I had taken a home loan for a flat in April 2010 and immediately rented it out. I am showing the rent as my income. As per the bank’s provisional certificate for FY11, I shall be repaying interest of around Rs 2.5 lakh. I reside in a rented house for which I get house rent allowance from my employer. Am I eligible for a deduction of Rs 2.5 lakh (entire interest paid) or only Rs 1.5 lakh? If I am eligible for Rs 2.5 lakh deduction, how can I prove this to my employer?
As per section 24(b), income chargeable under the head “income from house property” shall be computed after deducting any interest payable on the capital borrowed for acquisition, construction, repair, renovation or reconstruction. In case of a rented property, the entire interest is allowed as deduction. The limit of Rs 1.5 lakh is applicable only when the property is self-occupied. Therefore, you are eligible for deduction for the entire Rs 2.5 lakh as the property for which the loan is taken is a rented property. The provisions of section 24(b) along with the interest certificate will help you convince your employer that you are eligible for the entire amount of interest.
I purchased a flat in 1999 for Rs 7.50 lakh on home loan. In 2009, I sold it for Rs 18 lakh. After clearing the loan of Rs 6.50 lakh, I kept the balance in a savings account. In August, I booked a new house and paid Rs 10 lakh from that account. I now have around Rs 2.25 lakh in the account for the purpose of paying instalments, if need be. If I don’t pay any instalment out of this money before March 2011, will I have to pay tax on the same?
The liability to pay capital gains tax arises when the flat was sold by you in 2009 on the amount of sale consideration minus the cost of acquisition (subject to indexation). However, the capital gains is exempt under section 54 of the Income-tax Act if it is invested in a new house, subject to certain conditions. In your case, if the capital gain computed after indexation is less than Rs 10 lakh (the amount invested in the new house), then the entire capital gains shall be tax-exempt. But if the capital gain is more than Rs 10 lakh, then the excess shall be taxable as long-term capital gain at 20% (plus education cess at 3%). Payment of loan instalments does not affect tax liability on capital gains.
I jointly own a house with my wife but I took a home loan for it. I have rented out this house and stay in a company-owned accommodation on nominal rent. Can half the rent received be accounted in my tax returns and the rest in my wife’s?
Income arising from renting out a house is taxed in the hands of the owner. In your case, you paid for the purchase of the house. Therefore, you shall be considered the owner and the entire rental income shall be taxable in your hands.
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