Section 80C: Buying a property to save tax!

We all are aware that interest on home loan is a popular deduction that many are aware of. The principal amount repayment as well as the stamp duty and registration charges are another payments that are also eligible deductions under section 80C.

Let us try to understand this better through a case study.

Amol has recently married and intends to invest in house property in Pune. The property rates in Pune are well above his budget, but he intends to bridge the gap by taking a home loan for almost 60% of the cost of his property. He has zeroed in on a property that costs Rs.65,00,000. He has savings of Rs.20,00,000 and intends to take a loan of the remaining Rs.45,00,000. The deal for the property is going to be signed in June 2015. Amol is quite happy that finally he is going to fulfil his dream of buying a home but has a few doubts about the tax implications and his future outgo of money in form of installments. Although he is aware that he will receive a huge deduction from tax for the interest repayment, he is interested in knowing whether his property deal might give some more eligible deductions. 

He visits a tax expert and gets his doubts cleared. His tax expert explains him that buying a property and taking a home loan for it has many positive tax implications. Although housing loan repayments will take away a large chunk from the monthly income, there are a lot of tax savings opportunities that a home loan offers. Real estate and property have always been costly and with the rising property costs, loan seems to be the only way out for most people to own a house. Hence the Income Tax department has offered a lot of tax relief to home loan borrowers. The first deduction that Amol will get when he signs the property deal is that of the stamp duty and registration charges. These can be claimed under section 80C of the Income Tax Act. These can be claimed by Amol in the year when these payments are made by preserving a copy of the Index II and receipts as a proof of payment. Apart from this, section 80C also offers a deduction of up to Rs.1,50,000 for principal repayment every year till the repayment is complete. These deductions will give Amol a scope to save taxes even if he has to make huge repayments for home loan in addition to the interest repayment deductions of up to Rs.2,50,000 that he can claim u/s 24. If the interest repayment deductions are also added then the total deductions available to Amol will be as follows -

Amount of home loan – Rs.45,00,000

Interest rate - 10.50%

Details	Total repayment(Rs)	Deduction available (Rs)
Interest repayment in year 1	4,69,198	2,00,000 u/s 24
Principal repayment in year 1	69,927	69,927 u/s 80C
Stamp duty and registration	4,55,000	*80,073

*Rs.1,50,000 – Rs.69,927 = Rs.80,073

The total deduction under Section 80C is Rs.150,000 hence the stamp duty can be claimed only up to Rs.80,073 after claiming Rs.69,927.

In this case the house property is assumed to be self-occupied and hence the deduction is limited to Rs.200,000 for interest. In case the house is vacant or let-out then the deduction is available without any limit of Rs.200,000. Hence if Amol lets out the property then the entire interest amount of Rs.4,69,198 is available as deduction. 

Calculating Indian Income Tax of an Individual - A Brief Review

 

For the Financial year 2015-16, Indian Finance Minister, Mr. Arun Jaitley has announced that an individual can claim exemption from income tax up to Rs 4,44,200.

The above line would mean nothing to majority of people in India. As most of them don’t know how Indian Income Tax works. Here we will explain how income tax is calculated for an individual in a most simple and easy way.

Let us understand what Income is- The Indian Income Tax Act, 1962 has segregated Income of an individual into different categories namely:-

·         Income from salaries

·         Income from house property

·         Profits and gains of business or profession

·         Capital gains

·         Income from other sources

·         Agricultural Income

A point to be noted here is that agricultural income is not subject to tax. Agricultural income includes income earned from

Ø  Rent received or derived from land situated in India used for agricultural purposes.

Ø  Income derived from the usage of land by agriculture operations including sale of agricultural produce.

The sum total of all the income from above mentioned categories except Agricultural Income will ascertain Gross Total Income of the individual.

There are certain deductions allowed by the Government under Sections80 C, Section 80 D to the tax payer. You can check all the types of deductions here.

