Wednesday, 9 March 2011

The Impact of Direct Tax Code (DTC) in Real estate investments

When the implementation of Direct Tax Code comes into force, there will be certain changes for the Tax pattern. The Income tax and tax saving investments also will be changed. Some investments will be out from the status of tax saving investments. Here we can see the impact of Direct Tax Code in real estate matters.

Housing Loan

At present the principal amount repayment of housing loan will be considered for tax exemption under section 80C of income tax rule. The principal amount will be added with other tax saving investments to get a tax exemption of Rs. 100000 under section 80C. But when the introduction of Direct Tax Code this privilege will be taken off and the tax payer who is paying large EMIs should find money for getting other investments for tax exemption. But the tax benefit of interest of housing loan up to Rs. 150000 (presently under section 24 (b)) will be continuing as eligible exemption.

Removal of Notional Rent

This is one of the better terms of Direct tax code. At present if you have more than one residential house and it is not given on rent, you have to pay tax for the notional rental income. The Direct Tax Code is removing tax on notional rent. You have to pay tax only for the actual income you are receiving. This is a big relief for house owners, those who are not ready to let out their house property, or the house property is lying vacant with any other reason. So you can invest in second home without having tax liability of vacant house.

Taxability of Rent in Advance

In some places there is a practice to get rent in advance for 6 to 12 months. According to the existing tax rule this advance on rent also should be consider as an income for the year at which it is received, but in Direct Tax Code you will be taxed only for the income related to the current year and the advance on rent will be consider as a taxable income at the year in which it is actually due. This is very much helpful for land lords.

Direct Tax Code allowed continuing the tax benefit of interest on housing loan, the removal of notional rent tax and advance rent tax allows you to invest in house properties without much tax liability. So we hope that this will boost the investment in real estate especially house property.

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  1. [...] when the implementation of DTC some of the above mentioned investments will be avoided and rescheduled from Tax saving status and [...]