How to save tax on income from house property

The scope of tax planning in respect of income form house property is much limited. The following points may be taken into account in the commotion.

Confessional Treatment with respect to One Self-occupied House:-Where the owner is an the occupation of more than one house for the purposes of his own residence, the annual value of one house, as the assessee may specify on this behalf, is taken to be nil. In computing income form self-occupied house property, the assessee can claim only one deduction, i.e. interest on loan taken for acquisition of the house property. Maximum deduction can be up to Rs 150000, if loan is taken on or after 1 April 1999.

From the assessment year 2003-2004 and onward, the deduction is allowed if house is acquired within 3 year from the end of the financial year in which loan is taken.

While exercising such option the assessee should try to keep his tax incidence at lowest possible point.

Availing Self-occupancy Concession for more than One House:-Where the assessee occupies more than one house for self-occupancy, he may transfer the other house to his son’s wife. He cannot be deemed to be the owner of this house property. Son’s wife is deemed to be the owner of this house property. She may claim self-occupancy allowance under Sec.23 (2). Thus, the annual value of the second house may also be taken as nil and the clubbing provision under Sec.64 (1) (VI) may be ineffective.

Any transfer of property without adequate consideration is a gift. However, gift in kind is not liable to be taxed under Sec.55 (2) (VI) of the Income-tax Act.

Similarly, if a second house is proposed to be acquired for self-occupancy, wife may be allowed a loan to purchase the house property. The husband cannot be deemed to be the owner under Sec. 270(i). Clubbing provision of Sec64 (1) (i) would be ineffective as the income of a self-occupied house is nil.

Deduction of Tax at Source from Interest on Loan, taken for Construction/Purchase of House Property:-If interest on loan, taken for the construction/purchase/pen ovation/repair, etc., of the house property, is payable outside India but it is chargeable to tax in India, no deduction as such interest is allowed if tax has not been deducted at source or there is no person in India who can be treated agent. As a measure of tax planning, the assessee is advised to comply with condition to keep his incidence of tax at minimum.

Acquisition of House Out to Own Capital Vs. Borrowed Capital:-Interest on moneys borrowed or the acquisition of house property is deductible under Sec.24 (b) in computing the income from the house property. Thus, the assessee should avoid investing his capital in the house construction/purchase. Instead, the assessee may invest his funds in exempted securities to earn non-taxable income and acquire the house property out of borrowed money to reduce the incidence of tax.

Acquisition of Self-occupied House out Borrowed capital:-Where any loans is taken on or after 1 April 1999 to acquire a self-occupied house, it should be acquired within 3 year from the end of the financial year in which capital was borrowed, failing which no deduction is allowed for any interest payable on such borrowing in computing income from house property. To minimize tax liability, such house should be acquired within the prescribed time-limit.

Deduction for such interest is allowed, subject to a maximum of Rs 1, 50,000, provided certificate of interest from the borrower is attached with the return, failing which no deduction is allowed. Thus, to minimize tax bill, certificate of interest should be attached with the return of income.

Loan for Acquisition of House property to be taken from Approved Source:-House property may be acquired out of loan funds, taken from friends or relatives and interest on such loan is allowed to be deducted in computing taxable income from house property.

However, refund of such loan cannot be allowed to be deducted under Sec.80C in computing loan was taken from approved sourced. Hence, to minimize tax incidence, loan to acquire the property should be taken form approved sources.

The assessee will get deduction for both- (i) interest on loan under Sec.24 (b); and () ii) refund of loan under Sec.80C.

Deduction of Municipal Taxes on Payment basis:-In computing annual value of house property, deduction for municipal taxes is allowed on payment basis and it should be paid by the owner of the house. Hence, to minimize tad incidence, municipal taxes should be paid by the owner of the house.

Purchasing of Housed Property in the Name of Spouse having no Income pr negligible income

Where a salaried employee, having taxable income but not owning house property, proposes to acquire a residential house for self-occupancy, he may acquire the house in the mane of his wife, who does to have taxable income, or has got negligible income.

In such case, the wife may take loan from approved sources and the husband, co-applicant for the loan.

If the husband is entitled to HRA, the wife may let out the house to husband, issue a rent receipt to him. The husband may minimize his tax incidence.

Wife may refund the loan out of rent received from husband. Refund of loan can be claimed as deduction under Sec.80 C by the wife. This will reduce taxable income of wife who is otherwise entitled to tax exemption up to Rs 1, 80,000 from the A Y 2009-2010.

However, where both the husband and wife ate earning and fall under the maximum tax bracket, the house may be purchased by them jointly as co-owners and take the housing loan jointly in equal proportions so as to minimize their tax liability.

Choosing the Best Option where more than one House is under

A house with minimum income/maximum loss should be opted for self-occupancy concession to minimize the tax liability. The option can be changed from year to year.

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