I closed my home loan in December 2016 and am thinking of going in for a second house on loan, which I will also be renting out. Will I enjoy tax benefits on the loan paid on this new house?
The second house is solely an investment and will be treated as let out property
I closed my home loan in December 2016 and am thinking of going in for a second house on loan, which I will also be renting out. Will I enjoy tax benefits on the loan paid on this new house?
Sridevi Rao, Hyderabad
Assuming you live in the house for which you closed the loan in December, this makes it self-occupied property (SOP). You must have been availing deduction towards interest on this loan up to Rs 2 lakh in a financial year. The second house you mention is solely an investment and will be treated as let out property (LOP). In such cases the entire interest paid on the housing loan can be claimed against the taxable rental value, which is determined by factoring in specified deductions such as municipal taxes and standard deduction of 30 per cent of the net rental value.
In case the LOP is under construction, the pre-construction interest can also be availed as deduction. This pre-construction deduction on interest should be restricted to one-fifth per financial year, starting from the fiscal year in which the possession of the property is acquired. Moreover, you could also claim deduction up to Rs 1.5 lakh in a financial year under Section 80C of the income tax towards repayment of the principal of the home loan.
There have been a few changes mooted in Budget 2017 that is Finance Bill 2017, which has proposed to limit the loss incurred on a house property to Rs 2 lakh in a financial year, instead of the earlier no limit. However, the balance unadjusted house property loss incurred during the FY can be carried forward for set off against house property income for up to eight financial years.