Query 1]

I own a house property which was purchased by me 7 years back by availing housing loan from SBI in my name. I am continuously enjoying deduction towards interest as well principal on repayment of the present housing loan. The property was purchased in us in joint name and loan was also taken in joint name only. Now, in the last month, I have bought a new house and this time, the loan is taken jointly in the name of my wife (who is also employed) and me. I have a doubt regarding deduction/ admissibility of interest and principal repayment of the new loan availed. Please guide whether & how can we both take the benefit of interest rebate in this case? The interest portion for our second house is around Rs. 2.51 Lacs in the first year. Is it possible for me to claim deduction up to Rs. 1.50 Lac in my return and balance in the file of my wife? [K.L. Jain, Akola]


The new house property purchased is your second house property. It may be noted that, in case of joint ownership, deduction towards interest or principal repayment is not available as per the convenience of individual co-owners/co-applicant but is admissible based on the documentations & supporting evidences. In short, your claim against interest payment of Rs. 2.51 Lacs cannot be as per your convenience but has to be in the ratio of individual share in the loan of each co-owner.

Readers may please note that the tax treatment of the second house property is not same or similar as that applicable to first house property. The second house property has a different tax treatment under the Income Tax Act-1961. 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.)
  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 will be 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.
  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 reasonably 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. Other house 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.
  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 …..”.

In your specific case, it appears that your second house property have higher interest commitment as well as may have higher annual value in comparison to your first house property. If both the properties are kept for your own use, you can plan, based on the above tax issues involved, about the property to be treated as self occupied & the property to be offered for taxation on notional basis.

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