I took a home loan for a self-occupied property and another house with a second loan. My second home is currently under construction and possession of the house is expected by February 2015. How can I claim tax benefit for the second house, especially the interest paid during the year?
—Sohrab Shah A borrower can get tax deduction benefit on home loan for an under-construction property only from the financial year in which the construction is completed irrespective of whether it is pre-EMI or EMI on part payment. The interest paid during the construction period will be allowed for five equal installments beginning from the year in which the construction is completed and possession taken.
Any payment of principal during the year in which the property remains under con- struction is lost forever.
Secondly, when a person owns more than one property and both are either occupied by self or his relatives, the person has to treat one of the properties as self-occupied. Once a particular property is opted as self-occupied the other property will be deemed to have been let out. A notional income equivalent to the rent expected to be realised on such property will be treated as rental income in respect of the other property.
The annual value of the property treated as self-occupied is taken at nil and a person is entitled to claim interest payment for loan taken to acquire that property up to a limit of ₹ 2,00,000. The taxable income of the second property will be arrived at by deducting actual interest payable in respect of such property without any limit from the notional rent taken above, as well as 30% standard deduction on the notional rent offered for tax. In respect to both the properties you can also claim income tax benefit towards repayment of housing loan within overall limit of ₹ 150,000 under Section 80 C. You will be able to claim the interest on the second house beginning from the year in which construction of the house is completed.
Please note that owning two properties can have wealth tax implications if neither property is rented out. So consult your personal tax adviser.
I am a state government employee with an approximate net monthly income of ₹ 22,250 per month. Can I take a home loan and what would be my eligible loan amount?
— Sahburi Sen As a thumb rule, if you are below 40 years, you should be eligible for around four times your net annual income, but subject to a maximum of 90% of the agreement value for loan amount below ₹ 20 lakh as a home loan for a tenure of 20 years. Your EMI along with any other existing loan repayments should not normally exceed 40-45% of your net monthly income.
You should be eligible for approximately ₹ 9 lakh at the rate of 10.15% for a 20-year loan tenure. You can also enhance your eligibility by making your earning spouse/ parents to join you as a coborrower. The eligibility will also get impacted as you age. the repayment period cannot exceed beyond your retirement age.
Harsh Roongta is director, Apna Paisa. He can be reached at firstname.lastname@example.org