Taxation: Kuldip Kumar

Kuldip Kumar, partner and leader-personal tax, PwC India, answers your questions

My wife and I are both income tax (I-T) assessees. I have one flat in my name, for which I have repaid the home loan. I have taken another housing loan but purchased the flat in my wife's name. I am repaying the second home loan. None of the flats are let out. Can we show the flats as self-occupied in our individual I-T returns without attracting provision of notional rent on one of the flats? If not, who should show the second flat in the I-T return? Can I get the benefit of Section 80C and Section 24 on repayment of principal and interest?

Under the Income Tax Act, 1961, where an individual transfers any house property to his or her spouse otherwise than for an adequate consideration, such individual shall be considered to be the deemed owner of the house property. In your case, the second property has been registered in your wife name, but the same is funded by you and therefore, you will be considered as a deemed owner of that property. Any rental income earned on the property which is registered in your wife's name will be clubbed in your hands only and your wife will need to pay taxes on the same.

Since both houses are self occupied, the I-T Act, in such a situation, provides you an option to consider one from either of these houses as self occupied. Since you have taken loan on the second house, it is beneficial to consider the first house as self-occupied and the second house for which you took loan will be deemed to be let out. You will need to pay taxes on the notional rent in case of second house. But this choice will allow you to avail the entire amount of interest (without any limit) as deduction against the notional rental income while in case of self occupied house the interest deduction is restricted to Rs 2 lakh.

Repayment of the principal of the loan taken for the purpose of purchase or construction of a residential house property is allowed as a tax deduction under Section 80C. The maximum deduction allowed under this section is Rs 1.5 lakh. You should be able to avail such deduction for the principal repayment as income from such house is being taxed in your hands.

The views expressed are expert's own. Send your queries to yourmoney@bsmail.in