Apr 13, 2017 2 min read

New Tax Rules on Home Loans- ELSS May Be Your Saviour

Know how can you get rid of the new home loan rules and reduce your tax liability with no worries.
With effect from April 1, 2017, the new limit for setting off against losses for the house property has been restricted. Accordingly, the losses which were earlier deductible completely from the taxable income shall now be allowed for deduction up to Rs. 200,000 per annum. This has simply led to increasing the taxability of the individual. Do you have such tax liability? Let us explain how it will affect you and how you can get relief from the same.

The government has modified the Income Tax Rules related to home loans which might enhance the tax outgo of such individuals of the home loan-takers for such property which is rented out. As per the earlier rules, an individual having the home loan which is being rented out was allowed to set off the loss of house property without any limit. The loss is generally the home loan interest amount reduced by the rental income on such home.

This was very helpful in reducing the tax liability as the income used to get deduced with a big value. But now, as per the new tax rules for home loans, there is a set limit for a year that is Rs.200,000. However, any amount above the limit specified can be carried forward by the assessee for up to eighth assessment year. You can understand this concept with an example here:

Suppose you pay interest on a loan taken for a rented house property amounting to Rs.700,000 per annum. The rental income from such house property amounts to Rs.300,000 per annum. As per the earlier rules, you were allowed to set off the losses, i.e., 700,000-300,000= Rs.400,000 per annum against your total taxable income. This used to reduce the taxable income up to a great extent, and your tax liability was reduced.

But from now onwards, i.e., from Financial Year 2017-18 this Rs.400,000 has been limited to Rs.200,000. This means you can avail the exemption for Rs.200,000 in a year. However, the remaining amount can be carried forward in the next eight assessment years.

Hence, your tax liability for this year is going to get increased and you must start your planning now to reduce the tax burden. So what can you do to manage your taxes now? You need to plan for the same right away.

We recommend, opt for the ELSS Mutual Funds schemes. Yes, they can be a saviour for your income as they will help you in mitigating your tax liability. Section 80C of the Income Tax Act allows the assessees to avail tax exemption up to Rs.1,50,000 on the total taxable income, which tend to reduce the tax liability. ELSS, i.e., Equity Linked Savings Scheme falls in the categories of investments which provide Section 80C benefit.

By starting a SIP of a small amount in the ELSS schemes, you would be able to reduce your total taxable income up to Rs.1.5 lac and overcome the ill-effects of the implementation of the new tax rules for a home loan. Instead of waiting for the last minute investment alternative, begin now with the ELSS investments and create huge earnings along with tax savings for the FY18.

We, at MySIPonline, provide the best way of investing in the ELSS funds online. You can initiate easy investing with us and simplify the entire investment journey along with planning taxes for the financial year 2017-18. Planning early is anyway a better option.