Here’s how it’s calculated for tax purposes

Question: I earned Long Term Capital Gains (LTCG) of Rs. 40 lakh on the sale of a residential house in FY21-22. To save tax, I will invest Rs. 20 lakh in NHAI capital gains bonds, and the balance Rs. 20 lakh as margin money for booking a residential house under construction, which will cost me Rs. .50 lakh. The remaining amount will be financed by a mortgage. Will I be entitled to claim exemption from paying tax on LTCG of Rs. 20 lakh (paid as margin money)?

To respond: Tax exemption under section 54 of the Long Term Capital Gains Income Tax Act 1961 on the sale of a dwelling house may be claimed to the extent of the cost of the new dwelling house, without any reference to the source of financing of the same. So what is important is the amount of investment in the property. It doesn’t matter how you finance the purchase of the property. Even a loan taken out for this purpose can be considered your investment for this purpose.

Since you are planning to buy a house that costs more than the long-term capital gains realized, you don’t need to invest in NHAI bonds. To qualify for this benefit for a property under construction, you must invest the amount of long-term capital gains before the tax return filing due date, i.e. 31 July 2022. If you are unable to fully use the money, you must deposit the unused long-term capital gain into the capital gain account, which can be used to pay the builder. You must ensure that the construction is completed within three years from the date of sale of your house.

Question: I am claiming Rs. 1.50 lakh under Section 80 C of the Income Tax Act. Is there a way to save more taxes, such as taking loans from banks to buy residential or commercial property and renting it out? Can we offset the interest payment or equated monthly installment (EMI) to the bank and reduce our tax payment?

To respond: In addition to the tax benefits of up to Rs. 1.50 lakh under Section 80C of the Income Tax Act, you can further avail yourself of exclusive tax benefits under the Section 80CCD(1B) by investing Rs. 50,000 in National Pension Scheme (NPS) Tier I account.

With regard to your tax benefits for a mortgage, be aware that rental income is taxed under the heading “Revenue from real estate” after a flat-rate allowance of 30% of the rent. You can claim full interest on your home loan, but you are allowed to offset the loss under “House Property Income” only up to Rs. 2 lakh against other income during the year. current year, and the unabsorbed loss, if any, can be carried forward for offsetting against income from the ownership of the home over the following eight years. You are also allowed to claim the benefit against the principal amount of a home loan within the aggregate limit of Rs. 1.50 lakh every year. Please note that these benefits are only available under the old tax regime.

Balwant Jain is a tax and investment expert

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