Innu asked, Hi, I have already purchased a flat in Mumbai & is having a loan pending for amount 2.

5 lakhs & this loan was taken 5 yrs back in my Name, this year i have purchased one more flat 2BHK in Thane in my name only again as my wife is a House wife. 1. What is the Tax implication? 2 Can i get Tax benefit for the New flat too or is it do i have to only show Thane Flat loan amount to get more interest -Tax benefit. 3. I have given previous flat for rent which gives me good income too, so do i have to declare that too or Can i declare any one either Mumbai or Thane Flat as given on rent to save on Tax? Thanks for your Help. Mahesh Padmanabhan answers, If you have actually given your Mumbai house on rental basis and you actually receive the rent, you will not have any choice in deciding the house to be shown as rental premise. You would definitely need to declare the rental income in your returns after reducing the standard deduction and the entire loan interest. For the second house that you have occupied for self, you would be eligible to a deduction of loan interest upto Rs. 1.5 lakhs. sj asked, We had bought a House with myself, father & brother as joint owner. We had taken home loan for which all three are applicants. If the interest for the year is 4.5 lakh, can each person avail tax benefit on interest of 1.5k? If principal is 3 lakhs. What would be tax benefit for each one? Mahesh Padmanabhan answers, Yes if all the co-applicants are the co-owners to the flat, then each of the co-owners would be eligible for the 1.5 lakh limit separately
Harpreet asked, I have taken a home loan for which I am paying the Pre EMI (interest) every month. The possession of the home will be in 2010. Can I get take rebate in 2008-2009 on the interest Im paying now? Vikas Gandhi answers, at 2009-01-22 16:00:08Since the possession of the property is expected in 2010, you won't be getting any tax benefit on account of interest payment in 2008-2009. You will be able to claim interest benefit only from 2010. However interest paid till 2010 can be accumulated and tax benefit can be claimed @ 20% of the accumulated amount till 5 consecutive years. Rakesh asked, Hi Vikas, I have two houses for which i have taken loan. At present i am claiming tax benefits against one loan only. Can i claim tax benefits for 2nd home as well? Vikas Gandhi answers, If you are owning two houses, none of which are rented out, then as per Indian Income tax law, one of the property will have to be assumed as having been let out and accordingly notional income will be taxed. You can claim interest repayment against this rent income and for which there is no restriction

Investment in a house could be the best way to save tax. As prices of residential units have gone up in the range of Rs 50 lakh and over, tax experts say buying a second house for investment purpose will save even more tax than that over the first house you bought for personal use. When you buy a house for personal use, you can take the deduction from your taxable income against the interest payment on your loan taken to buy the house up to Rs 1,50,000 only. Besides this, you can also avail the benefit of deduction against the repayment of principal amount under section 80C. However, under 80C, you can avail the deduction up to Rs 1,00,000 - but this is inclusive of all the investments like your contribution in EPF, PPF, tax savings mutual funds and school fees of your children among other things. Therefore, normally, if your taxable income is more than Rs 5 lakh, most of the limit provided under section 80C is exhausted because of the compulsory savings scheme. Still, if you take repayment up to Rs 20,000 against principal under section 80C, your net tax savings every year will be Rs 52,350. This is mainly because the benefit against interest payment is capped at Rs 1,50,000 even if you have taken a loan of Rs 50 lakh to buy a house at 8%, and your interest outgo in the first year will be Rs 3,96,181. The monthly installment on Rs 50 lakh loan at 8% for 20

