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.