After discounting permissible deductions from the Gross Total Income, we get our Taxable Income. Taxable Income are taxed as per tax slabs which remain unchanged from the year 2014-15

Tax slabs for the financial year 2015-16

For Individuals below the age of 60

Income Tax Slabs	Income Tax Rates
Where Total Income is less than Rs. 2,50,000	NIL
Where the Total Income is more than Rs. 2,50,000 but doesn’t exceed Rs. 5,00,000	10% of the Amount by which it exceeds Rs. 2,50,000
Where the Total Income is more than Rs. 5,00,000 but doesn’t exceed Rs. 10,00,000	20% of the Amount by which it exceeds Rs. 5,00,000
Where the Total Income is more than Rs. 10,00,000	30% of the Amount by which it exceeds Rs. 10,00,000

For Senior Citizens above 60 years to 80 years of Age

Income Tax Slabs	Income Tax Rates
Where Total Income doesn’t exceed Rs. 3,00,000	NIL
Where the Total Income is more than Rs. 3,00,000 but doesn’t exceed Rs. 5,00,000	10% of the Amount by which it exceeds Rs. 3,00,000
Where the Total Income is more than Rs. 5,00,000 but doesn’t exceed Rs. 10,00,000	20% of the Amount by which it exceeds Rs. 5,00,000
Where the Total Income is more than Rs. 10,00,000	30% of the Amount by which it exceeds Rs. 10,00,000

For all Senior Citizens above 80 Years of Age

Income Tax Slabs	Income Tax Rates
Where Total Income doesn’t exceed Rs. 5,00,000	NIL
Where the Total Income is more than Rs. 5,00,000 but doesn’t exceed Rs. 10,00,000	20% of the Amount by which it exceeds Rs. 5,00,000
Where the Total Income is more than Rs. 10,00,000	30% of the Amount by which it exceeds Rs. 10,00,000

Your taxable amount will be taxable as per the rates in which you fall. Say if you are under 60 years of age and your Taxable Income is 600,000, your tax amount would be 20% of (600,000-500,000) which is Rs 20,000/

Education Cess @ 2% and SHEC @ 1% is levied on the tax calculated using the Income Tax rates mentioned above. In other terms you can say it as tax on tax.

So in the above example, your total tax payment would be Rs.20,000 plus 2% Education Cess on Rs.20,000 plus 1% SHEC (Secondary and higher education cess) on Rs.20,000 which would be Rs.20,600.

IPL fever drives income tax lever

IPL and taxes seems like an odd combination. However think about it a little. IPL is a business of cricket, isn’t it? So where there is business, there is income and where there is income, there is income tax.

IPL spells ‘money’. The amount of money that churns out during a season is probably enough to feed an entire nation! No doubt then, that the income tax department loves the season since it expects a lot of income tax inflow from these players. Not only players but the entire machinery of BCCI, team owners, organizers, broadcasters, commentators, TV anchors, umpires all end up with heavily filled pockets. Such events give rise to a huge potential tax income for the IT department.

The bouncers and hit wickets, the parties and celebrations, the celebrities and star value all sum up to only one single thing – MONEY. The magic weaver Lalit Modi did some real number crunching a few years back and created the IPL franchise – a great combination of entertainment, game and business. Naturally then this raised alarm bells with the income tax collectors and they started sniffing every opportunity to impose and extract tax liabilities.

The IPL tournament leads to huge tax payments in the form of TDS to the tax department. Let us talk about our warrior on field and off field too – Yuvraj Singh. A whopping 16 crore deal with the Delhi Daredevils, makes him the most priced player with Dinesh Karthik closing second at 10.5 crores. The taxes that they might pay in form of TDS @ 10% will be 1.6 crore for Yuvi and 1.05 crore for Dinesh. These are huge amounts. Moreover certain players who do not have an India PAN card may also end up paying 20% TDS on their earning. This will be the case with most foreign players. However some of these players may get some tax relief if we have a double tax avoidance agreement – DTAA with the countries from where they come. But even then, these players will be shelling out huge amounts in taxes, giving the Income Tax department a big reason to rejoice. Income tax return filing for these players and finding their tax liability is going to be an interesting exercise for tax filers.

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