Tax Planning in the case of loan taken for construction or renovation of self occupied house property
As we know for a salaried person purchasing a house is huge investment and proper tax planning is necessary for take maximum possible advantage of the same. Here an attempt is made to understand various tax benefits available to salaried person under various head and implication that favorably impacted the employees tax bill.
(A) Person having gross Income of Rs. 5 lacs with house loan
|Table 1 Before Budget 2014 ( House loan is there) Person Having Income Upto Rs. 5 lacs||Table 2 After Budget 2014 ( House loan is there) Person Having Income Upto Rs. 5 lacs|
|Gross Salary||Rs.500000||Gross Salary||Rs.500000|
|less deduction U/S 80 + 80CCC||Rs.-100000||less deduction U/S 80 + 80CCC||Rs.-150000|
|Taxable salary||Rs. 400000||Taxable salary||Rs. 350000|
|Loss from HP (due to interest on loan taken for construction or renovation of house)||Rs.1,50,000||Loss from HP (due to interest on loan taken for construction or renovation of house)||Rs.-200000|
|Net Taxable income||Rs.2,50,000||Net Taxable income||Rs.1,50,000|
(B) Person having gross Income of Rs. 10 lacs with house loan
|Table 3 Before Budget 2014 ( House loan is there)
Person Having Income Upto Rs. 10 lacs
|Table 4 After Budget 2014 ( No House loan is there)
Person Having Income Upto Rs. 10 lacs
|Gross Salary||Rs.10,00,000||Gross Salary||Rs.10,00,000|
|less deduction U/S 80c + 80CCC||Rs.-100000||less deduction U/S 80c + 80CCC||Rs.-150000|
|Taxable salary||Rs.9,00,000||Taxable salary||Rs.8,50,000|
|Loss from HP (due to interest on loan taken for construction or renovation of house)||Rs.1,50,000||Loss from HP (due to interest on loan taken for construction or renovation of house)||Rs.2,00,000|
|Net Taxable income||Rs.7,50,000||Net Taxable income||Rs.6,50,000|
Calculation of tax bill:-
|Table 5 Tax Liability before Budget 2014
(House loan is there)
|Table 6 Tax Liability before Budget 2014
( House loan is there)
|Tax Rate||Tax||Tax Rate||Tax|
|Upto 2 lacs||0||0||Upto 2.5 lacs||0||0|
|Next 3 Lacs||10%||Rs.30000||Next 2.5 Lac||10%||25000|
|On Remaining 2.50 Lacs||20%||Rs.50,000||On Remaining 1.5 Lacs||20%||30000|
|Total Tax before surcharge||Rs. 80000||Total Tax before surcharge||55,000|
|Surcharge||3%||Rs. 2400||Surcharge||3%||Rs. 1650|
|Total Tax||Rs. 82400||Total Tax||Rs. 56,650|
Table 7 Net change in Total tax Structure having gross income Rs. 10 lacs.
|Total Tax liability before budget||Rs. 82400|
|Total Tax liability after budget||Rs.-56650|
Person who will have gross income Rs. 10 lacs during financial year 2014-15, he can save a tax of Rs. 25,750. In such a case his tax liability will decline by 31.25 % as compare to tax rules in the assessment year 2014-15. If higher gross income will be there than percentage saving in tax will be less as compare to low income. The effect of amendments in various provisions of income tax is summarized below:-
Amendment under section 24(1).
In this section the person can claim for deduction for the interest on loan taken for construction or renovation of house property.
In this case, self-occupied property the entire amount of interest shall be considered as loss from the house property and same can be adjusted from other person’s income. So in this way, the person can minimise his taxable income as well as the tax liability.
In the assessment year 2014-15, the maximum limit under this section was Rs. 1,50,000 which is now raised to Rs.200,000 in the new finance bill of 2015-2016. This was also a very important amendment in the tax rules. This change has given great relief to all those assesses who have taken loan for construction or renovation of house property.
Benefit of this amendment
With optimum tax planning, person having gross income of Rs. 5 lacs, in the assessment year 2015-16 his or her tax liability will be zero as his taxable income will be less than Rs..2,50,000. While in previous tax rules, his tax liability will be Rs. 5150 (i..e., 10 % on 50,000 + 3% surcharge).
With proper tax planning and by taking the benefits of all these three important amendments, the person having gross income of Rs.10 lacs can minimize his gross total income to Rs.6.5 lacs from Rs. 7.5 lacs. In this way his gross total income will decline by 13.33%. While, in this case his or her net tax liability will diminish by Rs. 25,750 and percentage decrease in this shall be 31.25%.
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