If an individual holds more
than one property in his name, only one such property may be considered as
self-occupied and the others are classified as ‘deemed rented out’. The property to be classified as deemed rented
out is at the individual’s discretion. From taxation angle deemed let out house
increases your tax liability in case standard deduction and interest on 2nd
loan is lower than the annual rental value (I.e it will result in addition of
income in your total income).
Deduction on account of principal repayments is capped at
R 1.5 lakh under Section 80C provided that the house property is not sold within
5 years of obtaining the possession. However, AO’s have been denying deduction available
for repayment towards the principal portion of housing loan under section 80C
for second housing property.
Interest
Deduction on Housing Loan
The deduction available on account of interest
for a self-occupied property is limited to Rs 2 lakh per year.
The
interest portion paid on ‘rented out’ properties is allowed without any cap (The
cap of Rs 2 lakh u/s 24 is for interest paid on Self occupied house property). However, if the property is not
acquired/constructed within three years ( 5 years from 01st Apr 15) from
the end of the financial year in which the loan was taken, the interest benefit
would be reduced to R 30,000 only. In case of let out property construction can
be completed after 3 years also and there would be no cap of Rs 30000.
House doesn't have to necessarily be
occupied by the taxpayer for it to be considered a self-occupied house. Members
of the family - spouse, parents and children - may also be living there.
Sec
24 (Interest) deductions in various scenarios
a)
One
Own house but not self occupied (I.e living in rented accommodation).
In case a property has neither been
self-occupied by the owner (or his family members) by reason of the fact owing
to his employment, business or profession carried on at any other place (i.e he
has to reside at that other place not belonging to him) nor the property is let
out, then the same will be treated as self occupied and cap of Rs. 2 Lakh under
Section 24 will be attracted. In case you receive HRA allowance in salary, you
can claim deduction based on rent paid.
b)
Two
houses of which one is self occupied
In case of deemed let out also the cap
of Rs 2 lakh won’t be attracted.
c)
Second
house is actually let out
In case the property has actually been
let out than the cap of Rs 2 lakh won’t be attracted.
Other
Points
In case you have paid EMI,
you should obtain certificate from your borrower bifurcating the same between
principal and interest.
Tax benefits can be claimed
for multiple home loans. However overall cap of Rs 1.5 lac and Rs 2 lac (in
case of self occupied) will be seen in totality and not loan wise.
Interest benefit once
availed will not be reversed/added back even if the house property is
transferred within 5 years.
The Interest that has been
paid before the completion of construction should be aggregated and the whole
aggregated amount shall be allowed as tax deduction in 5 equal instalments for
5 successive Financial Years starting from the year in which the construction
has been completed.
For any loan taken for repair, renewal and reconstruction, there is no
tax benefit on principal repayment. The
tax benefits on interest payment under Section 24 for such loan shall be
limited to Rs 30,000 per financial year for Self occupied property and without
any cap for let out property.
Loss under house property
can be adjusted against salary and can be carried forward for 8 years.
