Exemptions
on Self occupied Property
In case of a home loan taken for a self-occupied property, the
principal amount repaid up to Rs 1 lakh qualifies for deduction under Section
80C, while up to Rs 1.5 lakh of interest paid is taxdeductible under Section 24.
Exemptions
on other than self Property (Rented and deemed to be rented)
However,
in case of a home loan for the second property, only interest payment is
eligible for deduction. No tax benefit is available on the principal repayment
on the second loan. The good part is that there is no limit on the
deduction for interest payment on the second loan .
However the interest
expense needed to be netted off against rental income on the property and only the
balance left is eligible as loss under house property. Even if the second house
is lying vacant, the Income Tax Department will consider that it has a rental
value. The notional or deemed income will be added to your taxable income.
Set off & carry Forward
The
current year's loss will first be set off against any other income from
property.
It can also be set off against other incomes,
such as that from salary, business or profession and capital gains, earned in
the current year.
If your balance continues to be in the red,
you can carry forward the loss for up to eight years. However, the amount that
is carried forward is only allowed to be set off against the income that is
earned from a house.
Multiple
Houses
If you
own several houses, you can choose one as your primary residence. The income
from this property will be treated as nil and exempt from tax, even if you have
actually rented it out. It is for this house that the limit of Rs 1.5 lakh
applies for deduction on loan interest.
The
entire interest on the loan taken for the other house, the income from which is
taxable, can be deducted from your income. This applies to any number of
nonexempt houses that you may own.
So, to
maximise your savings, consider the house with the highest loan as the
non-exempt one. However, make sure that the interest payment on this loan is
higher than the principal-cum-interest payment on the other loan.
Taxation
in case of sale
If any of the houses is sold
after three years, the profit will be taxable as long-term capital gains.
However, there are beneficial provisions under which this gain is exempt from
tax. So if you invest the money to construct a house within three years or buy
another house within two years, your income will be tax-exempt.
However,
the exemption is reversed and the amount taxed as capital gain if the new
property is sold within three years of being constructed/purchased.
This
will be considered a short-term gain and taxed according to your slab rates.
You can also save tax if you invest the profit in a special bank account under
the capital gain account scheme. A similar exemption is available for
investments of up to Rs 50 lakh in bonds, which are redeemable after three
years. This investment should be made within six months of the sale.