Learn How Much Tax to Pay for Your New House
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Buying a new home is a dream for many. It is probably the most expensive purchase you may make during your entire life and is indeed a stepping stone towards creating a valuable asset.
Since purchasing a new home is an expensive affair, it is necessary to be well-aware of numerous aspects such as financing options, proximity to schools and places of worship, locality, furnishing expenses, and budget, among others. Another important factor to take into consideration includes payment of Goods and Services Tax (GST).
GST on the purchase of a new home
The real estate sector was burdened by various indirect taxes such as stamp duty, registration fees, Service Tax, Value Added Tax (VAT), and excise, among others. In order to ease out such hurdles, this sector was brought under the GST preview.
The scope of Goods and Service Tax extends to the purchase of a new apartment or developed plot. This means that home buyers have to pay GST of 12% with full input tax credit. It is important to note that such tax is applicable on under-construction properties. Therefore, no GST will be charged on an apartment in a ready-to-move project, wherein registration may be done or which already has an Occupation Certificate (OC).
In an event that the building project has been completed and the application has been submitted but is not issued yet, prospective home buyers will have to pay 12% GST on the total cost of the residential unit.
However, the good news is that with the implementation of GST, you may enjoy a reduced price of the apartment. As per the conditions of the GST rollover, developers receive credit for taxes paid on the purchase of building materials such as bathroom fittings, cement, paint, and steel, among others. Developers must pass the credit against the taxes paid to the buyers after July 1, 2017, thereby resulting in a lower price of the housing unit.
Income tax deduction on home loan
Individuals may enjoy income tax benefits on the home loan borrowed from financial institutions. This tax benefit may be availed on both the principal as well as the interest amount.
Tax deduction on the principal amount
You may claim tax deduction under Section 80C on the principal amount paid towards your home loan up to a limit of INR 1.5 lakh. You may note that the amount paid towards registration fee and stamp duty is also eligible for tax deduction under this section.
Tax deduction on the interest component
Borrowers may enjoy tax benefits on the interest component of the home loan under Section 24. The maximum amount that may be claimed under this Section is capped at INR 2 lakh.
The good news is that Section 80EE of the Income Tax Act, 1961 offers tax benefit up to a maximum limit of INR 50,000 to individuals who are first-time homeowners.
You may, therefore, benefit greatly from such tax deductions. You may use an income tax calculator to determine your tax liability and plan your taxes accordingly.
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