Entire interest amount paid for a rented property tax deductible

Entire interest amount paid for a rented property tax deductible

I have a Public Provident Fund (PPF) account which I opened seven years ago. I want to open another account in my child’s name. Can I claim tax deduction for both the accounts?

—Madhurima Sen

An individual can open only one PPF account in her own name. An additional account can be opened on behalf of a minor to whom such individual is a guardian.

For claiming deduction on taxable income, note that section 80C of the Income-tax Act prescribes an overall limit of Rs1 lakh for investment in various tax-saving instruments including PPF. However, as per PPF rules, a total of Rs70,000 can be deposited, including self and minor child’s account, during a particular year.

I own two houses and both have been rented out. I pay an equated monthly instalment for the second house. Can I claim deduction on the interest paid for the second house?

—Subhash Arora

Section 24 of the Income-tax Act provides for claiming deduction for the interest amount payable on the capital borrowed for the purpose of acquisition/construction of a house. However, for any property, as has been specified under section 23 (2) of the Act, such deduction shall be restricted to Rs1.5 lakh.

The section essentially lays down that two kinds of properties qualify for this deduction: a property used by the owner as own residence; or a property which the owner is unable to occupy due to employment, business or profession which requires her to stay in another property not belonging to her.

However, for a rented out property there is no upper limit for claiming the deduction on interest amount. Accordingly, you shall be entitled to claim deduction for the entire amount of the interest paid.

I gave Rs2.5 lakh to my sister three years ago. She had kept Rs2 lakh in a fixed deposit. Now she wants to give me the amount including the interest she has earned. What will be the tax implication for me?

—Chandana Lohia

Any sum of money received from a relative (which includes a sister of an individual) without consideration shall be exempt from tax in the hands of an individual as per section 56 of the Income-tax Act. Thus, the amount of Rs2 lakh including the interest, given by way of a gift (i.e. without consideration) by your sister, shall be exempt from tax in your hands.

However, any interest earned on the fixed deposit made by your sister shall be taxable in the hands of your sister separately.

Nitin Baijal, director, BMR Advisors

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