Tips and Tricks to Reduce Property Tax
Oct 06, 2016 Legal Guidance
Financial planning involves a strong significance of timing, in order to earn profits and prosper. That does not undermine the importance of tax savings in the real estate sector. The have been examples where people make hasty decisions where they see the profit implications but ignore the tax implications completely, and end up either selling their investment or facing major losses. If you sell your house within 3 years of the purchase your tax benefits on the loan are transferred to your income. The Income Tax Act observes all your property for taxation purposes which include your let-out property, or vacant property under section 24B. This does not include any farm-house property as it falls under the agricultural classification.
Let out Properties
let out property is a form of property that provides you with a fixed income, i.e. rented property. To calculate the annual value of the property you must-
Let out Properties
let out property is a form of property that provides you with a fixed income, i.e. rented property. To calculate the annual value of the property you must-
- Find out expected rate of rent in similar properties through different areas.
- Calculate the actual annual rent
- Take the higher amount from steps 1 and 2
- Take into account the amount lost due to vacant place.
- The Gross Annual Value is received by subtracting 3 & 4
- To find the Net Annual Value you just need to subtract the municipal tax from GAV.
Deemed to be let out properties (DLOPs)
If a taxpayer owns multiple residential properties then only one will be deemed as self-occupied and the other will be let out properties. The taxpayer is supposed to pay tax on these properties after calculation the GAV which is calculated as shown above. The rent calculated should be standard rent, and must be similar to the municipal laws. If the taxpayer owns 4 properties then they should prefer the property with the highest GAV as self-occupied and the rest should be DLOPs.
Self-occupied properties
a property which is used as a residential property by the owner is known for self-occupied properties. Although a property is not taxable under House property tax if it’s used for commercial purposes. The NAV on the property will be zero if the property is occupied throughout the year, if not then the LOP will be calculated for the time it’s been let out.
A taxpayer can claim the following deductions from NAV under Section 24(a)
If a taxpayer owns multiple residential properties then only one will be deemed as self-occupied and the other will be let out properties. The taxpayer is supposed to pay tax on these properties after calculation the GAV which is calculated as shown above. The rent calculated should be standard rent, and must be similar to the municipal laws. If the taxpayer owns 4 properties then they should prefer the property with the highest GAV as self-occupied and the rest should be DLOPs.
Self-occupied properties
a property which is used as a residential property by the owner is known for self-occupied properties. Although a property is not taxable under House property tax if it’s used for commercial purposes. The NAV on the property will be zero if the property is occupied throughout the year, if not then the LOP will be calculated for the time it’s been let out.
A taxpayer can claim the following deductions from NAV under Section 24(a)
- Standard Deduction under Section 24(a)
- Having a residential property gives the owner a claim for a flat exemption of 30% on the NAV of the property. In the case of self-occupied property, the taxpayer cannot claim for such an exemption.
- Interest on borrowed Capital
The interest paid on the home loan is exempted under section 24(b).
It is important in these scenarios to understand and research about tax implications and come out with a solution that’s convenient and profitable for a taxpayer.
It is important in these scenarios to understand and research about tax implications and come out with a solution that’s convenient and profitable for a taxpayer.
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