“CLOSING ONE HOUSING LOAN ACCOUNT AND AVAILING ANOTHER HOUSING LOAN FOR CONSTRUCTION: INCOME TAX IMPLICATIONS”
TAX TALK-06.05.2013-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
Chartered
Accountant
“CLOSING ONE HOUSING LOAN ACCOUNT AND AVAILING
ANOTHER HOUSING LOAN FOR CONSTRUCTION: INCOME TAX IMPLICATIONS”
Query 1]
With
regard to personal taxation, please clarify the following.
My Bank has permitted me to avail Leased Accommodation facility atBangalore Nagpur
My Bank has permitted me to avail Leased Accommodation facility at
Opinion:
You are provided with the leased accommodation by your employer and
probably you may not be receiving the House Rent Allowance (HRA).
For the mass benefit, I am elaborating the provision related to availability of deduction to the salaried assessee towards the rent payment.
For the mass benefit, I am elaborating the provision related to availability of deduction to the salaried assessee towards the rent payment.
1. Assessee receiving HRA from Employer:
Salaried Assessees who are in receipt of HRA from an employer can claim an exemption u/s 10(13A) of the Income Tax Act-1961 read with Rule 2A of the Income Tax Rules, 1962. The least of following can be claimed as deduction u/s 10(13A):-
Salaried Assessees who are in receipt of HRA from an employer can claim an exemption u/s 10(13A) of the Income Tax Act-1961 read with Rule 2A of the Income Tax Rules, 1962. The least of following can be claimed as deduction u/s 10(13A):-
a.
An
amount equal to 50% of salary, where the residential house is situated at
Bombay, Calcutta, Delhi or Madras and an amount equal to 40% of salary where
residential house is situated at any other place;
b.
House
rent allowance received by the employee in respect of the period during which
the rental accommodation is occupied by the employee during the previous year;
or
c.
The
excess of rent paid over 10% of salary.
Following points need to be taken in to consideration while calculating the amount of HRA admissible as exemption u/s 10(13A):
Following points need to be taken in to consideration while calculating the amount of HRA admissible as exemption u/s 10(13A):
i.
“Salary”
for the purpose of computation of exemptions u/s 10(13A) means Basic Salary and
includes Dearness Allowance if terms of employment so provide. It also
includes commission based on a fixed percentage of turnover achieved by an
employee as per the terms of contract of employment AND EXCLUDES ALL OTHER
ALLOWANCE & PERQUISITE.
ii.
Exemption
is not available where an employee lives
in his own house, or in a house for which he doesn’t pay any rent.
2. Assessee not receiving HRA:
Any individual who is not in receipt of HRA from the employer can claim deduction towards rent payment for residential accommodation u/s. 80GG of the Income Tax Act.
The condition precedents for deduction u/s 80GG are as under:-
a] He has to prepare a declaration in Form No.10BA.
b] He or his minor child, spouse or HUF of which he is a member, should not be owner of a house at the place where he ordinarily resides or performs his duties; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) (i.e., income from self-occupied house property).
Any individual who is not in receipt of HRA from the employer can claim deduction towards rent payment for residential accommodation u/s. 80GG of the Income Tax Act.
The condition precedents for deduction u/s 80GG are as under:-
a] He has to prepare a declaration in Form No.10BA.
b] He or his minor child, spouse or HUF of which he is a member, should not be owner of a house at the place where he ordinarily resides or performs his duties; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) (i.e., income from self-occupied house property).
3. Subject to compliance of the other stipulations
mentioned above, you can claim deduction towards the rent paid for residential
accommodation in Nagpur
Query 2]
I have taken Housing Loan
for purchase of a flat. I have taken another loan from our employees’ society
for purchase of a plot. Now, I wish to close the housing loan taken for Flat
& to take another housing loan for construction of house on the plot.
Please Guide me whether another housing loan taken for construction of house
will be eligible for Income Tax Benefit though I am owner of a flat? [Ravi Bagade- brmgr241@mahabank.co.in]
Opinion:
Regularly, I am
getting numerous queries about the tax benefit & tax implications in
respect of the second house property. It may be cautiously noted that the housing loan benefit & tax implications for the
second house property is not similar/ same as applicable to the first house property.
The second house property has
a different tax treatment under the Income Tax Act-1961.
