Home loan and tax benefits if you own multiple homes

[ecis2016.org] As the law allows a person to own multiple homes and avail of multiple home loans, we look at the implications on tax exemptions on the home loan for the second house

There is no restriction on the number of properties you can own. Similarly, there is no restriction on the number of houses for which you can take home loans and claim tax benefits, either under the tax laws or banking laws. However, the amount of home loan available to you for all the properties taken together, shall depend on various factors like your earnings, age and your ability to service the loan. You are entitled to certain tax benefits, with respect to the interest paid on money borrowed, for buying, constructing, renovating or repairing a house property. The tax laws also allow you claim tax benefits with respect to repayment of the principal amount for buying and constructing a residential house.

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Tax benefit on interest payment

You can claim deduction for interest payable on a loan, taken for purchase, construction, repair, or renovation of any property, whether commercial or residential, under Section 24(b). This deduction on interest payment is available, for any residential or commercial property owned by you. It is also available whether the money is borrowed from a bank/housing company, or from your friends and relatives. The deduction for interest, can only be claimed from the year in which the possession is taken. So, for an under construction, the interest paid during the construction period cannot be claimed prior to completion of construction. It can be amortised and claimed in five equal instalments, beginning from the year in which the construction is completed and possession of the house is taken.

The income tax laws allow you to have two residential houses as self-occupied. So, if you own and occupy upto two houses, the maximum deduction with respect to interest payment, is restricted to Rs 2 lakhs per annum for both the houses taken together. If the money is borrowed for the construction of a house that is intended for self-occupation, then, the deduction is restricted to Rs 30,000, in case the construction is not completed within five years from the end of the financial year in which the money is borrowed. So, it is very important to get the construction completed within the stipulated time limit, to be eligible for the higher deduction of Rs 2 lakhs. If you own and occupy more than two houses, you have the option to opt for any two houses as self-occupied and the other houses shall be deemed to have been let out, for the purposes of allowance of interest on money borrowed.

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With respect to such extra houses that are used for self-occupation, you have to offer notional market rent as income from such house/s, even if you have not received any rent. Prior to 2019, tax payers were allowed to have only one self-occupied house but the amendment of Finance Act 2019 has provided relief to some people who own and occupy a house in their city of current residence and another one in native places – either self-acquired or inherited.

For let out property/ies owned by you, you are entitled to claim the entire interest paid against the rent received, without any upper ceiling. So, once any property is treated as deemed to have been let out as discussed above, you can claim the full interest paid with respect to such property.

Please note that you can not only claim the interest but also the processing fee, as well as any other fee, like prepayment charges under this provision.

Restriction on set-off of house property losses

Although you are allowed to claim Rs 2 lakhs for your self-occupied property, as well as full interest for let out or deemed to have been let properties, there is a restriction of Rs 2 lakhs on the amount of the aggregate of loss under the head ‘Income from house property’ that you can set off against your other income. Any loss remaining unadjusted, can be carried forward and be set off against income from the same head, for eight subsequent years.

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Tax benefit on repayment of principal

The tax laws not only allow you deduction for interest but also allow you rebate for repayment of the principal amount under certain circumstances. As per provisions of Section 80C, an individual and an HUF can claim up to Rs 1.5 lakhs for repayment of principal of housing loan taken from specified institutions for a residential house property.

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This deduction is available with other eligible items like provident fund contribution details of which you can check on UAN member portal, life insurance premium, tuition fees, PPF contribution , NSC, ELSS, etc. This deduction is also available for any amount paid for registration and stamp duty of a residential house. The income tax laws do not have any restriction on the number of houses for which you can claim this deduction. The income tax laws also do not distinguish between self-occupied property or a let out property, for this purpose. So, although, you can take home loans for more than one property, the aggregate amount of deduction shall be restricted to Rs 1.5 lakhs, for repayment of the principal amount of all the home loans taken together.

This deduction too can be claimed, only after you have taken possession of the property. If you have started repaying the principal of a home loan before taking possession, you cannot claim any tax benefits for such payment, either now or in future. Please note that repayments of loan taken from your friends and relatives, are not eligible for this deduction. In case you sell or transfer the residential house within five years from the end of the year in which the home loan was taken, no deduction is allowed in the year of transfer. Moreover the deductions claimed in the earlier years are reversed and taxed in the year of such transfer. However, there is no such provision for reversal of tax benefits availed of for interest paid under Section 24(b), upon the sale or transfer of the house. Likewise, there is no provision for reversal of tax, in case you repay your loan within five years.

(The author is a tax and investment expert, with 35 years’ experience.)

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