My mother and I are co-owners of an apartment that was bought over 25 years ago and is used by us (self, wife, child and my parents). My wife has recently purchased a ready-to-move apartment jointly with me (she is the owner and I am the co-owner), which has been financed by our individual contributions and a joint home loan (I am the borrower and she the co-borrower). This is the only apartment that she owns/co-owns. Both of us are employed. Will both of us be eligible to avail tax benefits of repayment of the loan and interest payment? Once we move into the new apartment, will I have to bear any tax liability on deemed income from the old apartment even though it may not be rented out as my wife is the owner of the new house?
You currently co-own two residential apartments—the first with your mother and the second with your wife. Under the Income-tax Act, where an individual owns more than one residential property, any one of them, at his discretion, may be treated as self-occupied property (SOP) and the second as deemed to be let out property (DLOP).
It appears that you propose to shift to the new apartment, so that may be considered SOP. Accordingly, the annual value of the SOP shall be considered nil. Since, it is jointly owned and financed by you and your wife, both of you shall be individually eligible to claim a deduction in respect of interest paid against the home loan up to Rs.1.5 lakh per financial year (FY). With respect to principal repayment on the loan taken, you and your wife could claim a deduction under section 80C, up to Rs.1 lakh per FY.
In your case, the first apartment shall be considered as DLOP. In respect of co-ownership of a house, where the share of each co-owner is definite, the share of each co-owner in the rental income from the property (as computed under the head “income from house property”) shall be included in the total income of each co-owner. Hence, depending upon whether the first property is jointly financed by you and your mother, your share of the deemed rental shall be taxable in your hands. In case, the apartment is entirely financed by you, the entire deemed rental shall be taxable in your hands. Against deemed rentals, you could avail deduction towards municipal taxes paid and a flat deduction of 30% towards repairs. Additionally, if you are paying interest towards an outstanding housing loan against the DLOP, you could claim the entire interest against the deemed rental income.
Further, since you own more than one property, the property lying vacant shall be subject to wealth tax.
Please note that tax treatment in the hands of your wife and mother would have to be separately examined.
Queries and views at email@example.com