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Unlocking Tax Benefits The Joint Journey with Home Loan and Ownership
About the Case:
In this scenario, we have Partha, a recently married software engineer planning a move to Bangalore with his wife. The reason? A promising job opportunity with an attractive salary package. As they embark on this new journey, the couple is faced with the decision of buying a residential apartment in Bangalore for their family's comfort. Here's where the dilemma arises – should they opt for single ownership or consider joint ownership with his wife? To add to the complexity, they're also contemplating seeking a housing loan from the bank due to the high property value in Bangalore. This multitude of decisions and uncertainties begins to create a bit of chaos in the early days of Partha's married life. It's during this tumultuous period that a friend steps in, recommending that Partha seeks professional assistance from TaxBuddy to navigate through these challenges and plan strategically with expert guidance.
Issues faced By
Partha's
Limited Knowledge about Home Loans:
Partha, who's originally from a small town, found it tough to grasp the ins and outs of getting a home loan in a big city.
Understanding things like interest rates, repayment plans, and all the paperwork involved in a home loan process left him feeling overwhelmed.
Down Payment and EMI Struggles:
Getting a home loan required Partha to put down 10% of the loan amount as security in the bank, and this was a challenge given his financial situation.
The higher interest rates meant he had to deal with hefty EMIs, and on top of that, there was an extra EMI for a personal loan taken during his wedding. His salary wasn't enough according to the bank's criteria for the applied home loan.
Increased TDS Deduction and Tax Implications:
Moving to a new company brought a salary boost for Partha, but it also resulted in more money being deducted as TDS, affecting his available cash.
Figuring out the tax consequences of the home loan, especially in terms of interest and principal amounts, remained unclear for Partha as he navigated through filing his Income Tax Return (ITR).
How TaxBuddy Helped
Benefits of Joint Home Loan Application:
Section 24(b) of the Income Tax Act 1961 allows individuals to claim a deduction of up to Rs 2 Lakhs on home loan interest for residential properties.
Opting for joint ownership and applying for a home loan together allows each co-owner to claim up to Rs 2 Lakhs deduction under Section 24(b). Additionally, both co-owners can claim a deduction of up to Rs 1,50,000 under Section 80 C for the principal amount. This proved advantageous for Partha and his working wife, providing a total deduction of Rs 4 Lakhs on interest and Rs 3 Lakhs on the principal amount.
Overcoming Fund Shortage and EMI Challenges:
TaxBuddy offered a strategic solution for the security deposit hurdle by advising Partha to withdraw funds from his Employee Provident Fund (EPF) account. This ensured he didn't have to sell other assets or take additional loans, avoiding capital gains tax and interest expenses.
A suggestion was made to create a gift deed for the wedding presents received, providing an additional source of funds. Joint ownership helped ease the EMI burden as the combined income of Partha and his wife, totaling Rs 15 Lakhs annually, was considered for the calculations.
Addressing Tax Compliances:
With the new tax regime leading to higher TDS deductions and limiting deductions, TaxBuddy recommended a switch back to the old regime for Partha. This allowed him to claim deductions under Section 24(b) and Section 80 C, reducing his overall tax liability. With these deductions, Partha and his wife collectively saved Rs 70,200 on their tax liability.
For property purchases exceeding Rs 50 Lakhs, TaxBuddy guided Partha through TDS compliances, ensuring timely deduction and deposit as per Income Tax Act 1961. The filing of Form 26 QB was also facilitated.
Partha's concerns about TDS on EPF advance withdrawal were alleviated. TaxBuddy clarified that, given his more than 5 years of continuous service, no TDS would be deducted, making the EPF withdrawal exempted income. This ensured Partha's peace of mind regarding tax compliances for EPF withdrawals.
The Conclusion:
Partha's
Tax saving Journey
Under the expert guidance of TaxBuddy, Partha, a software engineer, successfully navigated the challenges of purchasing a house and applying for a home loan. Facing uncertainties about home loan interest rates, repayment schedules, and tax implications, Partha was able to make informed decisions with TaxBuddy's assistance. Opting for joint ownership of the property and applying for a home loan jointly with his wife, Partha capitalized on the benefits offered by Sections 24(b) and 80 C of the Income Tax Act. This strategic move not only reduced their tax liabilities but also improved their cash flow for EMI payments. TaxBuddy ensured meticulous compliance with TDS provisions related to the property purchase, preventing potential defaults and financial setbacks. Partha's case exemplifies how informed tax planning, coupled with professional guidance, can lead to optimal outcomes and financial stability in complex scenarios.
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