A tax deduction for repayment of housing loan under Section 80C of the income tax Act is available

I am a salaried individual looking to buy a plot of land and build a house on it later. I don’t have any other housing property in my name. What conditions do I need to meet to avail a housing loan and tax benefits for this purchase? —Vidit Shah

You are eligible to claim a tax deduction against annual value of a house property in respect of the interest paid by you on a home loan taken to purchase the land and construct a property thereon. Further, a tax deduction for repayment of housing loan under Section 80C of the income tax Act is available.

Both these tax deductions are available only after you have constructed a building on the land in question (i.e. from the beginning of the financial year (FY) in which you have obtained possession of the property after construction).

The interest paid can be claimed as a deduction from your rental income, under Section 24 of the Act, capped to specified limits (Rs 2,00,000 under the current law) if the house is retained for your own use.

Any pre-construction interest can be claimed as a deduction in five equal instalments beginning from the fiscal year in which the construction has been completed.

Where the house is let out, the deduction in respect of the interest repaid is not capped, however, any loss arising from the house property cannot be offset from your other income to the extent it exceeds Rs 2,00,000.

Also, the principal home loan repaid by you will qualify deduction from your taxable income under Section 80C. The aggregate tax deduction allowed under Section 80C in respect of all qualifying investments or expenses (including principal repayment of home loan) is capped to Rs 1,50,000.

In case you sell the house before specified timelines, any tax deduction already claimed under Section 80C for prior years would be deemed to be your taxable income in the year in which the house is sold and you would be liable to pay tax on such income.

I got married two months ago and received about Rs 5 lakh in the form of gifts. My wife is not working yet and we have saved the amount as fixed deposit in her name. Will this amount be taxable in my hand? —Name withheld on request

Any gifts you and your spouse received on the occasion of your marriage would not be taxed in your hands as income. However, any income (for example, interest earned) that you or your spouse receive from investing the money you received as a gift will be taxable as per rules applicable to income from that investment. Hence, the fixed deposit (FD) interest earned will need to be offered to taxes by your wife and you, in proportion to the gifts received by both of you.

In case the entire gift was received by you and investments were made in the name of your wife, the income from reinvestment of such gifts into FD would be clubbed and taxed in your hands.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India.