years will be Rs 41,822. This works out to an annual payment of Rs 5,01,864. Out of this, Rs 3,96,181 will go against the interest payment in the first year and the rest Rs 1,05,683 will go against the principal repayment. Despite, the interest payment of Rs 3,96,181 you will get the deduction benefit of Rs 1,50,000 only. So, the tax benefit under this will be Rs 46,350 - including the education cess - at the rate of 30.9%. Besides this, though you have repaid Rs 1,05,683 from the principal, you will get a deduction of Rs 20,000 as most of the quota of Rs 1,00,000 is used up by the investments in other instruments. So, the tax benefit against the principal repayment will be Rs 6,180, making your total benefit at Rs 52,350. But, if you have invested the same amount to buy a house as an investment instrument, you can take the benefit against the interest payment for the entire amount. In this case, the benefit against the interest payment is not capped. But, there is a catch. The rental income of the house will be included in your income. But in India, annual rental income, most of the time, is in the range of 2% to 3% of the capital value. Even today, an apartment of Rs 50 lakh is easily available on rent for Rs 10,000 a month. At the same time, the repayment of principal amount will not be allowed for deduction from your taxable income under 80C. But still, as the interest payment on loan is huge, the rental income does not offset a substantial benefit. Take for example a loan of Rs 50,00,000. In this case, the interest payment in the first year is Rs 3,96,181 and the rental income is Rs 1,20,000. But, only 70% of the rental income gets added to your income. You get a rebate of 30% on rental income against the maintenance of the house. So in the first year, only Rs 84,000 will be included in your income as the house income. Now, as you spend Rs 3,96,181 as interest payment and Rs 84,000 you earned as house income, you will get a net deduction of Rs 3,12,181 because of your investment in the house. At the rate of 30.09%, you will save a tax of Rs 96,464. Similarly, in the second year, the interest element in your EMI will come down to Rs 3,87,409 while your tax benefit will be Rs 92,456. In the calculation for the second year, the rental income was taken at Rs 10,500 - 5% more than that in the first year. Similarly, for the third, fourth and fifth year, as shown in the adjoining chart, the tax benefit remains substantially more than when the property is bought for personal use. Because of the tax benefit, the effective interest rate on your loan will work out to be 6%, instead of 8% - the rate at which you have contracted the loan. This benefit will become even bigger, if you are buying a house of larger amount. While the loan amount becomes bigger, the interest amount will become larger. In the case of buying the house for investment purpose, you can avail the benefit of deduction against the interest payment. But, in the case of personal use, it is capped at Rs 1,50,000. However, the rental income may pose problem in the 10th year onwards. Around 10th year, the tax benefit under the investment scheme will be lower than that for the personal use. But, at the same time, after 10 years, the value of money will go down substantially and so the payment of high tax. It may not hurt you as much as it does today. Tax benefits on second house

Suppose you invest in a second house. This is not treated like the first one which is a selfoccupied property. The second house is treated as a property that is rented out.

There are no benefits of principal deduction that borrowers can avail. Homeowners can however claim benefits for interest repayment of the home loan. There is no limit on the interest repaid unlike the Rs 1.5 lakh limit under Section 24 for self-occupied property. You can seek tax benefits under Section 24 and deduction under Section 80C of the Income Tax Act only when the EMI payment is made. If you default or fail to make EMI payments, you cannot claim tax benefits for them. Further, only the person who has taken the loan can claim tax deduction. In case of a joint loan, the persons can avail tax benefits in proportion to their individual contributions towards loan repayment. It is left to the borrowers to use these benefits well and reduce the overall cost of the home loan.

Can I get deduction for home loan repayments on more than one property? Is the overall deduction for interest payable, restricted to Rs. 1, 50,000? I am staying in a flat, the cost of which was financed through a home loan. I am planning to buy another property which I am planning to use as a second home. Will I be eligible for any tax benefits on the loan taken to finance the acquisition of this second property? Contrary to popular opinion, there is no overall restriction of Rs. 1, 50,000 on the interest payable on a loan taken to acquire/construct a house property or in respect of more than one property. In fact, this deduction is available for any number of properties and is without any limit under specific circumstances. The calculation of income from house property (which means the rent you earn) has to be done separately for each property owned by a person. Home loan repayments are eligible for deduction for each such property How is income from house property calculated? Rental income net of municipal taxes = Annual value Less Standard deduction at 30% of A Interest payable on home loan Income from house property ASI Scenario 1: When you have one home =A =S =I =H

