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    Hello and welcome to the webchat with CA Harsh Roongta Tax planning strategies for 2016

  • S


    I have two houses 1. At Bhubaneswar, No loans, rented for 8000 pm 2. At Noida, under Construction, delayed by builder, accumulated pre-construction interest of 8.00 lakhs. I have not paid any interest for FY 15-16., jointly owned with my spouse. I am under employment and staying in delhi, paying a rent of Rs 30000 pm Question: 1. Whether I can claim deduction against construction interest i.e 1/5th of Rs 8 lakhs(whole loan is paid by me) 2. What is the best strategy reg. declaration of self occupied property. 3. if I avail loan for a 3rd house, whether the entire interest on this property can be claimed as a deduction, if i stay in that house. 4. If I sell the house at NOIDA, which is delayed and not registered , what shall be the tax implications for the construction interest.


    Welcome everyone to this chat on tax planning. Please seek professional help before taking any action based on the views expressed here as the opinion may not apply to your specific situation. We cannot accept any responsibility for any losses, direct or indirect, caused due to the opinions expressed in this chat. With that out of the way let me begin by answering your queries. 1) It is not clear whether your house at Noida has been handed over to you or not by the builder. If it has not yet been handed over and will not be handed over till March 31, 2016 then there is no question of getting any deduction for the interest payable in respect of the loan taken to acquire the Noida property. The rule is if the property contruction is not over and handed over by the end of the financial year - no deduction is permissible in respect of that property. Now let me answer the question assuming the Noida property though delayed has been handed over in the FY 2015-16. Let me further assume that the property is not used for self occupation and can be rented out before March 31, 2016. If so 1/5th of the pre-construction interest (i.e. 1,60,000/- ) plus the interest payable for the FY 2015-16 will be allowed as a deduction against the rental receiveable for the property and the ersultant loss can be set off against the rental income from the bhubaneshwar property and if the baance loss can be set off against your other income. On the other hand if you use the NOIDA property for self occupation and the construction has taken more than 3 financial years from the end of the financial year in which the loan was first disbursed then the maximum deduction will be limited to Rs. 30,000/- only . If the construction period is less than that then the maximum deduction is limited to Rs. 2,00,000/- . 2) If claiming full interest deduction is your objective then actually renting out the NOIDA property is your best option to maximise the tax deduction benefits 3) You can claim deduction for as interest on loan taken to acquire as many houses as you want. There is no restriction at all on the number of prpeorties in respect of which you can claim such a deduction. if the 3rd property is elf occupied the deduction for interest will be limited to Rs. 2,00,000 per annum 4) In respect of pre-construction period interest - the deduction will be lost for the year in which the sale happens and fir the future years. But i dont think that should be your sole criterion to decide on the sale. i would stromgly suggest you take proper financial and tax advise which can save you a lot of money and also strighten up your asset allocation staretgies.

  • P


    Hi Harsh, I am 42. Considering the fact that fixed income interest rates are coming down, is it a good idea to opt for VPF option? The money is not needed in the short term so I am okay to keep the money in PF for long. Regards, Prasanna


    I am assuming you are looking for an option that provides you a tax benefit alongwith the investment. The answer to your question depends on your existing portfolio and risk taking ability (you have already stated that the money is for long term - say 10 years or so). If so from among the plethora of tax saving investments you can consider Equity linked saving scheme - do a SIP every month in a ELSS scheme such as Axis Long term Equity fund or do a SIP in NPS (and choose maximum 50% equity allocation). A long term systematic investment in equity can give you inflation beating post tax returns. NPS also has an exclusive deduction of Rs. 50,000 over and above the Rs. 1,50,000 available for all other means (though unlike other tax saving investments withdrawals are taxable). If safety is what you seek you can consider NPS with 100% debt option rather than VPF.

  • P


    How much I can save with tax benefits by taking home loan from a Bank. Is it more than my tax benefits like saving of Rs.1,50,000/- for a financial area from my salary. ? Will you explain how much I can have saving tax benefits for the total loan amount if I want to take Rs.23 lakhs loan from a Bank. Pl. in detail


    Let me use your question to illustrate the impact of tax deductions on home Loan. The tax deductibility of the home loan interest acts like a discount given by the government to subsidise the interest payable to the bank. Thus instead of paying 10% interest you will end up paying 7% interest to the bank. Let me give an example. if beofre you buy the property your taxable income is Rs. 11,00,000 then the tax payable on that is Rs. 1,55,000/- . If you take a home loan of Rs. 10,00,000 to buy a property then the interest of Rs. 1,00,000 is tax deductible which means your taxable income goes down to rs. 10,00,000 and therefore th tax payment goes down to Rs. 1,25,000/- or a saving in tax of Rs. 30,000 (Rs. 1,55,000 less Rs. 1,25,000). Thus the effective interest paid by you is only Rs. 70,000 (Rs. 1,00,000 less tax saving of Rs. 30,000). The point to remember is that you are still paying inteerst of 70,000 after taking into account the tax benefit and you should evealuate your desicion to buy the property after taking that into account. Please do ask any follow up question that you might have on this.

