Interest sop capped at `2L

QI and my son had bought a house in Hyderabad in February 2016 jointly and took its possession in March 2017. I invested my 51 per cent out of my savings and my son invested his 49 per cent by availing bank loan. The cost of the house is `80 lakh and bank loan interest amounted to `3.80 lakh a year

I am having a self-occupied house in Hyderabad and I am residing in it for the last 30 years. My son, who had been staying in a rented house nearby my house, has shifted to the new house purchased jointly on April 1, 2016. He intends to treat the new house as his self-occupied house.

Please advice whether my son can claim deduction of bank loan interest up to `2 lakh for financial year 2016-17 as he is occupying the entire house ?

Can I as a co-owner claim deduction of the balance interest of `1.80 lakh even though I am not paying any interest or installment to the bank?

My son owns another house since 10 years in Hyderabad and he has let out the same. He is also claiming bank loan interest pertaining to this house of about `80,000 from out of rental income. Can he continue to do so? Hyderabad

A) According to the Income-Tax Act, if the house property owned by the co-owners is self occupied by each of the co-owners, the annual value of the property of each co-owner will be nil and each co-owner would be entitled to a deduction of `2 lakh under Section 24(b) on the account of interest on borrowed capital. Therefore, your son can claim deduction of bank loan interest upto `2 lakh for financial year 2016-17 as he is occupying the house in his capacity as coowner.

Regarding the claim of interest of balance amount of unclaimed interest in your son’s account, it cannot be claimed by you, as the loan is availed by your son. According to Section 23(4) of the Income-Tax Act, where the assessee owns more than one property for self-occupation, then the income from any one such property, at the option of the assessee, shall be computed under the self-occupied category and its annual value will be nil. The other self-occupied property/properties shall be treated as “deemed let out properties”. Therefore, to the extent of your share i.e., 51 per cent as the joint owner of the house with your son or the house you are residing in, will be treated as “deemed let out property.”

Your son will not have any problem in claiming interest on borrowed capital from bank pertaining to his other property which is let out.

There was no ceiling for set-off of loss from house property arising out of interest paid on borrowed capital against other heads of income upto financial year 2016-17.

It is pertinent to note that as per the amendment brought out in the Finance Bill 2017, as per Section 71, where in respect of any assessment year if there is loss under head “income from house property” and the assessee has income under any other head of income, then the assessee shall be entitled to set off such loss only to the extent of `2 lakh. The writer is a Hyderabad-chartered accountant. Readers can send their queries to info@rathiandmalani.com