Home loan and tax benefits if you own multiple homes
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 can avail of certain tax benefits for interest paid and/or for repayment of the principal amount, with respect to money borrowed for buying, constructing, renovating or repairing a house property.
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. This deduction is available from the year in which the construction is completed and possession taken, in case of under-construction property. Any interest paid during the construction period can be amortised and can be claimed in five equal instalments, beginning from the year in which the construction is completed and possession of the house is taken.
In case you own only one residential house, which is occupied by you, the maximum deduction on interest repayment is restricted to Rs two lakhs per annum. In case of money borrowed for construction of a house that is intended for self-occupation and construction of which is not completed within a period of five years from the end of the financial year in which the money is borrowed, this deduction gets restricted to Rs 30,000 only. So, it is very important to get the construction completed within the stipulated time limit.
See also: Long-term capital gains tax: Exemption on buying multiple houses
In case of let out property/ies owned by you, you are entitled to claim the entire interest paid, without any upper ceiling against the rent received. However, in case you own more than one house property and more than one houses are occupied by you, then, you have to choose any one property as self-occupied and the other self-occupied property/properties are deemed to have been let-out. With respect to such properties that are deemed to have been let out, you are required to offer tax for notional rental income (i.e., the rent that the property is expected to fetch). So, once any such property is treated as let-out, you can claim the full interest paid with respect to such property.
Provisions in budget 2019 for those who own multiple homes
The interim budget 2019 has proposed to allow tax payers to have two self-owned properties as self-occupied, instead of one presently allowed. This will help the tax payers, who own a property in their native place and tax payers whole parents stay in the other property owned by them. As per the budget proposals, though, you will be allowed to have two properties as self-occupied but the deduction with respect to home loans, shall still continue to be Rs two lakhs for both the properties taken together. So, this provision will be beneficial for the tax payers who own and have two self-occupied properties on which there is no home loan.
Although you are allowed to claim Rs two lakhs for your self-occupied property, as well as full interest paid for let out or deemed to have been let properties, there is a restriction of Rs two 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.
Please note that you can claim not only the interest but also the processing fee, as well as any other fee like prepayment charges, under this provision.
Tax benefit on repayment of principal
As per the provisions of Section 80C, you can claim up to Rs 1.5 lakhs for repayment of the principal component of a housing loan taken from specified institutions for a residential house property, together with other eligible items like provident fund contribution, 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, this benefit is not available to you. 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 possession is taken, no deduction is available in the year of transfer and the deductions claimed in the earlier years are reversed and taxed in the year of such transfer.
Source Housing website