  • A


    My net salary income is Rs 8 lakhs per annum. I have invested in a house for which I am paying an EMI of Rs 15,000 per annum. What other avenues do I have to reduce my tax outgo apart from investing Rs 1,50,000 in 80C?


    Any reduction in tax outgo due to an investment has to be accompanied with a good inevstment option. To get the best bang from your investment you should also ensure that your investment provides good returns per se. In that class will fall NPS whihc gives an additional tax deductibility of Rs. 50,000/- per annum over and aove the Rs. 1,50,000/- and if you choose the 50% equity option there in for long ter investments (10 years and above) it is likely ot give good returns to you. incidentally you can also reduce your tax outgo by opting for 3 years or more debt funds or 1 year or more Arbitrage funds instead of bank fixed deposits.

  • V


    This is my first full financial year of service after my post graduation. What are the main areas I should focus to reduce my tax outgo. My present salary is Rs 3,00,000?


    You have asked the question at absolutely the right time. Right now you should concentrate on amking sure that your invest at least 25-30% of your net income every month on a systematic basis. Tax deduction is not really important at this stage as your income is just above the taxable limit. What is more important is that you get used to investing a certain portion of your net income every month and make expenditure only from whatever is left over after such investment. At your age assuming you will need the money for the long term you should systematically invest in equity mutual funds of which a portion (equivalent to Rs. 50,000 pa which is the taxable part of yoru salary) can go into an equity liked savings scheme and the balance can go into a regular large cap equity mutual fund.

  • B


    Sir, my total provident fund contribution (self + company) works out to Rs 1,20,000. I suppose this is covered under Sec 80C. I wish to build up a huge corpus in my PPF. I can invest up to Rs 1,00,000. Is it a good strategy to invest Rs 1,00,000 in PPF in my case or what would be your advice?


    Employers contribution to Employee provident fund is exempt from taxes altogather. Your contribution (assuming it is Rs. 60,000/-) will be eligible for deduction under section 80C. Your contribution to PPF will also be allowed as a deduction under section 80C. PPF is an excellent tax deductible investment. Though the returns vary year to year they are tax free. But you should also consider investing a part into equity through equity linked savings scheme.

  • A


    Is NPS a good tax saving meachanism since there is an extra benefit of Rs 50,000 on it, and is expected to be hiked further?


    NPS is a great investment option to the extent of the extra tax deduction as the tax deduction enhances the return from the inevstment. But it has several limitations so beyond the tax exclusive tax deduction it is not really advised. Also the withdrawal from the NPS is currently taxable (although this is widely expected to go in teh future) so the withdrawal needs to be timed properly to minimise the negative tax impact.

  • P


    I am confused about LTA. What all can I claim in the LTA. If I don't will the company still pay me the amount after deduction the tax?


    The company can definitely pay you the LTA after deduction of tax. None of the restrictions will apply if tax is being deducted by the company on such payment.

  • R


    Is it a good time to do lumpsum investment in ELSS to save taxes? Given the current market situation, will it be advisable to start ELSS. Kindly suggest.


    A lump sum investment in an equity instrument is never adviasable. That is the reason we suggest to all our clients to do SIPs in ELSS right from April of the financial year rather than doing a lump sum at the end of the financial year. If you ahve left it for 2 long for this year you can still do it in 3 installments of SIPs this year till March 2016. But please make sure to plan this and do it as a 12 month SIP in the enxt financial year

  • R


    Hello. I am the Karta of my HUF. If I give an inetrest free loan in my individual capacity to my HUF for onward investment. The loan agreement will be duly documented with the clear provision that the loan needs to be fully repaid at the end of the loan term. My question is whether the income earned by the HUF from investment of the loan proceeds will be clubbed in my individual tax file. Thank you.


    My short answer to this is - dont go for such tax planning schemes that are absurd and difficult (if not impossible) to justify at the assessment stage.


    Thanks, Mr Roongta for your time and advice. We hope to see you soon again. We also thank our readers for sending in their questions.


    Most welcome.

    Disclaimer: Please seek professional help before taking any action based on the views expressed here as the opinion may not apply to your specific situation. We cannot accept any responsibility for any losses, direct or indirect, caused due to the opinions expressed in this chat.

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