Interest on house property

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

21 December 2015 An assessee has taken two types of loans.
Property A is used as SOP.
Property B is purchased in the same premises, would treated as LOP. For property B housing loan is being taken, but there would be a cap based on the agreement value. To meet the shortfall of loan amount in Property B, Property A is being mortgaged and loan against property (LAP) is being taken. What would be the tax implications in respect of interest paid on LAP? Can anybody elaborate?

Rupesh Jain

Rupesh Jain (Expert)
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21 December 2015 if your are using loan for buying the property or construction of property then u can claim u/s 24 otherwise not possible.

Querist : Anonymous

Querist : Anonymous (Querist)

21 December 2015 Shortfall in the loan is being met by mortgaging property A for acquiring property B

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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01 August 2024 In the scenario where Property A (self-occupied property) is mortgaged to secure a loan for Property B (let-out property), the tax implications on the interest paid on the loan against Property A (Loan Against Property, LAP) need to be carefully considered. Here's how you can handle it:

### **Tax Implications on Interest Paid on LAP**

1. **Interest on Loan for Self-Occupied Property (Property A)**:
- **Self-Occupied Property**: Interest on a home loan for a self-occupied property (SOP) is deductible under Section 24(b) of the Income Tax Act. The maximum allowable deduction is ₹2 lakhs per year. This deduction is available only for the property which is used for self-occupation.

2. **Interest on Loan for Let-Out Property (Property B)**:
- **Let-Out Property**: Interest on a loan taken for the purpose of purchasing or constructing a property that is let out or deemed to be let out can be claimed as a deduction under Section 24(b). There is no upper limit on the amount of interest that can be claimed for a let-out property. The entire interest paid can be deducted from the rental income of the let-out property.

3. **Interest on Loan Against Property (LAP)**:
- **Loan Against Self-Occupied Property**: When Property A, which is self-occupied, is mortgaged to secure a loan for Property B, the interest paid on this LAP is not directly deductible against Property A. However, it can be claimed as a deduction if it is used for the purpose of acquiring or improving Property B, which is a let-out property.

### **Tax Treatment for LAP in this Case**

- **For Property B (Let-Out)**: Since Property B is being acquired with the help of the LAP, the interest on the LAP can be claimed as a deduction against the rental income from Property B. This is because the loan is used to acquire a property that generates rental income.

- **For Property A (Self-Occupied)**: The interest on the LAP, when Property A is mortgaged, is not deductible against the self-occupied property income. Instead, it is associated with the property that it indirectly helps finance (Property B).

### **Example Scenario:**

1. **Interest on LAP**: Suppose you took an LAP of ₹10 lakhs to finance Property B, and the total interest paid in the financial year is ₹1 lakh.

2. **Tax Deduction**:
- **For Property B**: You can claim the ₹1 lakh interest as a deduction from the rental income of Property B.
- **For Property A**: The ₹1 lakh interest is not deductible against the SOP (Property A).

### **Documentation and Reporting:**

1. **Proper Documentation**: Ensure you maintain proper documentation linking the LAP to the acquisition or improvement of Property B. This includes loan agreements, property documents, and proof of interest payments.

2. **Income Tax Return**: When filing your return, report the rental income from Property B and claim the interest deduction on the LAP under the head "Income from House Property" for Property B.

### **Key Points:**

- **Self-Occupied Property (SOP)**: Interest deduction up to ₹2 lakhs.
- **Let-Out Property**: No limit on the amount of interest that can be claimed.
- **Loan Against Property (LAP)**: Interest on LAP can be claimed against the rental income of the property for which it is used.

Consulting a tax professional can help ensure accurate reporting and compliance with the tax laws.