Reduce your capital gain tax via a housing loan.

Many of us rely on home loans to purchase residential property, but are you fully aware of how tax laws impact your financial strategy? Under the current tax regime, deductions on home loan interest for self-occupied properties are capped at ₹2 lakh annually. So, what happens to the interest paid beyond this limit? Is it a loss, or can it be leveraged in another way?

 

The Tax-Saving Opportunity You Might Be Missing

 

In April 2023, a crucial clarification in tax law offered some relief to homeowners. While it reiterated that interest claimed as a deduction under Income from House Property cannot be added to the cost of property acquisition, it confirmed a significant benefit:

 

Home loan interest not claimed elsewhere may be added to the cost of acquisition when computing capital gains.

 

Several state High Courts have supported this interpretation. As a result, interest paid over the ₹2 lakh limit per year can be included in your acquisition cost, reducing your capital gains tax liability when you sell the property.

 

What Can Taxpayers Do to Benefit from This Hack?

 

1️⃣ Keep Detailed Records

Maintain a year-wise record of the interest paid on your housing loan and the deductions claimed under the house property income section. This documentation is crucial for future calculations.

2️⃣ Identify Unclaimed Interest

Interest not used for deductions can potentially be added to your cost of acquisition, enhancing your tax benefits when selling the property.

3️⃣ Leverage the Cost of Acquisition to Reduce Capital Gains

By adding eligible home loan interest to the acquisition cost, you can significantly lower your capital gains tax at the time of sale.

 

A Smarter Approach to Managing Property Investments

 

With careful planning and proper documentation, you can turn what seems like a tax limitation into a strategic financial advantage. Stay informed, track your payments, and use these tax rules to protect your profits.