Ask Mint Money | Principal payment for two home loans eligible for tax deduction

Ask Mint Money | Principal payment for two home loans eligible for tax deduction

I have been investing in mutual funds (MFs) for the past three years. The value is around 6 lakh now and I want to redeem the units. Will I have to pay tax?

-Mayanka Srivats

You may be liable to pay capital gains tax on redemption of MFs. The capital gains tax implications would depend on the nature of the gain, which would be based on the period of holding of the MF. Assuming you had invested in equity-oriented MFs, they would be classified as long-term capital assets if held for at least 12 months. But if they were held for 12 months or less, they would be classified as short-term capital assets.

If at the time of sale/redemption of MFs, the securities transaction tax (STT) is chargeable:

•Long-term capital gains (LTCG) shall be exempt from tax under section 10(38) of the Income-tax Act.

•Short-term capital gains (STCG) shall be taxable at 15.45% as per section 111A.

If STT is not chargeable (this can happen if MFs are not transacted through a recognized stock exchange):

•LTCG shall be taxable at 20.6% with indexation as per section 112 (subject to a maximum of 10.30% without indexation).

• STCG shall be taxable as per normal slab rates.

I stay in Noida paying a rent of 2.22 lakh per annum. I own a house in Mumbai where my family stays. I closed my home loan for the Mumbai house in January. I bought another house in Bangalore, which is not on rent. I have started paying the home loan since July. Can I get an exemption on the house rent I pay for the Noida house? Can I get tax benefit on the principal and interest for both loans?

-P. Mohan

Assuming that you are employed and are receiving house rent allowance from your employer, you may claim exemption in respect of rent paid for Noida under section 10(13A).

As regards your properties in Bangalore and Mumbai, where the assessee owns a residential property which he is not able to occupy due to his employment in another place, then such property shall be deemed a self-occupied property. The annual value of such property is considered to be “nil" and actual interest payable by the assessee up to 1.50 lakh is allowed as deduction. However, if the assessee owns two such residential properties, the assessee can choose which property he wants to consider as self-occupied/deemed to be let out. The expected annual rental of property which is considered to be as deemed to be let out is taken as the annual value of such property and actual interest paid/payable for the financial year is allowed as a deduction from such annual value.

You shall be eligible to claim deduction under section 80C for repayment of the principal amount in respect of the Bangalore property (starting July 2011) and in respect of Mumbai property (up to January 2011).

Queries and views at