Iown an apartment in Chennai for which I have a home loan and where my parents are staying. I claim tax benefits in respect of this home loan.
In August 2021, I booked an under-construction apartment in Mumbai that will be ready by June 2024. I have also taken a home loan for this property and am paying pre-EMI interest. I may myself stay there or may even let it out, when it is ready. How do I claim the tax exemptions on both properties?
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Reply by: Balwant Jain, a tax and investment expert
The Chennai apartment, occupied by your parents, can be treated as self-occupied property against which you can claim interest under Section 24(b) up to Rs 2 lakh every year for interest paid on your home loan. You can also claim tax benefits for principal repayment under Section 80C within the overall limit of Rs 1.50 lakh along with various other eligible items like LIP, children’s school fees, PPF, EPF, ELSS, NSC, NPS etc.
In respect of the under-construction property of Mumbai, you cannot claim any tax benefits for the home loan till you get possession. The interest paid till possession comprised in an EMI is called pre-EMI interest. You will be able to claim 1/5 of the aggregate of the pre-EMI interest paid, beginning from the year in which you get the possession. You will be able to claim the interest for the whole of the year irrespective of when you get possession.
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A person is allowed to have a maximum of two properties as self-occupied but the aggregate of interest on a home loan under Section 24(b) is restricted to two lakhs whether you have one self-occupied property or two. So, the aggregate of interest for the year together with 1/5 of the amortised pre-EMI interest will not exceed rupees two lakhs in a year, in case you wish to use it for your use.
However, if you let it out, you will be allowed a standard deduction equal to 30% of the rent as reduced by the local municipal taxes paid by you. In respect of interest, you will be allowed to claim full interest including 1/5 of the pre-EMI subject however to a condition that any loss under the head “Income from House Property” only upto Rs. 2 lakhs is allowed to be set off against your other income of the current year. The loss remaining after the set off of two lakhs shall be allowed to be carried forward for set off against the income under the head “Income from House Property” in eight subsequent years.
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Please note that whether you have one house or more houses or whether the same are self-occupied or let out the deduction under Section 80C for repayment of principal amount is restricted to Rs 1.50 lakh every year for all the home loans taken together.
The benefit of the deduction for interest and repayment of the home loan is available only if you opt for the old tax regime. If you opt for a new tax regime, the deduction under Section 80C is not available. Moreover, under the new tax regime interest deduction for self-occupied house property is not available and for let-out property, any loss under the head income from house property cannot be set off against other income during the same year nor the loss is allowed to be carried forward.
