If a self-occupied property is actually let out, rent is taxed

Against the taxable rent, you can claim deduction towards municipal taxes on payment basis


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I am self-employed and my annual income is Rs.12 lakh. I want to withdraw my provident fund (PF) from my former employer’s PF trust. I was employed with them for about 10 years. Is tax deducted at source while withdrawing it?

—Raees Alam

We have assumed that the PF trust maintained by your former employer is a recognized one. The withdrawal of the accumulated balance from a recognized PF triggers tax implications only if the employee has not rendered continuous services for five years or more to the employer.

As you had already rendered service with the former employer for more than five years (i.e., 10 years), there should not be any tax implications on PF withdrawal.

Accordingly, tax would not be deductible at the time of withdrawal of PF accumulation. However, you would be required to report the PF withdrawal in your personal income tax return form to be compliant from a disclosure perspective.

Further, the withdrawal of the PF accumulations will be as per the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

I own two houses. One is rented out while the other is self-occupied. The self-occupied one has a home loan, which fetches a tax deduction of Rs. 2 lakh on the interest paid. I wanted to know if I will get a higher tax benefit if I were to rent out this house as well?

—Alok Sharma

The quantum of tax deduction or tax benefit towards interest paid on home loan depends upon whether the residential property against which the loan has been availed is a self-occupied property (SOP) or a let-out property (LOP) or deemed to be let out (DLOP).

With respect to SOP, the deduction towards interest on housing loan is restricted to Rs.2 lakh per financial year (FY). If the said property is actually let out, then you would be taxed on the rental value received.

Against the taxable rent, you can claim deduction towards municipal taxes on payment basis. Also, a flat standard deduction of 30% of the net rental value (i.e., gross rent minus municipal taxes) could be availed to cover the repairs, maintenance, and so on. Further, the entire interest paid on the housing loan (not restricted to Rs.2 lakh per FY) can be claimed against the taxable rental value.

Please note full facts may be required in your case since both the properties owned by you would be let out.

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