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Tax treatment for second home loan

Jithesh (MBA) (39 Points)

12 November 2014

I have one house on my name and the home load associated to this has been closed last year 2013. I took a fresh homeloan to book an under construction house in 2011 (jointly owned by me & my wife) for which I got the possession in Dec 2013. I have not let out the second property. Now I would like to understand the following:

1) As my first home loan has been closed, can I get deductions under 80C for the principle amount of second home loan.

2) Since I have not letout my second property what will be the tax treatment for the Interest component of the homeloan for the second home.

3) Do i need to pay any wealth tax, if yes kindly explain or share links where I can get more details on calculating wealth tax.

4) I don't have any other sources of Income other than Salary, should I file return under ITR1 or ITR2.

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2 Replies

Mihir (Wealth Manager) (5293 Points)
Replied 12 November 2014

If you have not let out the second home, the second home will be considered as deemed to be let out. You may claim principal amount u/s 80C upto 100,000/- and interest u/s 24 upto Rs. 150,000/-. If you let out the second home, you may claim actual interest paid. You should file ITR-2.

Swami Ayyappa Nuli (TAX ADVISOR & CONSULTANT AT G.S.T SUVIDHA CENTER) (1372 Points)
Replied 13 November 2014

To get deduction u/s.80C for Principal repayment of Loan, Construction of House should be completed. In your case as Construction has completed in 2013-14, You can take repayment of Housing loan u/s.80C for A.Y 2014-15 up to Maximum of Rs.1Lakh (provided no other deduction u/s.80C has claimed). Secondly, as Mihir said You need to offer one of your two houses as Deemed let out property and offer such deemed rental Income under the head Income from House property. Interest paid on Loan taken for second house in 2013-14 can be claimed fully in the year it self but Interest paid from 2011-31st March,2013 is regarded as Prior Period Interest and 1/5 of the above to be claimed in 2013-14. It should be noted that if you select second house as Self occupied property, Interest deduction shall be limited to 1,50,000 for A.Y 2014-15. You should be liable to pay wealth tax if your Net wealth exceeds 30Lakhs. There is valuation technique for determination of House property Value. If Value of these two properties exceed 30Lakhs,then you will be liable to pay wealth tax @ 1% on Net wealth-30Lakhs. Such Net wealth to be determined after deducting value of any one of these two properties at your discretion. (because You will be entitled to exemption of one house property value for determination of Net wealth). You need to file ITR 2 but not ITR 1 as you are liable to offer Deemed rent under the Head Income from House property. ITR 1 is for Individuals having Income from salary and Interest only.