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Renting 1st home and buying 2nd home = tax planning

P.SUHAS (FINANCIAL ADVISOR) (82 Points)

10 January 2012

I already own one flat in mumbai say A - which can fetch me rent of say Rs. 6 lac per annum, and I am planning to buy another flat say B in mumbai in the name of owner 1) my wife and 2) me jointly.

I will take loan on this second flat B, My 1st flat A is free from all loans and it is a free peroperty Now, & I am the sole owner of the 1st Flat A,

I am coming under 30% tax bracket

I can not stay in flat A after purchasing Flat B because Flat B can not fetch me such high rent, so finally I decided to rent Flat A and buy second Flat B and Stay there in B, use that rent of Flat A amount in reducing my loan of flat B.

So Flat B will become Self occupied property and Flat A will become let out property.

Now how can I save my tax on this 6 lac per annum rent of Flat A, which is on my own name ???

Please guide on whole Tax planning ???

Suhas

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4 Replies

deepak (C.A & C.S Final) (63 Points)
Replied 10 January 2012

In my opinion ,

Flat A will be Let out Property.

Referrig from ur given question,there is no Interest on Loan pending from Flat A.

But for Flat B there will be a new Loan which can be availed only Rs 1,50,000/- maximum.

So for Tax Planning,there are few options given below:-

1.Set off and carry forward of loss in cases of house properties.

• In the matter of set off of and carry forward loss from let out properties, two sections are relevant. Sections 70 and 71 provide that loss from one house property can be set off against the income from another house property. The remaining loss, if any, will be set off against incomes under any other heads like salary, business etc. In case the loss does not get wiped out completely, the balance will be carried forward.

• In regard to carried forward losses, Section 71B is toapply. This section provides that where the assesseeincurs any loss under the head “Income from house property” and such loss is not fully adjusted under other heads of income in the same assessment year, then the balance loss shall be allowed to be carried forward and set off in subsequent years (subject to a limit of 8 assessment

years) against income from house property.

2.Invest in any Chapter VI A from here an assessee can claim deductions.

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P.SUHAS (FINANCIAL ADVISOR) (82 Points)
Replied 11 January 2012

Dear deepak

Thanks for reply, But I will not have any Loss on rented house A, because it will earn rent of Rs 6 Lac less 30% standard deduction & remaining any interest component which will be zero,

So 6,00,000 - 1,80,000 - 0 = 4,20,000

Maximum deduction which will available for me on flat B is Rs 1,50,000 as interest being it is self occupied property.

I wanted to know How can I save tax on this Rs 4,20,000 ?? because I want to use this money to reduce Principal of my Flat B Loan. is there any section which allow to do such and save tax on A income ?? OR any other way ??

deepak (C.A & C.S Final) (63 Points)
Replied 11 January 2012

Sir,

you can sett-off the Income of4,20,000/- with the Loss of the another House Property i:e for example,(1,50,000/-).

After setting off the Loss,the Total Income from House property will comes to almost Rs.2,70,000/-

Now the question comes that how to save this Rs.2,70,000/-??

Ans.- If you claim the interest element of Rs.1,50,000/- on Flat B then its logical that Principal Amount comes to more than Rs.1,50,000/-.But under Sec 80 C ,you can claim only Rs.1,00,000/- as a deduction.

After deducting the same principal amount under Sec 80 C,then the Net Total Income comes to1,70,000/- which is very well within the Basic exemption Limit For Individual male,Age less than 60 Years( Rs 1,80,000/- )

So this is how ,you can very well save your tax.

P.SUHAS (FINANCIAL ADVISOR) (82 Points)
Replied 12 January 2012

Dear deepak

I am already earning income and that comes to 7-8 Lac per annum from my salary & business & this rental income will be starting from this year additional. so total income gone to 6+7 = 13 lac,

So my focus is how can i save tax on this additional 6 lac rental income ? I agree with you that 1.50 lac interest and 1 lac 80c will be there But this deduction will take care by my salary / business.

is there any way I can save tax on this rental income Rs 6 lac ??

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