Query on investment

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

03 August 2014 My CTC - 22 lacs P.a
Current Homeloan for one flat- 75 lacs (i.e 75k EMI)

Which is the Best tax saving option.

Option1.
Show this as a primary flat and get rebate of 2lacs towards interest and 1 lac on principal

option2.
Invest in another small 1RK,show this as primary flat. The other flat which has 75K as EMI , show it as secondary flat and get the interest as Non taxable

PLs suggest

Querist : Anonymous

Querist : Anonymous (Querist)

06 August 2014
Pls suggest

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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10 August 2024 To determine the best tax-saving option between the two scenarios you've described, let's break down each option considering tax benefits related to home loans and investments.

### **Option 1: Primary Flat with Existing Home Loan**

**Scenario:**
- Your current home loan is for ₹75 lakhs, and the EMI is ₹75,000.
- You use this flat as your primary residence.

**Tax Benefits:**
1. **Interest on Home Loan:**
- **Section 24(b)**: You can claim a deduction of up to ₹2 lakh per annum on the interest paid on your home loan if the property is used for self-occupation.

2. **Principal Repayment:**
- **Section 80C**: You can claim a deduction of up to ₹1.5 lakh per annum on the principal repayment of your home loan. This is part of the overall limit of ₹1.5 lakh under Section 80C, which includes other investments like ELSS, PPF, etc.

**Total Deduction Possible:**
- **Interest**: ₹2 lakh
- **Principal**: ₹1.5 lakh

### **Option 2: Investing in Another Small Flat**

**Scenario:**
- You invest in another small 1RK flat and show it as your primary residence.
- You now declare the existing flat with a ₹75,000 EMI as a secondary property.

**Tax Benefits:**
1. **Interest on Home Loan for Primary Residence:**
- If the new flat is used as your primary residence, you can claim the interest deduction on the loan taken for this flat under **Section 24(b)**, up to ₹2 lakh per annum.

2. **Interest on Home Loan for Secondary Property:**
- For the existing flat, which is now considered a secondary property, you cannot claim a deduction under Section 24(b) for the interest on the home loan. However, you can claim a deduction under **Section 24(b)** for interest on the loan of up to ₹2 lakh per annum only if the secondary property is rented out. If it is not rented out, the interest is not deductible.

3. **Principal Repayment:**
- Principal repayment for the secondary property is not eligible for a tax deduction under **Section 80C**.

**Total Deduction Possible:**
- **New Primary Property Interest**: ₹2 lakh (if loan is taken)
- **Existing Property Interest**: ₹0 (if not rented out, no deduction allowed for interest on a second property if not rented)

### **Comparative Analysis:**

1. **Tax Savings with Option 1:**
- Total possible deductions: ₹3.5 lakh per annum (₹2 lakh on interest + ₹1.5 lakh on principal repayment).

2. **Tax Savings with Option 2:**
- If you are unable to claim deductions for the interest on the loan for the secondary property because it is not rented out, you only get the benefit of up to ₹2 lakh on interest for the new primary property. There is no deduction for principal repayment on the secondary property.

**Conclusion:**

**Option 1** generally offers better tax savings if you are utilizing the flat as your primary residence because you can claim both interest and principal repayment deductions.

**Option 2** may offer tax benefits if you can rent out the existing property, which would then allow you to claim deductions on the interest for the secondary property as well. However, this requires renting out the property, which may or may not be feasible based on your personal situation.

**Recommendation:**

- **Evaluate your long-term plans**: Consider the practicality of renting out the secondary property and the impact of having multiple properties on your financial and personal life.
- **Consult with a tax professional**: For personalized advice based on your complete financial picture and tax planning.

By analyzing your specific situation, including rental feasibility and overall financial strategy, you can make a more informed decision about the best tax-saving approach.

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