The Budget 2015 has been released in which many tax laws related proposals were made by the finance minister. Some real estate industry participants are in their favour and some feel they will impact the property buyer’s pocket. These include, abolition of wealth tax, additional deduction u/ 80CCD of Rs 50,000 (this is over and above the Rs 150,000 deduction available) on NPS contributions, corporate tax rate to be reduced to 25 per cent over next 4 years from the current 30 per cent, increase in service tax to 14 per cent from 12.36 per cent.
Now consumers are constantly thinking that how can one save on taxes now? How does it impact the mid-income buyers’ pocket? Will affordable housing remain a distant dream? To give you all the answers, a live chat session was organised with Vaibhav Sankla, director, H&R Block. The topic of the session was – ‘Decoding Budget 2015: Find out how new taxes impact your property purchase’.
So how a first time home buyer can get benefits from this budget especially in the absence of section 80EE, Sankla says, “80EE benefits were available for FY 2013-14 and 14-15 only in the absence of any extension under this section no additional benefit will be available for FY 2015-16.
How will consumer be benefited because of corporate tax reduction? Sankla answers, “You will not get any direct benefit by reduction in corporate tax rates. But if your employer company can save some taxes it may result in higher payouts in the form of salary increments. Further if you can be benefited as a shareholder if you are holding any company's shares.”
What are the implications of abolishing wealth tax? Is detrimental? “Wealth tax is imposed on non-productive assets such as plot of land, gold, cash, residential house properties which are not rented out for a minimum of 300 days in a year, motor cars, etc,” says Sankla.
Those who have large investments in plots, physical gold, etc. shall benefit from abolition of wealth tax. “I think the fact that the wealth collection has been very meagre especially after factoring in the cost of collection lead to the decision of doing away with it. The government intends to recover an amount equivalent to the annual wealth tax collection by way of additional surcharge of 2 per cent from those who earn more than Rs 1 crore of taxable income. Given all this, I think that abolishing the wealth tax is not detrimental,” he says.
On asking is it better to pre-pay a home loan as the principal amount payment is not exempted, Sankla informs that, “one can get a deduction up to Rs 150,000 for repayment of Housing Loan principal u/s. 80C if it is not already exhausted by other eligible deductions. You can further claim deduction for Housing Loan interest paid up to Rs 20,0000 in case of self occupied property and full interest deduction for a rented property. So pr-paying the housing loan is more of a financial decision base on whether you cost of housing loan post the tax benefits is more that what is your opportunity cost (post tax) if you invest the amount somewhere else instead of prepaying”.
Tenancy and Rent:
Is rental income tax exempted? Rental income is taxable under the head income from house property. “You can claim deduction of municipal taxes paid, standard deduction @30per cent of the rental income (net of municipal taxes) and interest on loan taken for purchase/reconstruction/repairs (if any) from it and the balance needs to be offered for taxation as income. However, if the balance amount is negative then the same can be used to set-off against your other taxable income such as salary, interest, etc,” says he.
On explaining how one can save on capital gain tax while buying tenancy premise, Sankla guides that, “You have to purchase or construct a residential house to be eligible to claim tax exemption on capital gains. If you are buying the house and getting the ownership rights of the property then you will eligible to claim the Exemption u/s. 54”.