Aggregate claim for interest on home loan limited to Rs. 2,000,000

I am staying in a rented house in Mumbai. I have an apartment in Jaipur, which is rented and for which I pay equivalent monthly installments (EMI) on my mortgage. Now I have booked another apartment in Mumbai which is due for possession in March 2025. I have taken out a home loan and borrowed from my wife for the apartment in Mumbai. We are planning to stay in Mumbai apartment. Can I also apply for Mumbai house tax benefits?

Answer: For the rented apartment in Jaipur, you are entitled to claim a deduction at the rate of 30% of the rent you received, in addition to the regular interest you paid.

For the second house, which is still under construction, you will be able to benefit from tax advantages from the year of completion and possession. You will be able to claim the total interest paid during the construction period in five equal installments beginning in the year in which construction is completed and possession is obtained. Since you will be staying in the house, the aggregate claim amount for interest paid to your wife and the bank will be limited to Rs. 2 lakh including one-fifth of the interest paid during the construction period. Note that you cannot offset losses under “main income from home ownership” beyond Rs 2 lakh per annum, whether you own one house or multiple houses. The unabsorbed loss is allowed to be carried forward for eight years for offset against income from home ownership only.

For the repayment of the principal of the home loan to the bank, you can claim tax benefits under Section 80C of the Income Tax Act 1961 up to Rs. 1.5 lakh every year for all the houses taken together.

For Mumbai apartment, you will be able to claim it from the year of completion of the house along with other qualifying items such as the Public Provident Fund (PPF), the savings scheme linked to the equity (ELSS), National Savings Certificate (NSC), life insurance premiums, etc.

Note that you will not be able to claim any tax benefit in respect of the repayment of the mortgage, if any, granted to the bank for the years during which the construction of the house was not completed. No tax benefit is available with respect to the repayment of the loan taken out with your spouse.

I received compensation of Rs. 1 crore for my ancestral farmland, which I used for farming, and which has now been acquired by the government of Rajasthan. The documents were signed on April 30, 2022. I plan to buy another agricultural land within two years. Can I claim a tax exemption on the agricultural land that I will buy?

Answer: First you need to check whether the land was farmland within the meaning of the Income Tax Act 1961. You need to have it reviewed by a chartered accountant based on the location and population of the area where the land is located. If it falls under the definition of “farmland”, you are not subject to income tax on the compensation received.

If the land is not agricultural land within the meaning of income tax, you can still claim the long-term capital gains exemption, if the land has been used for agricultural purposes during of the last two years, either by you or your parents, provided that you invest the capital gains for the purchase of other land to be used for farming within two years of the transfer date.

The land being an ancestral property, it is unlikely that you know its acquisition cost.

You can therefore take the fair market value of this land on April 1, 2001 as the cost price. You can calculate your long-term capital gains by applying the cost inflation index to fair market value on April 1, 2001.

Note that if you are unable to purchase this new land for farming purposes before the deadline for filing your return, i.e. July 31, 2023, you must deposit the amount of the gains in indexed capital into the capital gains account with a bank which you can use to buy the land for farming later.

The author is a tax and investment expert

(Disclaimer: The opinions expressed are those of the author and Outlook Money does not necessarily subscribe to it. Outlook Money will not be responsible for any damage caused to any person/organization directly or indirectly.)