TAX TREATMENT OF SECOND HOUSE PROPERTY

TAX TREATMENT OF SECOND HOUSE PROPERTY




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SECOND HOUSE PROPERTY

Query 1]

I have some queries regarding sec 80C and 24. Please help me:

  1. I have taken HBA of Rs. 4 Lacs from bank 8 years back which is going to be over by this year ending for house located in Gramin / Rural Nagpur. I am claiming principal & Interest benefit for this loan. Recently I have purchased a flat in city area with HBA of Rs. 10 Lacs from another bank for 10 years period. I am staying in the flat & given old house on rent for Rs. 2,000/-. Please let me know, now how I can get maximum benefits of both HBA loan under section 80C and u/s 24 for interest and principle?
  2. My father-in-law has made a gift deed in favor of my wife (before marriage) for old house located at our native place. She is getting rent of Rs. 3,000/- per month from that. She is housewife. Since the gift deed is made before marriage, whether this rent is to be clubbed with my income or she should file IT return showing the rent received? Also since the total income is less than the exemption limit for women she has to file return? Please clarify. [venkat.2804@rediffmail.com]

Opinion:

  1. You will be letting out the first house property owned by you. You will be using the second house property for your own residence. The tax treatment shall be as under:
    a] The rent of the first property will be includible in your income. The income from it shall be taxable 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) municipal value; (iii) fair rent of the property.
    You can get the deduction u/s 24(b) towards the interest paid. You can further get the deduction u/s 80C towards the principal portion of the house property also.
    b) In respect of second house property, it shall be treated as the self occupied house property. You can get the interest deduction u/s 24(b) towards this self occupied house property. Whether deduction u/s 80C shall be admissible or not in respect of second house property loan repayment question with no legal clarity. We are of the considered opinion that the principal repayment of the second house property loan would also be eligible for deduction u/s 80C.
  2. The Rental income in respect of the house property gifted to your wife by her Father will not be includible in your income. The said income will be assessable in her hands only. If her Gross Total Income (i.e., income before deduction u/s 80C towards LIC, PPF etc) is below the basic exemption limit, it would not be mandatory for her file the return of income.

Query 2]

I had a house property in the name of my wife. Also I had purchased it in April-2007.  And I have sold it in Baroda @ Rs. 40 Lacs & registered the documents also got executed in May-2011. I am planning to buy a property in the name of my wife here in Nagpur @ Rs. 33 Lacs in which the owner wants Rs. 18 Lacs in cash & Rs. 15 Lacs in cheque. The documents here will be executed for Rs. 15 Lacs only. How much CGT (Capital Gain Tax), I will have to pay? Whether it can be levied or reduced to as low as possible or zero? [xxxxx@tal.co.in]

Opinion:

  1. In the absence of details like cost of acquisition of the property purchased by you or your wife in the year 2007 & other relevant details, exact amount of Long Term Capital Gain (LTCG) could not be worked out. Long term capital gain is taxable @ 20% u/s 112 of the Income Tax Act-1961.
  2. LTCG tax can be saved by investing the amount of Long term Capital Gain for purchase of another house property within a period of 2 years (for construction- 3 years period is permissible) from the date of transfer of the house.
    The main stipulations u/s 54 for claiming exemption from long term capital gain tax are as under: –
    a) The capital gain should arise from the transfer of long-term capital assets being buildings or lands appurtenant thereto, being a residential house.
    b) The transferor must be an individual or the Hindu Undivided Family.
    c) The transferor must purchase a residential house within a period of one year before or two years after the date of transfer; or, in the alternative, the assessee must constructed a residential house within a period of three years from the date of the transfer of the original house.
    d) The amount invested in the purchase or construction of new residential house should either be equal to or more than the gain, or where it is less than the amount of capital gain, the shortfall would be taxable as LTCG.
  3. We cannot make comment on the cash part Rs. 18 Lacs to be pay by you to the builder. The only thing which every one knows & are aware of that the generation and circulation of black money causes great losses to the country’s treasurer.

 

Query 3]

I want to know regarding Long Term Capital Gain on Sale of flat. I have purchased one flat. The date of agreement is 01-06-2008.  Please note that I have given the complete amount to the builder before 01-06-2008.  Builder took three years to complete the construction work.  The flat is ready and builder has given possession of flat today i.e. 30-06-2011.  The sale deed of flat will be in the month of August, 2011. My purchase cost is Rs 30 Lacs. My question is when I will get benefit of Long Term Capital Gain if I sale the above said flat. Whether I will have to deposit Income Tax or I will be able to take the benefit of Long Term Capital Gain in the situation as hereunder:

  1. If I sale the flat tomorrow itself.
  2. And If I sale the flat after Sale
  3. Else If I sale the flat three years after possession i.e. after 30-06-2014.
  4. Also If I sale the flat three years after sale deed i.e. after August, 2014.

 You are request to please guide. [drmdkothekar@rediffmail.com]

Opinion:

For computing the LTCG, the date of purchase plays a vital & crucial role & not date of payment. It may be note that the date of payment for purchase of property is not synonymous with the date of purchase/ acquisition of house property. In normal course, the date of executing the sale deed or the date of taking the possession of the house property is to be take as the date of purchase/ acquisition.

With above basic propositions, in situations mentioned in (a) & (b) above, the surplus would be treated as short term capital gain only & no benefit otherwise available in case of LTCG would be admissible. In case of (c), technically the amount of would be long term capital gain. However, you would be required to substantiate & prove the date of possession of the property. The best undisputable option for income to be categorize as LTCG would be (d) i.e., to sale the flat after August-2014.

SECOND HOUSE PROPERTY

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