Tax Benefits

Frequently Asked Questions on Income Tax Benefits on Purchase of A Residential House

What are the tax benefits that are available if one avails of housing loan ?

• Deduction of interest on housing loan:
  In the case of self-occupied property acquired or constructed out of borrowed funds the deduction available for interest on capital borrowed is Rs. 1,50,000/- from the assessment year 2002
  - 2003 and subsequent years. In case of property, which is rented, the whole of the interest amount is allowed as deduction. The interest on borrowed funds in pre construction period is allowed over a 5-year period.

Is there any relief from tax arising on transfer of long-term capital assets under the Income Tax Act, 1961?

• Capital Gains on sale of property used for residence:
  Section 54 of the Income Tax Act provides relief to an individual or Hindu Undivided Family from capital gains arising from transfer of a residential house held by the assessee for a period of 36 months. Such capital gains to the extent utilised for purchase (within 1 year before or 2 years after the date of sale) or construction (within 3 years of date of sale) of a residential house is exempt u/s 54. If the amount of capital gains is proposed to be utilised, but is not so utilised upto the due date for filing of return then, the amount of unutilised capital gain is required to be deposited in the "Capital Gains Account Scheme, 1988".

Capital Gains on transfer of capital assets other than a residential house
Section 54F of the Income Tax Act exempts long term capital gains arising from transfer of any long term capital asset other than a residential house. Such capital gains to the extent utilised for purchase (within 1 year before or 2 years after the date of sale) or construction (within 3 years of date of sale) of a residential house is exempt u/s 54F. To be entitled to this exemption the assessee should not own more than one residential house other than the house sold as on the date of transfer. The provisions of depositing the unutilised capital gain in the "Capital Gains Account Scheme, 1988" as explained above is also applicable.

Capital Gains not to be charged on investment in specified assets
Section 54EC of the Income Tax Act provides relief from capital gains arising from transfer of a long term capital asset (i.e. an asset held by the assessee for a period of 12 months in case of shares/units and 36 months in other cases). For claiming this exemption(maximum limit of which is Rs 50,00,000), the capital gains has to be invested (within 6 months of date of transfer) in notified bonds issued by:

• National Bank for Agriculture and Rural Development (NABARD)
• National Highways Authority of India