25 August 2008
A friend wishes to buy a commercial property (office/retail) for Rs. 60 L.Out of which 20 L loan would be taken at an EMI of Rs. 22,500 for 15 years. A rent of Rs. 50,000 is expected per month. The maintenace charges of Rs. 1500 per month would be paid to the builder.
Kindly let me know the tax liability for him on his proposed income of Rs. 6,00,000 on account of rent received. He already has a self occupied property on which he is claiming an exemption of Rs. 150,000.He is in 30 % bracket already.
25 August 2008
out of the EMI the proportion of interest for the whole year has to be calculated and the same has to be deducted from Rs420000 (ie Rs.6,00,000 Less 30% deduction U/s.24). Also the person will be entitled to claim the Total amount of principal as a deduction under Sec. 80C subject to a maximum of Rs.1,00,000. It is to be noted that the maximum amount of interest allowable as deduction u/s. 24 (Rs.1,50,000) is only for claiming the house as self occupied . However if another house was claimed as let-out property, there is no provision prohibiting that interest on housing loan cannot be claimed, so the assesse can claim the entire amount of interest on housing loan in the event of the same house being let out for rent
25 August 2008
For clarity, lets assume the OFFICE unit is purchased and let out - rent being recd from April 1st.And the principal is 70,000 and Interest is 2,00,000 in the current year. Rs. 1,00,000 under sec 80C is taken under self occupied property, therefore is not available.
Pls confirm Is my understanding correct : Total rental Income = 6,00,000 Less 30 % = 1,80,000 Less interest on loan= 2,00,000 Net taxable income/TAX =2,20,000/67980
He already has a self occupied property and another residential unit which is let out at 7000 pm = 84,000 (-30%=56,000) and a loan interest of 60,000 and hence no income based on the above rules.
THis is his planning for the third property.
Can he take such interest deduction on any no. of properties????
If he takes this OFFICE with his father 40:60 (father invests 24 L, son invests 16 L and son takes 20 L loan )who has no income ,but would get 40% rent i.e. 20,000 * 12 = 2,40,000 so no IT being a Sr. citizen.
The son gets 360,000 rent - 30 %=252,000. Less interest of 2,00000 = 52,000 Taxable. So the on pays tax abt 16,000. Is there any problem with this scheme.
26 August 2008
yes ,Your understanding is correct in case of office in case of let out house there is slight mistake in calculation it should be 84000-30%=84000-25200=58800 but in this case also as the interest paid is more than net rent no amount is taxable but in this case negative income from second house that is 60000-58800=1200 can be reduced from net income of the office rent ,as per section 70 loss on one house property can be reduced from other house property,so plus minus income from all the house properties will net taxable income from the house property.
suppose if you have two buildings A and B , A is rented out at 100000 per year and B at 200000 and interest on both the properties is 100000 and 50000 respectively
His income will be A property=(100000-30%)-100000=(-)30000 B property=(200000-30%)-50000=90000 income from house property=90000+(-)30000=60000
and now ur second question:yes he can take such deduction on any number of properties ...No limit and aggregate of all the property will be taxable as explained above in the example....even loss can be carried forward and can be adjusted in next years
Third case : your tax planning is legitimate and no draw back in it just make sure two things
1.while investing in this property the share in registration should be clearly mentioned 2.arrange for separate tds certificate,if required on rent received
27 August 2008
except for one self occupied house and shop/property used in own business ,there is no difference in treatment of Income of House property whether shop,office or residential unit ...
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