I just finished paying off the mortgage on my first home and plan to buy another home that will be rented out. Will I get a tax benefit on the loan paid on the second home?
We have assumed that the first house is considered independent property (SOP) and you have taken advantage of the home loan interest deduction up to Rs2 lakh per fiscal year (FY). Additionally, we understand that ownership of the second house would be considered Leased Property (LOP). In the event of a LOP, all of the interest paid on the home loan can be deducted from the taxable rental value, which is determined taking into account specific deductions such as municipal taxes and the standard deduction of 30% of the net rental value. (i.e. gross rent less municipal taxes). If you are offering to purchase a property under construction, pre-construction interest may also be deducted. The pre-construction interest deduction per fiscal year should be limited to one-fifth, from the tax in which possession of home ownership is acquired.
In addition, you can claim a deduction for repayment of the main part of the mortgage, subject to a ceiling of Rs1.5 lakh per annum (under section 80C of the 1961 Tax Act on income).
Just for your information, the 2017 Finance Bill (effective for fiscal year 2017-18), proposes that loss of home ownership incurred during a fiscal year (which could previously be fully offset by any other income earned during the same fiscal year) is capped at Rs2 lakh per fiscal year. Thus, one can offset the total loss of up to Rs2 lakh incurred on all the properties of the house (after considering the deduction of interest on the home loan as mentioned above) with any other income, if applicable. , won during the same financial year. The balance of unadjusted property losses incurred during the fiscal year can be carried forward for compensation with property income for up to 8 fiscal years.
This amendment has not yet received the consent of the President.
I have just turned 18 and would like to start investing with my pocket money and gifts, which is around 5,000 rupees per month. Will returns be taxed in my hands?
Since you are of legal age (over 18 years of age), any money investment income (received as a gift or pocket money) will be taxable in your hands, depending on the nature and amount of your investment income. .
My father sold me his house in August 2013. I sold it in December 2016; will I be required to pay LTCG or STCG?
As the home ownership has been held by you for more than 36 months from the date of acquisition (i.e. April 2012), any gain resulting from the sale of the home ownership will qualify as long-term capital gain (LTCG) and will be taxable in your hands. The LTCG will be calculated as the difference between the net proceeds from the sale and the indexed acquisition and improvement cost. The cost of acquisition and improvement, if any, that you incur after the purchase must be indexed or inflated as prescribed. You can qualify for LTCG tax exemption by reinvesting the gains in a new residential property located in India, within the prescribed time frame (Section 54). Alternatively, you can invest the LTCG in bonds notified within 6 months from the date of sale, subject to a threshold of Rs50 lakh (section 54EC).
For your information, if the sale proceeds receivable from the sale of the house is less than the value withheld for payment of stamp duty, then for the calculation of capital gains, the value as assessed at purposes of payment of stamp duty will be considered the sale value.
Accordingly, the LTCG balance, if any, taking into account the aforementioned reinvestment route, will be taxed at the flat rate of 20%. In addition, a 15% surcharge (if applicable) and a 3% education tax must be levied on this tax liability. If the consideration for the sale exceeds Rs50 lakh, the appropriate tax will need to be deducted and deposited by you on payments made to the buyer, assuming you are both tax residents of India (section 194-IA) .
Parizad Sirwalla is partner (tax), KPMG
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