Disclosure about property

The law states that where you own only one house which could not be actually occupied due to your employment in another city,and where you derive no monetary benefit out of that house,then you can claim the house as self-occupied. As such,the annual value of the house for income tax purposes will be considered as nil.

However,your case here is different from the one stated above,as you own more than one house. As such,the treatment would be simple and straightforward – rent from the house that you have let out will be taxable in your hands,and needless to say,you would be claiming tax benefit on the rent that you are paying for your current rented residence. Since your flat in Chennai is not self-occupied (you are staying in Bangalore in a rented accommodation),it shall be ‘deemed let out’ and taxed at the fair rental value that a similar house in the same locality would fetch.

My father sold a family property. He now wishes to use the proceeds to buy a flat which is double the value of the proceeds received. Since he is over 70 and he cannot get a loan to fund the balance,can he jointly purchase a flat with me? If so,can I avail of Income Tax benefit of by deducting the entire interest amount from my total income as it will be my second house?

(Praveen Shah,via email)

For the purpose of income tax law,your father and you are separate taxable entities,independent of each other. It is also true that no bank would be willing to lend money to your father as he is already over seventy years of age. As such,you may purchase the new house as a co-owner of the property,along with your father. Your father can very well claim exemption under section 54 on his investment,provided he satisfies all other conditions attached to it.

As for the tax benefit on the repayment of the home loan,the total tax benefit that your father and you can claim shall be limited to the actual amount paid to the lender. Assuming that your father would not be claiming any part of the tax benefit,you can claim the whole of the same in your tax returns. Since this your second house and assuming that your first house is self-occupied,the new house will be ‘deemed let out’ if it is not actually let out. As such,the fair rent of a similar house in the same locality will be the deemed rent for this property.

This might require some calculations,but you may wish to work out with your father as to the share of this deemed rent that you would show as your income (preferably through a written agreement),for the balance would be your father’s income. This ratio shall apply for all the financial years to come and changing it would require a reasonable explanation. The tax benefit on the home loan that each one of you claims may,however be claimed in the ratio in which each one of you contributes to the repayment of the loan.

Since your father is a senior citizen,his maximum exemption limit (the base income which is exempt from tax) is higher than yours. Therefore,you may like to show some of the deemed income as his income and the balance in your hands. Of course,assuming that this house is not self-occupied for you,there would be no upper limit to the interest payment that you can claim as deduction under section 24 for the year.

Please avail the services of an income tax practitioner and explain him all the facts of the case. He will be in a better position to go through your case personally and advise you accordingly.

I intend to buy a house in India,for which I am seeking loan from a friend abroad. I will be apying back the loan in easy installments. Please let me know how would I receive and pay back the same in the most effective way. In case the house is registered in my spouse name though I will have to repay the loan,how do I plan for the transparent transaction? Looking forward for you advice.

(Mohammed Rafiq,via email)

A loan in foreign currency is not advisable because apart from the foreign exchange compliance,you will have difficulty proving that the amount is indeed a loan. Also,you may face problems in repayment in foreign currency – both under the foreign exchange rules and the income tax law. Moreover,you will not be entitled to any tax benefit on principal repayment. I would advise you against taking that loan and instead suggest that you approach a bank or financial institution for the loan.

However,if you still have to go for it,I would suggest that you take the loan in Indian currency from your friend’s bank account in India. Also,make sure that you enter into a written agreement with him,clearly stating the amount of the loan and terms of repayment. Make sure you repay the loan through a crossed cheque/bank draft and obtain an interest payment certificate every year from your friend.

You have to be the owner of the house in order to claim tax benefit on interest payment,though this loan will make you ineligible for tax benefit on principal repayment. Therefore,even if you take the house in your wife’s name,do make sure that you are the co-owner of the house and a co-applicant to the loan.

For more,I suggest that you avail the services of an income tax practitioner who would go through your case personally and advise you accordingly. l

The author is a chartered accountant.