deduction under section 24 B, interest on home loan

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  1. metalpuppy

    metalpuppy New Member

    Hi,

    our family lives in city A and have business based in city A since ever. This house is under my parents name. i have bought a residential property under my & wife's name in city B. We have paid the stamp duty and the registration of the new property will be done in this month in my & my wife's name as co-owners.

    We have taken a joint home loan for this property for 20 years. We are planning for interest deduction of home loan under section 24B. please note following points:

    1) this is the first house under our names for both me & my wife.

    2) both of us can deduct tax benefit individually as per ratio of emi's paid.

    3) we already exhaust 80C.

    now this property will not be self occupied. We can also manage to rent it out for part of whole of year. how should we plan to get total interest amount deducted under section 24B ?
     
  2. ZED

    ZED Well-Known Member

    Points to be considered

    1. What is the amount of interest payable by each of you in respect of which you sought to claim deduction.

    2. As soon as you rent the property, no matter if its only for one month, you can claim deduction for full amount (without the limit of 200,000 , provided the interest amount is that much). But you must considred the provisions of S.23 as well , according to which, you MAY (or may not) have to pay tax on rental income of entire YEAR. (This ofcourse is subject to certain facts and prevailing circumstances)
     
  3. metalpuppy

    metalpuppy New Member

    Thanks for your reply ZED. The interest amount will b 5-7 lakhs per year for the starting 7-8 years.

    Isn't there some condition which says if you are living in different city for work, the deduction is capped at 2 lakhs. I grew up & work in my city but the property is in other city.. Can you pls explain for our case ?

    If we rent our appt in other city, we may or may not need to pay tax on rent income as per section 23. Guess it would make sense to rent it out for minimum required term if we hv to pay tax on rent income. We will need to study section 23 too..


    can u pls explain the above scenario with reference to living & working in diff city ?


    Thanks in advance ZED
     
  4. ZED

    ZED Well-Known Member

    Read the provisions once again and you should be able to understand it. If you still have any doubt then you may ask again.

    S.23(2) Where the property consists of a house or part of a house which—

    (a) is in the occupation of the owner for the purposes of his own residence; or

    (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him,

    the annual value of such house or part of the house shall be taken to be nil.

    (3) The provisions of sub-section (2) shall not apply if—

    (a) the house or part of the house is actually let during the whole or any part of the previous year; or

    (b) any other benefit therefrom is derived by the owner.
     
  5. metalpuppy

    metalpuppy New Member

    to save on tax, we plan to rent out the property. i have following confusions for the same:

    A) I read online if the assessee is living in a different city for work or business, the interest deduction gets capped to 2 lakhs.

    B) Our banker advised since this is the first owned property in my and my wife's name, we can’t deduct total interest paid on home loan if you rent out the property. Such deductions are allowed only if it’s a second property in the owner’s name.

    So please advise for our case how can we save total interest payable if we rent our new property.

    thanks in advance
     
  6. metalpuppy

    metalpuppy New Member

    in an article by karan batra on our website, http://www.charteredclub.com/tax-benefit-on-home-loan/

    he writes following for interest deduction on home loan

    Tax benefit on Home Loan (Interest Amount)
    Tax Benefit on Home Loan for payment of Interest on Home Loan can be claimed as Deduction under Section 24 as well as under the newly inserted section 80EE (Inserted in the Budget 2013, to be applicable from 1st April 2013)

    Section 24: Income Tax Benefit on Interest on Home Loan
    Tax Benefit on Home Loan for payment of Interest is allowed as a deduction under Section 24 of the Income Tax Act. As per Section 24, the Income from House Property shall be reduced by the amount of Interest paid on Home Loan where the loan has been taken for the purpose of Purchase/ Construction/ Repair/ Renewal/ Reconstruction of a Residential House Property.

    The maximum tax deduction allowed under Section 24 of a self-occupied property is subject to a maximum limit of Rs. 2 Lakhs (increased in Budget 2014 from 1.5 Lakhs to Rs. 2 Lakhs).

    In case the property for which the Home Loan has been taken is not self-occupied, no maximum limit has been prescribed in this case and the taxpayer can take tax deduction of the whole interest amount under Section 24.

    Please Note: In case a property has not been self-occupied by the owner by reason of the fact owing to his employment, business or profession carried on at any other place, he has to reside at that other place not belonging to him, then the amount of tax deduction allowed under Section 24 shall be Rs. 2 Lakhs only.




    does it mean that if the new property in city B is kept idle, neither self occupied nor rented out and the assessee is living in a different city, he can't claim total interest paid by him on a home loan for tax deduction. The maximum interest on home loan claimed for tax deduction would be 2 lakhs.

    so to deduct total interest on home loan, we must rent out the property for part or whole year ? is this true & would it apply to our case ?
     
  7. ZED

    ZED Well-Known Member

    This is written because of subsection 2 to section 23. And this is not wrong. But it has one exception. Let's read it again. Basis for my opinion has been given in later paragraphs.

    S.23(2) Where the property consists of a house or part of a house which—

    (a) is in the occupation of the owner for the purposes of his own residence; or

    (b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him,

    the annual value of such house or part of the house shall be taken to be nil.




    Deduction for interest is provided by S.24(b). Let's read it aswell.

    24. Income chargeable under the head "Income from house property" shall be computed after making the following deductions, namely:—

    (a) a sum equal to thirty per cent of the annual value;

    (b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

    Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :

    Provided further that where the property referred to in the first proviso (What is the property referred in the 1st proviso? It is property referred to in sub-section (2) of section 23 ) is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed two lakh rupees.



    So deduction u/s 24(b) shall be restricted to 2 Lakhs , for the property referred to in S.23(2)

    But I also cited S.23(3). Lets read that aswell

    (3) The provisions of sub-section (2) shall not apply if—

    (a) the house or part of the house is actually let during the whole or any part of the previous year; or

    (b) any other benefit therefrom is derived by the owner.


    As soon as you derive any benefit from that property, that property is excluded from S.23(2).

    My second argument.
    The property referred to in S.23(2) is the one the whose annual value of which is taken to be nil.
    "......the annual value of such house or part of the house shall be taken to be nil."
    When you will let it out, then annual value shall not be NIL.
    Hence a let out property is not a property referred to in S.23(2).

    My third argument.
    There are 2 properties. One where your workplace is situated and other which is away from your workplace.

    Let us presume that both of them are actually let out for whole of the year and they both have interest burden and lets say of equal amount of 3 Lacs (each).

    The interpretation gives absurd results .The 2 properties are being treated differently.
    The objective was to make the annual value of such a property as NIL and to treat is as self occupied. This can also be inferenced from subsection 3 of S.23 which will not make the provisions of Sub section 2 applicable if the property is actually let out or any other benefit is derived.
     
  8. metalpuppy

    metalpuppy New Member


    thanks again ZED.

    so the bottomline scenario for me are as follows:

    A) if the new property under home loan in different city is not occupied by me, the max interest deduction would be 2 lakhs.

    B) if i rent out that property, i can deduct total interest paid on home loan.
     
  9. ZED

    ZED Well-Known Member

    Yes.
     
  10. metalpuppy

    metalpuppy New Member

    Thx so much champ !!!

    This clears air & my vision too..

    With enthusiasm
     
    ZED likes this.
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