My spouse and I own a house. Now, we along with my daughter have bought another house and everyone contributed financially for it. Will this house be treated as our second home for tax purposes? My daughter has taken a loan and is repaying it. What are the tax benefits for all of us? We are staying in one house and our daughter is staying in the other. Will both be termed as self-occupied? Do we need to show any notional rent?
—Sunil P. Hambarde
We assume that the new second house was fully constructed on the date of purchase. Also, we have assumed that you and your spouse have both contributed financially for the purchase of the first house owned by both of you and there is no loan outstanding on the same.
Since your spouse, daughter and you have contributed financially in the second house, all of you would become the owners of this house from a tax perspective, in the ratio of your funding.
Further, we understand that your daughter has availed a loan towards her portion of the funding of this house, which she is repaying solely. With effect from FY20, the Income Tax Act, 1961, has been amended to allow two houses to be considered as self-occupied. So, from FY20 onwards, notional rent from such second self-occupied or vacant house is not required to be offered to tax. Accordingly, your spouse and you can consider both the houses as self-occupied.
For your daughter, the new property (her share) would be treated as self-occupied property and the gross taxable value will be nil. The interest on housing loan being paid by your daughter can be claimed by her as a deduction, subject to a maximum amount of ₹2 lakh and the loss (on account of gross value being nil) can be set off against any other income she may have in the same FY. Any unadjusted loss can be carried forward to eight subsequent FYs, to be adjusted only against her income from house property of such subsequent FYs.
Further, payments made towards principal repayment, stamp duty, registration fee and so on can also be claimed as a deduction under Section 80C of the Act by each of you (to the extent of your contributions), subject to a maximum limit of ₹1.5 lakh, as prescribed under Section 80C.
Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at email@example.com