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Free tax calculators to get a preview of your 2008 taxes. |
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Browse through topics like PAN, Capital Gains etc..in Q & A form |
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Turning points in the journey of life. |
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Life-changing Events |
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 Buying a New House |
 Back |
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Why is buying a house an important event in one's life?
Buying a house is one of the biggest financial decisions one has to make in life. The decision involves sensitively tackling your family's sentiments attached with the current place of residence; while at the same time, keeping in view aspirations for the life that lies ahead. Buying a house is expensive and much more difficult a decision to make than say, purchasing a car or investing in the stock market. |
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How different is buying a first house from purchasing a subsequent one?
The difference lies in the area of income generation. If it's your first house, then from the tax point of view it is not likely to be a source of income and so not subject to income tax. But if it's your second or subsequent house, it is considered for tax purposes. Even if you have not rented out the house and have not earned any income from it, a certain amount is considered as "notional income" nd is taxed. The amount would be the prevailing market rent in the same / similar area for a similar house.
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Does using the house as a residence or renting it out affect its taxability in any
way?
If you're using the house as your residence, tax rules take your income from the house to be nil and so you don't pay any tax. But there is a tax implication if you've rented out your house. The rent is treated as "income earned from house property" and is added to your gross annual income.
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What is the difference between buying a house with my own money and taking
a housing loan to buy it?
When you buy a house with your own money there is no tax implication so far as the actual purchase is concerned (any renting out can impact your taxes as discussed above). But if you take a housing loan, it's different. You have to calculate the Equated Monthly Installments (EMI) that you will pay over the repayment period. Also, the EMI is broken down into two components - principal repayment and interest payment. This is important because there are two types of tax benefit available here:
- You can claim a deduction of up to Rs.1,50,000 a year from your gross annual income as interest paid on the housing loan.
- The principal repayment amount forms a part of the Rs.1,00,000 allowed under section 80C as deductible from your gross annual income.
We can summarize that before you buy a house, you must consider not only domestic factors, but also work on your finances, as such a transaction may require your commitment for the next few decades.
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| If you earn interest more than Rs.10,000 from a company in a Financial Year (F.Y.), you need to ask for a TDS certificate (Form 16A) to claim tax credit while filing your return. |
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| "Previous Year" actually means the F.Y. for which you file your return and not the year before that. |
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| To open a time deposit account of more than Rs.50,000 with a Bank you must hold a Permanent Account Number. |
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| If you take a housing loan from a Bank or a Financial Institution, you can claim deduction of principal repayment and interest amounts both. |
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| If you take a housing loan from a person other than a Bank or a Financial Institution, you can claim deduction of the principal repayment amount but not of the interest. |
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