There is no maximum limit on the amount of interest you may deduct under Section 24 for a “let-out property.”
A couple in the highest tax bracket want to investigate tax benefits beyond Section 80C by using bank loans to invest in real estate. Here’s how tax advantages for loans for residential and commercial real estate operate, as well as if this approach is really cost-effective.
Moneycontrol’s Ask Wallet Wise campaign provides professional guidance on financial and personal finance issues. You may send an email with your questions to askwalletwise@nw18.com, and we will do our best to obtain a leading financial specialist to respond.
In a private limited business, my spouse and I serve as directors. Dividends, bank interest on fixed deposits, and corporation salaries are some of our sources of revenue. Since we are in the highest tax bracket, we are eligible for the entire Rs 1.50 lakh deduction per person under Section 80C. Can we lower our tax obligation in any other manner, such as by taking out a bank loan to purchase a home or business? Is it possible to lower our tax burden by deducting interest or EMI payments from our income? Is it possible for me to purchase a business property under either of our names, rent it out, and use the proceeds to pay back the loan? Will this result in tax savings as well as asset creation?
Expert advice: To begin with, you should consider whether it would be better for you to stay under the previous tax system or to move to the new one, which has often grown more alluring. In addition to the Rs 1.50 lakh deduction under Section 80C, you may now claim an additional Rs 50,000 deduction under Section 80CCD(1B) by investing in the National Pension System (NPS) if the previous tax system still provides greater tax optimization in your situation.
Regarding home loan tax advantages, please be aware that profit from renting out any kind of property is subject to taxation under the “income from house property” heading. The standard deduction for rental income is thirty percent. There is no limit on the amount of interest you may deduct under Section 24 for a “let-out property.” You will not be allowed to deduct any losses under the “income from residential property” category from other income, nevertheless, if you choose the new tax system.
Even under the previous tax system, losses from home property could only be deducted from other income up to Rs 2 lakh annually. Any losses that remained had to be carried forward for up to eight assessment years in order to be deducted only from income from house property.
Repayment of the principal amount of a house loan taken out for a residential property is eligible for a deduction under Section 80C under the previous tax system, up to a total of Rs 1.50 lakh. However, because you may only deduct the interest part of a commercial property loan, this advantage is not accessible for such loans.
Indeed, obtaining a loan for real estate may assist lower tax obligations while generating assets. You will be eligible for the tax advantages in proportion to your ownership and loan share. I would highly advise against making real estate investments only for tax savings, however. Getting a home loan is a long-term financial commitment that might put a burden on your cash flow and freedom.