Question

ou are a new tax accountant. A potential client would like to meet with you to discuss your tax preparation and planning services

A young couple, both employed full time, have a child, age 8, and are considering purchasing a home. They would like to wisely save for retirement and their child’s educations

Before your meeting, prepare a list of tax opportunities or tax issues to highlight with your potential clients. Choose 3 items from your list of tax opportunities or tax issues and expand on them, preparing a short write up on each item that you will share with the potential client.

Answer 1

List of Tax opportunities available after purchase of a house property are explined below

1. Self-Occupied House Property Loss Benefit:
As per the provisions of income Tax Act,1961, it is possible to claim a deduction for the interest paid on the housing loan under the Head "Income from house property". In case the house property is self occupied, an individual can claim a deducion of interest paid on housing loan, up to Rs.2,00,000 per financila year, which makes him to save the Income Tax payment of around 45,000 rupees. He can invest the saved tax amount in Children Educational plans which are providing by ICICI, HDFC, LIC and SBI. And also they can choose the right retirement plan out of the saved income tax.

2. Let out property loss benefit to each owner :

As explained above, holding property in joint names will provide a TAX BENEFIT to individuals who receive rental income as well. Firstly, te rental income will be divided between owners. In case one of the co-owners falls inthe lower tax slab rate, they can avail the benefit of a lower tax rate on a part of the rental income received. Secondly, the loss from house property for each individual is capped at Rs.2,00,000 per finacial year (F.Y) for sett-off against other heads of income of the same F.Y. Any loss in excess of Rs.2,00,000 will be carried forward to future years .

Accordingly, all the owners will be able to set off a loss of Rs.2,00,000 individually against other heads of incomes.

3. Can claim benefit of exemption under section 54 (Investment in house property) :

As per the Income tax act,1961, Capital Gains derived from the sale of house property are taxable. As per section 54 of the Income tax act, if an individual purchases anpther residential house property within the stipulated time i.e within 2 years after sale of property, the amount invested in the new house can be reduced from te taxable capital gains.Section 54 explicilty states that the amount invested in one residential house property (Two properties in certain cases as introduced by Budget 2019).

4. Benefit of exemption under section 54EC (Investment in specified bonds) :

As per section 54EC of the income tax act, if individuals invest in specified bonds, they can claim a deduction up to Rs.50,00,000 on the capital ganins derived from the sale of house property.

Considering the real estate prices in india, especially in metro cities, deduction of Rs.50,00,000 may not be sufficient to cover the capiatl gains and individuals have to pay the tax on capital gains earned in excess of Rs.50,00,000. However, if the property is jointly hled, each co-owner can invest seperately in bonds and separately geta deduction of rs.50,00,000 each on the investment so made.

The populr section 54EC bonds are offered by " National Highways Authority of India (NHAI) " and " Rural Electrification Corporation (REC) ".

So on the whole senario, owning a house property in joint names has various tax benefits. However, it is important to note that the house property should be funded by each co-owner. Also the shares of co-owners shouls be definate and ascertainable.