I own an apartment in Chennai bought with a home loan which is running, where my parents are staying and for which I am claiming income tax exemption. In August 2019, I booked an under construction apartment in Bangalore which is still under construction and will be ready by March 2022. I have taken a home loan for this property as well and presently paying pre-EMI interest. I may myself stay there or may even let it out when it get ready. How do I claim the tax exemptions on both the properties?
By Balwant Jain, Chief Editor, ApnaPaisa
The Chennai apartment, occupied by your parents, can be treated as self occupied property against which you can claim interest under Section 24(b) upto ₹2 lakh every year for interest paid on your housing loan. You can also claim tax benefits for principal repayment under Section 80C upto ₹1.50 lakh along with various other eligible items like LIP, children school fee, PPF, EPF, ELSS, NSC, NPS etc.
In respect of the under construction property of Bangalore, presently you cannot claim any tax benefits for the home loan till you get possession. The interest paid till repayment of the home loan in the form an EMI is called pre EMI interest. You will be able to claim 1/5 of the aggregate of the pre EMI interest paid, beginning from the year in which you get the possession. You will be able to claim the interest for whole of the year irrespective when you get the possession.
A person is allowed to have maximum of two property as self occupied but aggregate of interest on home loan under Section 24(b) is restricted to two lakh whether you have one self occupied property or two. So, the aggregate of interest for the year together with 1/5 of the amortized pre EMI interest will not exceed rupees two lakh in a year, in case you wish to use it for your own use.
However in case you are planning to let it out, you will be allowed a standard deduction equal to 30% of the rent as reduced by the local municipal taxes paid by you. In respect of interest you will be allowed to claim full interest including the pre EMI subject however to a condition that any loss under the head “Income from House Property” shall only be allowed to be set off against your other income of the current year to the extent of two lakh only. The loss remaining after set off of two lakh shall be allowed to be carried forward for set off against the income under the head “ Income from House Property” in eight subsequent years.
Please note that whether you have one house or more houses or whether the same are self occupied or let out the deduction for repayment under Section 80C for repayment of principal amount shall be restricted to ₹1.50 lakh every year.
(Views as expressed by the expert.)