Dr. Sanjiv Agarwal
This year’s budget has brought in certain proposals which could impact your decision to buy (or sell) a property in the new financial year – both in direct taxes and indirect taxes.
When you are buying a property from a builder or developer (not on resale), it is subject to levy of service tax. In case of residential property, where the carpet area is below 2000 sq ft or where the value of property is below rupees one crore, service tax shall be levied on 25 percent of the total value (no service tax on 75%) . However, if such residential property has a carpet area of 2000 sq. ft. or more or its value is equal to or more than rupees one crore, service tax would be levied on 30% of the total value (no service tax on 70% of the value). In such cases, one ends up paying 12.36% of service tax more on 5% of the value. For example, if property is for Rs 2 crore, the service tax liability would be Rs 1,23,600 more (on differential amount). The same would also apply to all non- residential properties irrespective of size or amount.
In income tax, w.e.f. 1 June 2013, the law would require any purchase of an immovable property (not an agricultural land) to deduct income tax @ one percent of the total consideration, where such consideration exceeds Rs 50 lakhs (no tax deduction below Rs 50 lakhs). While this may be aimed at creating more transparency in the property transactions, the tax deducted by the buyer will have to be deposited to the credit of Government in prescribed time. In many cases, buyer could be illiterate or not aware of provisions and may pose problems of collection or non-compliance. This will require every buyer to have a TAN number and file TDS returns. Mentioning PAN of the seller will also be mandatory. This may enable Government to collect the tax at the earliest point in time, reporting of transactions and tracking of parties. This would apply to land and buildings both but not to agricultural land.
A new deduction under section 80 EE of income tax law has also been provided in respect of interest on new loans sanctioned during the financial year 2013-14 (w.e.f 1.4.2013) for acquiring a residential house property subject to certain conditions. Accordingly, in computing total income of individual assessee, interest on loan taken from any bank or financial institution for purchasing new residential house property will be deducted upto Rs 1 lakh . However, this benefit comes with certain conditions as it would not apply to existing loans and it has to be a new sanction. The value of property should be upto Rs 40 lakhs and loan upto Rs 25 lakhs . Further, no deduction should be allowed for such interest under any other provision and that the assessee should not have any other house property. It should be specifically borne in mind that this benefit is available only in respect of interest on a loan taken by assessee from any bank, financial institution or a housing finance company.
This, if one intends to buy a house from today onwards, one ought to know these provisions which may help you in taking an informed decision.
Author Bio
Hi,
I am a software professional and have a query on 80EE. I am fully satisfying all the rules of 80EE, however have a query :
Example- Assessee has taken a loan for the purpose of residential house property & interest payable on loan Rs. 90000/- for the A.Y.2014-15.In this case assessee can claim deduction 90000/- in A.Y.2014-15 and other remaining balance i.e. Rs. 10,000/- ,can claim in A.Y.2015-16
Query: If 80EE was not claimed in Apri 2014-Mar 2015, can full 1 lac amount be claimed in Next year Apr 2015-Mar 2016 ?
Regards
Manoj Tyagi
I agree on the abatement/ taxable percentage. Thanks for pointing out. I am making suitable amends now.
Regards,
Yes, the conditions have to be read and interpretted minutely and the deduction is subject to those conditions . Moreover, the exemption may not be available to already under construction houses.
While all these new inclusions in the Finance Bill 2013 are a very welcome step, the conditions are to be read minutely since it indicates that only new loans for fist time purchasers of house would be eligible subject to limits. However, no mention about whether same treatment for under-construction house as prevails u/s 24 of the I.T. Act will also prevail for deductions u/s 80EE ?
Sir, the service tax ‘abatement’ is 70%/ 75% and not the taxable value. Also, on the flats below 2000 sq ft area and value below 1 Crore service tax will be levied only on 25% of the gross transaction value. On the higher end schemes service tax will be levied on 30% of the gross transaction value.