When you take a loan to buy a property to live in -- your first one --the tax man calls it a self-occupied property. In this case, rental income is treated as Nil. Not a great favour really, because you anyway don't derive any rental income from such property as you stay there. Therefore, when you calculate the income from this property, it will always result in a loss equivalent to the interest payable on the loan taken to acquire/construct such a property. (Since you start from zero and deduct the interest payable for the loan taken to acquire that property). Hence A = 0 and S will be = 0 as well since 30% of zero is zero. Thus the only deduction available is the interest payable on the home loan taken to buy the self occupied property. In such cases, where A is allowed to be taken as nil, the deduction for interest is restricted by the tax man to Rs 1,50,000 per annum, as per Section 24 of the I-T Act. Thus, in such cases, the income from house property will always result in a loss equivalent to the interest payable on the home loan or Rs. 1, 50,000; whichever is lower. This loss under the head income from house property is allowed to be set off against your salary/business income. Section 80C The principal repaid is allowed as a separate deduction under Section 80C subject to the overall limit of Rs 1, 00,000. Scenario 2: When you have two homes Now let\'s say you stay in a self-owned residence and purchase another property. This could be for your parents or for self-occupation. But, it has not been rented out. In other words, this too is for self-occupation. You can still get a home loan for the second house. Provided, of course, the bank feels that you have enough income to pay off both the loans. But, this time, the tax man will view it differently. This second house cannot be treated as self occupied, since that is the status given the first house and you can claim that status only for one house Here is where the favour from the tax department ceases. The tax department requires that you pay tax on the notional rent on at least one of the houses. Notional rent is the rent you would have got had you given the house on rent. As an owner of two homes, you can

choose a self-occupied property and the other will be taxed on the basis of notional rent. You can also change your choice from year to year. Using the above formula, the income from such a home will be calculated. Since this house is treated as being rented out, for income tax purposes the deduction for interest is not limited to Rs 1, 50,000 in respect of loan taken for this house. The income or loss from the second house, calculated separately as above, is aggregated and the net result (which can either be income or loss) is the income from house property (as earlier, if it is a loss it can be set off against other heads of income). The entire principal paid on both the loans, will be eligible for deduction under Section 80C-subject to the overall cap of Rs 1, 00,000. When you own more than one house, you may also be liable to pay wealth tax-if the net value of the house (net of the loan) along with other assets chargeable to wealth tax, exceeds Rs. 15 lacs. Even for wealth tax purposes, the value of one self occupied house is allowed to be deducted. Working out an example Let's say you own two houses. House 1 Bought for: Rs 50 lacs (Rs 5 million) Loan: Rs 30 lacs (Rs 3 million) You reside in this house. Interest payable for the first year on this loan: Rs 2, 25,000 Principal payable for the first year on this loan: Rs 35,000 You estimate that if you rent out this property, it will fetch you a rent of Rs 25, 000 per month (Rs 3, 00,000 per annum) House 2 Bought for: Rs 60 lacs (Rs 6 million) Loan: Rs 40 lacs (Rs 4 million) Your parents reside in this house. Interest payable for the first year on the loan: Rs 2, 85,000 Principal payable for the first year on this loan: Rs 45,000 You estimate that if you rent out this property it will fetch you a rent of Rs 35,000 per month (Rs 4, 20,000 per annum) The calculation for income from house property for each of the houses is given below: House If treated as self occupied: 1

Rental Income Nil Less: Standard Deduction at 30% Nil Interest payable 2,25,000 but restricted to a max of 1,50,000 Income from house property Minus denotes loss (- )1,50,000 If treated as notionally rented out: Rental Income 3,00,000 Less: Standard Deduction @ 30% 90,000 Interest payable (no restriction) 2,25,000 3,15,000 Income from house property Minus denotes loss (-)15,000 House 2 If treated as self occupied Rental Income Nil Less: Standard Deduction at 30% N Interest payable 2,85,000 but restricted to a max of 1,50,000 Income from house property Minus denotes loss (-)1,50,000 If treated as notionally rented out Rental Income 4,20,000 Less: Standard Deduction at 30% 1,26,000 Interest payable (no restriction) 2,85,000 4,11,000 Income from house property Minus denotes loss 9,000 Thus, in this case, you will choose the second property as self occupied as that will make the aggregate loss under the head Income from House Property Rs 1,65,000 (loss of Rs 1,50,000 from the second property + loss of Rs 15,000 from the first property). If you choose the first property as self occupied, the loss under the head Income from house property would only be Rs 1,41,000 (loss of Rs 1,50,000 from the first property profit of Rs 9,000 from the second property). You will need to do this calculation every year and make an appropriate choice. Some myth busters

Contrary to popular perception, the interest payable on a home loan is not directly deductible from your salary income (or for that matter from your business income). What actually happens is that a calculation of income from house property is made for each property you own. If such a calculation results in a loss, it is allowed to be set off against your income from other heads. Also contrary to popular opinion, the deduction for interest payable on a loan taken to buy/construct house property (ies) (if you have more than one property) is not subject to any overall limit. As explained earlier, the limit of Rs. 1, 50, 000 is applicable only while calculating the income from one self occupied property. For more information on Home Loans click here