How many house you can own and what are the tax implications of owning more than one house?
People frequently ask me as to how many house one can buy and own at a time in own name. The answer is as many as you want and can afford. So there are no restrictions under the tax laws or general laws on the number of houses you can own. Likewise I also get queries as to for how many houses I can obtain the home loan. The answer again is the same. i.e. as many as you wish and you are able to service. But there are certain tax implications in case you own more than one house property. Let us understand the income tax implications.
As per the tax laws in India you can claim exemption from long term capital gains (LTCG) if you buy or construct a residential house. The exemption for investment in residential houses can be claimed under two categories. One exemption available is under Section 54 for LTCG on sale of a residential house and other one is available under Section 54F in respect of LTCG on sale of any asset other than a residential house. Capital gains exemption under Section 54F can be in respect of any land, commercial property or even shares companies whether listed or unlisted etc.
For claiming exemption under Section 54F one of the condition to be satisfied is that you should not be owning more than one house other than the one which in which the investment is being made. So in case you already own two houses on the date of sale of the asset subject matter of sale, you are ineligible to claim this exemption. It may be noted that no such pre condition of owning a particular number of houses is prescribed under Section 54 in case the capital gain arises from sale of a residential house and you want to claim exemption by investing in another house.
You can claim deduction for principal repayment of home loan, taken for residential house from specified entities like banks, housing Finance Companies, Central Government, State Government etc under Section 80 C upto Rs. 1.50 lakhs. This limit is a consolidated limit together with other eligible items like LIP, EPF, PPF, ELSS, NSC, tuition fee etc.. The benefit for deduction of repayment of principal amount of home loan can be claimed for any number of home loans within the overall eligible limit of Rs. 1.50 lakhs. In case of home loan taken for an under construction property this benefit can only be claimed from the year in which construction is completed or possession is taken.
The deduction in respect of interest can be claimed for any number of properties. It is available from the year in which the possession is taken. The interest paid during the construction period can be claimed in five equal installments starting from the year of possession. Till last year the tax laws allowed you have one house property as self occupied and deduction for interest was available for one such property upto Rs. 2 lakhs. By the interim budget 2019 the limit for self occupied house which one can have has been increased to two but the overall limit of interest which can be claimed remains Rs. 2 lakhs whether you occupy one to two houses for self occupation. In case you have more than two self occupied property, you have to opt any two properties as self occupied and then the other property/ies are deemed to have been let out and you have to offer notional rent for tax which the other property can fetch in the open market. For upto two self occupied properties this value is nil. For the properties which are let out or deemed have been let out, there is no limit upto which interest on money borrowed for house can be claimed but there is limit of Rs. 2 lakhs for losses under the head “Income From House Property” which can be set off against other income. However the losses which remain unabsorbed can be carried forward to next eight years to be set off against income from house property.
So from the above discussion it becomes amply clear that instead of buying multiple houses in your own name, it makes sense for you to buy houses in the name of different family members.
Balwant Jain is a tax and investment expert and can be reached on [email protected] and @jainbalwant on tweeter.