For the mass
benefit, I am elaborating the tax issues involved in the second house property
as under:
1.
The income
from house property is taxable on the basis of its “Annual Value”.
(The term “Annual value” is elaborated at point No. 5 hereunder.)
(The term “Annual value” is elaborated at point No. 5 hereunder.)
2.
One house
used by the tax payer for his/her own residence is exempt from tax as its
annual value is treated as Nil.
3.
Where the
assessee owns only one house property and it cannot actually be occupied by him
because it is situated at a place other than a place where he is employed or
carries on business or profession, in such a case also the annual value of the
property is taken as nil provided the property is not actually let out.
4.
If taxpayers
have two or more houses which are used for own residence, then assessee have
the option to choose one of the house (according to his own choice) as self-occupied
house, for which an assessee would like to get an exemption from tax and its
annual value will be considered as Nil. The second house (or other houses) shall
be deemed to be have to been let out [whether not actually let out].
5.
What is
Annual Value of house property and how it is determined?
The annual value means the amount for which the property might reasonably be expected to be let out from year to year. However, if the actual rent received or receivable in respect of any let out property is higher, it shall be treated as its Annual Value. The annual value is always taken to be NIL in case of one self-occupied property.
The annual value means the amount for which the property might reasonably be expected to be let out from year to year. However, if the actual rent received or receivable in respect of any let out property is higher, it shall be treated as its Annual Value. The annual value is always taken to be NIL in case of one self-occupied property.
6.
How to
calculate annual value/taxable value of property:
Annual value of property is considered as higher of the following:
(i) Actual rent received a year;
(ii) Reasonable expected rent of the property.
[ The reasonable expected rent is deemed to be the sum for which the property might reasonable be expected to be let out from year to year and is normally higher of (a) municipal value; (b) fair rent. However, if the property is covered by a Rent Control Act, then the amount so computed cannot exceed the Standard Rent determinable under the Rent Control Act.]
As mentioned earlier, the assessee has the option to choose only one house as self-occupied property. Rests of the properties are assessable to income tax on the basis of its annual value.
Annual value of property is considered as higher of the following:
(i) Actual rent received a year;
(ii) Reasonable expected rent of the property.
[ The reasonable expected rent is deemed to be the sum for which the property might reasonable be expected to be let out from year to year and is normally higher of (a) municipal value; (b) fair rent. However, if the property is covered by a Rent Control Act, then the amount so computed cannot exceed the Standard Rent determinable under the Rent Control Act.]
As mentioned earlier, the assessee has the option to choose only one house as self-occupied property. Rests of the properties are assessable to income tax on the basis of its annual value.
7.
Deductions:
From the annual value the following deductions are available under the Income Tax Act: -
a] Municipal Tax paid.
b] 30% of the net annual value of the house property towards Repair & Maintenance charges (Deduction is fixed @ 30% whether assessee incurs more or less amount on repair and maintenance of the house).
c] Actual Interest paid on housing loan whether house is actually let
out or is deemed to be let-out.
d] For self-occupied property, maximum interest on housing load is restricted to Rs. 1,50,000 p.a., subject to certain other stipulations.
From the annual value the following deductions are available under the Income Tax Act: -
a] Municipal Tax paid.
b] 30% of the net annual value of the house property towards Repair & Maintenance charges (Deduction is fixed @ 30% whether assessee incurs more or less amount on repair and maintenance of the house).
c] Actual Interest paid on housing loan whether house is actually let
out or is deemed to be let-out.
d] For self-occupied property, maximum interest on housing load is restricted to Rs. 1,50,000 p.a., subject to certain other stipulations.
8.
Effectively,
if Assessee owns more than one house property & is kept for own use,
a] one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
b] Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above.
In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit.
However, for the second house property, no deduction is available for repayment towards the
principal portion of housing loan under section 80C as clause ( xviii)
to section 80C of the I T Act reads as under: -
"(xviii) for the purposes of purchase or construction of ‘ a’ residential house property the income from .....".
a] one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
b] Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above.
In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit.
However, for the second house property, no deduction is available for repayment towards the
principal portion of housing loan under section 80C as clause ( xviii)
to section 80C of the I T Act reads as under: -
"(xviii) for the purposes of purchase or construction of ‘ a’ residential house property the income from .....".
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