The article idea triggered from one of the few simple queries, how many properties a person can own? On the face of it, answer is even simpler, as many as you want. There are no restrictions on the numbers of properties you can own either under the general laws or under the income tax laws.
Thus follows another question - What is the numbers of properties for which you can take a home loan? There are no restrictions on the number of properties in respect of which you can take a home loan either under income tax act or regulations of RBI. However there are some tax implications under the provisions of Income Tax laws for owning more than one houses.
So this articles discusses the tax implications for ownership of more than one property.
Deduction in respect of Repayment of Principal of home loan:
Presently the income tax laws allow you an overall deduction upto Rs. 1.50 lakhs for repayment of housing loan taken for purchase or construction of a residential house. This amount of Rs. 1.50 lakhs also covers amount paid by you for registration and stamp duty for any residential house. As per my understanding of the provisions, there are no restrictions as to the number of properties for which this deduction can be claimed within the overall limit of Rs. 1.50 lakhs. Please note that this deduction is available together with the other items of expense and investments eligible for deduction like life insurance premium, school fees for two children, contribution towards PPF, Provident Fund and NSC etc. This is important to know that you can claim this deduction only if the loan has been taken from banks, housing finance companies and other specified entities.
This deduction can only be claimed from the year in which you take possession of the property in case you book an under construction property. So even if you have started repaying the principal amount of the loan before completion of the construction, you are not eligible to claim any tax benefits in respect of such repayments. Repayments of loan taken by you from your friends and relatives are not eligible for this deduction.
Deduction for interest payment:
You can claim deduction in respect of interest on loans taken for the purpose of purchase or construction of any property. This deduction is also available in respect of interest on loans taken for the purpose of reconstruction, repairs and renovation of any property. The interest payment can be claimed in respect of any house property and not necessarily a residential house property. However if you own one house property and the same is occupied by you, then you can claim a deduction for interest upto Rs. 2.00 only . However in case you have more than one house property, the tax treatment is different. In case you own more than one house property and all are occupied by you, you have to exercise an option to choose one of the property as self-occupied and the other properties will then be treated is let-out for which a notional rental income is required to be offered for taxation.
However in case the other property or properties are let out, the actual rent received is taxable in your hands. Also there is a difference with regard to tax treatment for interest paid on loan taken for such properties. In respect of the properties which are either let -out or which have been deemed to have been let-out, you can claim the whole of the interest paid as deduction against the notional rent or actual rent received after availing standard deduction of 30% from the rent. The budget 2017 has proposed that loss in respect of all the properties taken together can only be adjusted against your salary income or business income to the extent of Rs. 2 lakhs and the unabsorbed loss will have to be carried forward to subsequent years for set off.
In this case, unlike for repayment of the housing loan where the loan has to be obtained from specified institutions, there is no such restriction for your eligibility to claim interest payment. Even if you have borrowed money for the above purposes for a house from your friends or relatives, you will be able to claim tax benefits in respect of loan on such loans.
Exemption from Capital Gains:
The present Income tax laws allow you an exemption from long-term capital gains if you make investments in residential house property. The exemption is available in respect of sale of two types of assets. Under first class of long-term capital gains is included long- term capital gains arising on sale of residential house properties. There is no restriction as to the number of residential houses you can own for claiming this exemption under Section 54.
The second class of assets are assets other than residential house properties and it is in respect of capital gains arising on sale of such assets that the income tax laws put a restriction on the number of residential houses you can own. You are not eligible to claim the exemption in respect of long- term capital gains on such assets in case you own more than one house in addition to the house which is being purchased for claiming this exemption under Section 54F.
I hope that from the above discussion it becomes clear that each member of your family can own a house in his independent capacity and thus the tax benefits of owning a single house can be retained by each of the adult members in the family.
(The author is a CA, CS and CFP. He can be reached at jainbalwant at gmail.com and @jainbalwant)