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Tax implication on purchase of second house property jointly

Alekh Agarwal (Article Assistant) (30 Points)

30 November 2013

Mr. X am owning one Residential House property Co - owned with his brother.

Now he is going to purchase another Residential Property jointly with his wife through loan taken jointly from bank. though Mrs. X is the first time buyer

So Please advice me what are the Tax implication of the same.

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8 Replies

CA. Amit Kumar Thakur (Chartered Accountant) (34 Points)
Replied 30 November 2013

Originally posted by : Alekh Agarwal

There are various tax implications under the provisions of income tax laws and wealth tax laws for owning more than one house.

1) As per Section 56(2)(vii)(b) if any individual or HUF receives an immovable property from any person at inadequate consideration then the difference of Stamp Duty Value and consideration will be taxable in the hands of the recipient if the difference exceeds Rs. 50,000 – Thus the Stamp Duty Value must be checked.

2) As per Section 194IA, If the Consideration paid for property purchased is Rs. 50 Lacs or more, then the Buyer is required to deduct TDS @ 1% of the price on all payment made on or after 1st June 2013. The applicability of TDS is only to the actual consideration specified in the transfer documents, and is not on the basis of a notional fair market value, such as a stamp duty valuation, even though such valuation may be higher.

3) In case assessee owns more than one residential house then only one house will be considered as self occupied and other house will be considered as “deemed to be let out”. It is on the option of the assessee to consider one property as self occupied and pay tax on the other. Even the second house remains vacant, estimated annual rent will be considered as taxable value after standard deduction of 30%.

However following deduction will be available to the assessee :-

i) In case of Self Occupied property interest upto Rs. 1.5 lacs and in case of Let Out or deemed to be Let Out interest paid without any limit on loan taken u/s sec 24(b).(For Both co owner Seperately)

ii) Principal Repayment of Loan Taken from Bank and other financial institution upto Rs. 1 Lacs u/s 80C. (For Both co owner Seperately)

4) As per the recent Insertion of Sec 80EE in the Finance Act 2013, assessee is entitled to additional deduction on account of interest paid to financial institution upto Rs. 1 lacs for the Asst Yr. 2014-15, if the following condition is satisfied :-

i) The loan is sanctioned between the FY 1/4/2013-31/3/2014.

ii) The loan sanctioned does not exceed Rs. 25 Lakh.

iii) The value of residential house does not exceed Rs. 40 Lakhs.

iv) The assessee does not own any other residential house as on the date of sanction of the loan. In other words, this house is supposed to be his self occupied property.

v) The assessee is a first time home buyer.

since the residential property is already owned by you, thus you are not first time home buyer and but co- owner of the new house property (i.e ur wife) can claim deduction as they are the first time home buyer and if 2nd house is treated as self occupied by you.

5) As per the provision of Sec 5(Iv) of Wealth Tax Act, one residential house of the assessee will be exempt and it is to the option of the assessee to choose one of the house as exempt and offer the value of other house to wealth tax. However if the value of 2nd house along with other assets does not exceeds 30lacs, then there will be no wealth tax liability.

CA. Amit Kumar Thakur

2 Like

Alekh Agarwal (Article Assistant) (30 Points)
Replied 30 November 2013

Thanks Sir for your valuable reply, however your reply was too lenghty so kindly advice the same in nutshell

manish (Article Assistant) (22 Points)
Replied 30 November 2013

Mr. Alekh Agarwal, Amit ji has covered all the tax aspects applicable for the above query. So better you read it very carefully to understand it.

Alekh Agarwal (Article Assistant) (30 Points)
Replied 30 November 2013

Mr. Amitji can you plese suggest the same in case of construction.

CA. Amit Kumar Thakur (Chartered Accountant) (34 Points)
Replied 30 November 2013

Every thing is same,

For Claiming deduction us 24(b), accumulated interest till the year of construction will be allowed in five equal instalment from the year in which construction is completed. Apart from this interest after the completion will also be allowed. ( For both the co owner seperately)

RAJESH KAKADE ( ) (41 Points)
Replied 02 December 2013

but Section 56(2)vii says " any sum of money or value of property , other than immovable property, received for inadequate cosideration to be subject to tax in the hands of recipient , being individual or HUF"

subhajit behera (student) (65 Points)
Replied 02 December 2013

If the Value fo Property Is more than 50 Lakh Deduct TDS @ 1%

Gaurav Goel (Asst. Manager) (21 Points)
Replied 19 November 2014

Thanks Amit ji,

I have a very similar situation at hand and would be grateful if you could explain point 4 of your original answer a bit in detail. To reitterate what is confusing me, Mr. X and his brother are first time buyers but when MR. X decides to buy a second property jointly with his wife, how is the property treated for Mr. X and his wife, because w.r.t this property Mr. X is a second time buyer but his wife is a first time buyer. I am concerned about the tax benefits/obligations of Mr. X and his wife only. (For explanation you may assume that the sahre was always 50:50 in all property)

Mr.X has joint loans for both the properties.

Thanks in advance for your co-operation, I tried reading your answer multiple times but was still not sure on the above.

Regards,

Gaurav.