These days more and more people are opting to purchase plots and have their dream home built in it rather than go for an apartment or villa with the same design. It is a myth that plot loans do not offer as much tax benefits as home loans. Now that it is that time of the year when people go frantic – doing the eleventh-hour struggle to collect every one of those bills, receipts, deductions, income papers, bank statements and more, let us check out the perks of owning a house plot. Yes, tax time is looming ahead. But during the rush hour, you might overlook a huge opportunity to save tax that owning a plot or property can fetch you.
Below are a few tips to help you catalogue your deductions this year and may be utilize the same tips next year.
- Deduction in interest:
The national taxation code permits homeowners (or plot owners who bought the same with the intention to construct a house in it) a sizable reduction in the loan interest rate from their tax onuses. For most property owners, this is a great deal since interest disbursements can be the biggest part of your loan settlement in the initial years of buying a plot.
- Reduce interest for pre-construction:
While discount in interest rates can be claimed at the beginning of the financial year in which the construction will be done, you may also claim pre-construction interest from the same year, which will be given to you in 5 easy installments. Nevertheless, you cannot have a deduction of more than INR 2 lacs if the property is occupied by you and your family.
- Deduction when settling the principal amount:
The part of your EMI which pays towards the principal sum is entitled to be claimed under Section 80-C of the Indian Income Tax Act. You may recapitulate the outgo for the past year towards principal and file a claim for it. A sum of up to INR 1.5 lacs can be claimed this way.
- Benefits regarding stamp duty and registration fees:
In addition to the reduction permitted on principal settlement, that made as stamp duty and registration fees, are also allowed to be claimed as per the IT Act, Section 80-C. But these can be claimed only in the same year.
- Benefits of Section 80-EE of IT Act:
This section has been introduced to offer you a taxation benefit if you are a first time plot owners and if your property value meets certain criteria. This is applicable to loans sanctioned in the financial year of 2013. It cannot be more than INR 1 lakh though.
- Avail a few closing price discounts:
The initial year you purchase a plot (only for the purpose of building a house), you may claim the points, which is also known as origination charges on your plot loan. This is applicable whether you pay it or the previous owner. And since it is common to have origination charges of minimum one percent, you end up saving a lot.
- Tax for plot ownership can be deducted:
Real estate property taxation disbursed on your primary dwelling and a holiday home is completely deductible for the purpose of income taxation.
- No or less tax on home equity lines:
Along with your plot loan interest, you can cut down the interest you disburse on a home equity loan, which lets you to transfer your credit card arrears to your home equity loan or pay out a lesser interest rate than the unbearably extortionate credit card rates of interest rates.
- Expenses to refinance:
This one is a tad complex, but it can help you save a lot. If you had paid points for a refinance, that specific sum comes with a deduction in tax. But please keep in mind that you need to spread that money out over the entire tenure of the loan and only avail a credit for the altered sum every year.
- First or Second – You treat it the same:
Yes, you may claim a whopping reduction in the interest even for your second plot bought for the purpose of constructing a house there. Of course it comes with a certain limit on the plot value, but property taxes are easily deductible.