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Sunday, Jun 13, 2004

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Tax benefits for own house and the rented one

T. Banusekar

I HAVE taken a housing loan of Rs 15 lakh from a bank. At present, I stay in a rented house and am getting house rent allowance from my employer. The house towards which the loan is taken is under construction and possession of the same will be given to me only in January 2005.

The bank has given me an option of paying an EMI at a reduced sum on the loan disbursed by the bank directly to the builder. This EMI will not comprise any principal component but involves interest on the loan.

Can I get tax benefits on such payment? Since I continue to live in a rented house, can I also get the benefit of exemption on HRA? - Apoorv Agarwal

Reply

You can get tax benefit on the interest paid by you as well as exemption under Section 10(13A) in respect of the HRA. Pre-construction period interest can be claimed as a deduction in five equal annual instalments beginning from the year in which the purchase or construction is complete.

Pre-construction period interest means the interest up to the end of the previous year immediately preceding the previous year in which the purchase or construction is complete.

In your case, the interest of the previous year 2004-2005 will not be taken as pre-construction period interest, as this does not relate to any of the previous years preceding the previous year of completion of construction but to the previous year in which the construction is completed.

Therefore, this interest will qualify fully for deduction in that year itself. This may be subject to the ceiling limits specified in Section 24 if the property is self-occupied. Insofar as the exemption for HRA is concerned, the same can be utilised for the period in which you are in receipt of the same and paying rent.

Query

My wife is the owner of a plot of land. I propose to take a loan in my name and construct a house on the said plot. Will I be able to claim the deduction in respect of interest on loan and also rebate on the principal repayment of the loan? - M. Subramanian

Reply

It would be possible for you to claim the interest as a deduction and also the principal repayment as a rebate. The law recognises dual ownership in respect of immovable property, that is, the ownership of land by one person and that of building by another.

In the instant case, if you are to be the owner of the house you propose to construct, though your wife may be the owner of the land, the benefit under Section 24 in respect of the interest on loan and also the rebate under Section 88 on the principal repayment will be available to you.

Query

I purchased a house 10 years ago. For this I had taken a housing loan. This house is let out. I have been claiming the loss on the house property arising as a result on the interest payable as a deduction against my salary income. I have also been claiming the principal repayment as eligible for rebate under Section 88. I now propose to buy another house by taking another loan from the bank. Will the interest on the fresh loan as well as the principal repayment of the fresh loan qualify for the tax benefit? Will there be any tax advantage if my wife is also the co-owner of the property? Please note that the aggregate of the interest of the old and the new loan will not exceed Rs 1.50 lakh. - M. D. Mathew

Reply

The interest on the fresh loan taken for buying the new house will qualify for deduction under Section 24 in computing the income from house property.

Similarly, the principal repayment of the fresh loan will also qualify for rebate under Section 88. You may, however, note that the interest will be subject to a deduction only up to a maximum of Rs 1,50,000 if the property is self-occupied while the maximum amount of principal repayment that will qualify for rebate will be Rs 20,000. You may also note that this limit of Rs 20,000 will be in relation to the aggregate principal repayment of both the houses. You have stated that the interest on the fresh loan will not exceed Rs 1.50 lakh.

Therefore, you will not get any advantage in respect of the interest by making your wife a co-owner of the property.

However, insofar as the rebate on principal repayment is concerned, if the repayment on the loans exceeds Rs 20,000, your wife may be able to claim repayment on a part of the principal repayment which may be beneficial. Your wife can claim rebate in respect of such principal repayment made by her out of her own income.

Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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