Tax incentive for Top-up Home Loan

Q & A Forum › Category: Home Loans & Credit › Tax incentive for Top-up Home Loan

ravu asked 10 years ago

I have a question related to Home Loan and Top-up loan. I live in Bangalore but I have a house in my native Guntur. I also have housing loan on that house. I usually show that as self occupied house since my parents were living there till 2014. Few questions related to that: In October 2014, I transferred the housing loan to another bank and also took top-up loan on top of that. I used the top-up loan proceeds to construct a house in Bangalore. I moved to my new house in Bangalore this February 2016. I also started renting my house in native from 2015-16. I read in income tax laws that interest on top-up loan can be exempted if used for house construction. In my situation, can I use that and take exemption for interest paid? Also, can I file my house in native as Loss of House Property coupling rent income and deducting interest paid on the loan(home loan + top-up)? Thx Ravi

3 Answers

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Sreekanth Staff answered 10 years ago

Dear Ravi, 1 - You will get tax benefit on a top up loan only if the loan amount is used for buying a house (as in your case). You can claim tax benefits both on Principal & interest payments. 2 - If you are showing your Bangalore house as Self-occupied property, you have to show other property (Guntur) as Let-out property and accordingly claim tax benefits. Read:

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ravu answered 10 years ago

Thanks Sreekanth for your response. How do I claim exemption for the interest on top-up loan?
Can I claim it as loss of House Property on Guntur property and add interest incurred for the top-up loan(rather loss) along with any gain from rental? Thx
Ravi

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Sreekanth Staff answered 10 years ago

Dear Ravi, Kindly understand how the 'income from house property' is calculated for taxation purposes. Interest payments are treated as 'loss' only. GROSS ANNUAL VALUE OF THE PROPERTY Less: Municipal Taxes paid by owner = Net Annual Value (Gross Annual Value – Property Tax) Less: 30% standard deduction on NAV ( under Section 24(a) of the Income Tax Act) Less: Interest on home loan (allowed under Section 24(b)) = Income from house property Note that the Gross Annual Value of a self-occupied house is zero. Whereas in case of Let out house, it is the rent collected. Read: Understanding Tax implications of Income from House/Property.