Will i be able to claim housing benefits?

Can I have two housing loans and claim benefits?

• Hi All, I am a salaried employee and has a home which is self occupied. I dont stay in the city where my house is. I intend to take another house, again in the city where I dont live. Will banks give me loan for second house? Can I add up interest component of EMI of both the houses and claim full deduction from my taxabale income? Here I undertsand that principle cannot be claimed more than 1 lac. Correct me if I am wrong? Last can banks extend the tenure of the existing homeloan, so that monthly EMI goes down?

• Answer:

  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 = A Less Standard deduction at 30% of A = S Interest payable on home loan = I Income from house property = H Scenario 1: When you have one home 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.