How To Claim Tax Exemptions On Multiple Home Loans?
There is no restriction on the number of home loans that a homebuyer can take like there is no restriction on the number of homes that one can buy. According to popular notion, one cannot take more than one home loan at a time but it is not so. A homebuyer can also claim the necessary tax benefits on multiple home loans.
However, for all the properties taken together, your ability to pay back the loan as well as the earning will determine the amount of home loan that you are eligible for.
Tax benefit for payment of interest
Under Section 24B of the Income Tax (I-T) Act, you can claim deduction for interest payable on a loan, repair, renovation or construction. But, if you own only one house which is self-occupied, the upper limit of deduction on interest payment is restricted to Rs 2 lakh per annum. Yet, if the construction has not been completed within the stipulated period of five years and the loan has been borrowed after April 1, 1999, the deduction is restricted to Rs 30,000.
In case the owned property or properties is/are let out on rent, deduction can be claimed for the entire period of interest without any upper limit against the rent amount received for each of the properties.
In Budget 2019 speech, Finance Minister has extended the benefit of self-occupied property to two houses. That means, if there are more than one property occupied by you, the notional rental income has been exempted from income tax. Tax benefits for the full interest paid can be claimed for money borrowed once a property is considered a let-out property.
However, if housing loan interest out go for the second house was higher than the taxable rental income it may result in adverse tax situation. According to Vaibhav Sankla, managing director, H&R Block, "Till F.Y. 2018-19 they were allowed to claim the second house as deemed let-out and reduce the entire interest from the taxable rental income after adjusting property taxes and standard deduction. This would generally result in higher loss under the head house property. Taxpayer was allowed to adjust this loss under the head house property against other income (salary, interest, etc.) upto Rs 2 lakh in the same year and the balance was allowed to be carried forward up to next 8 assessment years to be adjusted against income from house property in future years."
Now with the proposed amendment they may not be able to claim the 2nd house as deemed let-out and the overall interest deduction u/s 24 for both the self-occupied houses will be restricted to Rs. 2 lakh resulting in lower losses under the head house property. This will reduce the possible tax benefit in future from set-off of carried forward losses.
For any commercial or residential property, this deduction on interest payment is available. Irrespective of the source of loan (whether from a housing company or a bank or from friends or family) for the purpose of reconstruction, renovation or repairs, this deduction on interest is available. Any amount of interest paid during the construction of a house can be claimed in five instalments of equal value, from the year the construction begins until the time when the possession of the house is given to the homebuyer.
Tax benefit on principal repayment
Up to Rs 1.5 lakh can be claimed for principal repayment of home loan under Section 80C of the Income Tax Act, 1961, including stamp duty charges and cost of registration. Though home loans can be taken for various properties, the amount of deduction should be only restricted to Rs 1.5 lakh. PPF (public provident fund) contribution, life insurance premium, tuition fees, PF contribution and other such amounts are included in the deduction amount.
However, the deduction can be claimed only after possession of the house is complete. If the principal amount repayment has already started before possession of the house, the benefit is not available. An important point to note is that loans from family and friends cannot be considered for this deduction.