duly stamped and notarized / attested by Indian Embassy / Consulate.

Additional documents required for salaried persons:

  • Original salary certificate for last month.
  • TDS certificate- Form 16 or copy of I.T. Returns for the last two financial years, duly acknowledged by I.T. Deptt.*

For professional /self- employed / businessmen:

  • Three years I.T. Returns duly acknowledged by I.T dept./ I.T. Assessment Orders for computation of income*
  • Copies of challans in respect of advance payment of income tax*

(* photocopies to be kept for our records after verification of the originals with suitable nothing regarding verification of the original)

Also, you can save tax on buying a house in India. Here is the list of tax benefits:

  • Section 80C: As per section 80 C an Individual and an HUF can claim principal repayment component of a loan along with other eligible items like Life Insurance Premium, NSCs, EPF, ELSS and stamp duty and registration charges etc. The overall deduction is restricted to Rs. 1 lakh in a year. Remember the deduction is only for residential house property and not for commercial property. Besides it is also available only for purchase or of a house and not for renovation, additions or repairs on any existing house property.

    • You can claim principal repayment if you have taken loan from specified entity like banks, HFCs, Central & State government, LIC, NHB, Public Company or a Public Sector Undertaking.
    • Moreover in case you sell the house acquired with home loan, within five years from the end of the year in which possession of the house was taken, all the deduction allowed for Principal repayment in earlier years shall be withdrawn. This shall be treated as income of the year in which this property is sold. Moreover no deduction under Section 80 C shall be allowed for principal repayment made during the year.
    • Section 24(b): In addition to deduction for Principal, Section 24(b) of the Income Tax Act allows you deduction for interest payable on loan taken to buy or construct a house property, or even for repair or reconstruction of an existing property. This benefit is available for residential and commercial property as well. It may be interesting to note that even processing fee paid in respect of home loan shall also be treated as interest so you can claim deduction in respect of processing fee paid for taking such loan.
    • Even in cases where you prepay your loan, you will be entitled to claim the amount of any prepayment fee paid to the bank for such prepayment. Here you can claim the benefits in respect of loans taken from your friends and relatives besides banks and financial institutions. The deduction is available for self-occupied as well as let-out properties too.
    • For self -occupied property, the deduction is restricted to Rs. 1.50 lakhs p.a. For let-out property, you can claim full interest. If you have more than one self- occupied houses, you have to select one house as self-occupied and the other house/s shall be treated as let-out. In this case you have to offer notional rent for taxation and can claim the full interest payable. So in order to maximize your tax benefits, it is always advisable to treat the property on which interest is lower as self-occupied in case interest payable on any or all of the property is more than Rs. 1.50 lakhs.
    • For under construction property, you can only claim the interest deduction from the year construction is complete and possession taken. However in respect of interest paid for the period prior to the year for taking possession, you can claim aggregate of such interest in five equal instalments from the year in which construction is completed.
    • Deduction under Section 80EE for the current year: For this financial year an additional deduction of Rs. One Lakh for interest is available under Section 80EE. This deduction can only be claimed if the loan amount is not more than Rs. 25 lakhs and the value of house does not exceed Rs. 40 lakhs. However you should not own any other house. Here the loan should have been sanctioned during 1st April 2013 to 31st March 2014. This deduction has only limited benefit in respect of self occupied residential house property purchased with loan sanction and disbursed during financial year 2013-2014 as you are entitled to claim full interest benefit in respect of let out property.

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