Tax-saving tips for buying and selling a property

Irrespective of class or income, Indians are fond of buying gold and real estate. Purchasing and selling the metal is a straightforward game but a property, through its lifecycle (buying, owning and selling), can be taxing. If played right, you can reduce the tax outgo.

A house is the biggest purchase most people make in their lifetime and the government realises this. To give buyers relief, the government has allowed income tax (I-T) deductions if the property is bought on a loan. Under Section 80C, the borrower can claim deduction of up to Rs 1.5 lakh. For a self-occupied property, a Rs 2 lakh benefit is available under Section 24 (b) of the Income Tax Act for interest on the home loan. If the property is not self-occupied, the entire interest paid to the lender can be deducted from income. "This applies even if a person borrows money from a friend, his family or a private lender provided appropriate loan document between the borrower and private lender is done and there is either a letter or a confirmation of interest charged by lender," said Hemal Mehta, senior director, Deloitte in India.

Problem area: Under the current market conditions, project delays are a common thing. This can cause financial trouble to the borrower. A person can't claim deduction for the interest if his or her house is still under construction. A buyer can, however, get benefit for the principal amount. On possession, the borrower can claim deduction for the interest paid during the pre-construction period. This needs to be done in five equal instalments, starting the financial year you are handed the property.

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