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From FY2017-18, there is a Rs2 lakh cap on set-off of losses from house property

LiveMint logoLiveMint 21-08-2017 Parizad Sirwalla

I took a home loan in 2010 to buy a house. The same has been repaid. Now, I want to take another home loan. Will I get tax exemptions?

—Name withheld on request

We have assumed that the new housing loan would be availed for buying or constructing another residential property. You can avail tax benefits in respect of the interest paid on the home loan availed for the second residential property and the quantum of interest that qualifies for the tax deduction would vary depending on whether the second residential property is let out or self-occupied. Additionally, you can claim a tax deduction towards repayment of principal in respect of the housing loan borrowed from specified lenders, subject to overall cap of Rs1.5 lakh, under section 80C. If the property is self-occupied, the deduction towards interest on the home loan is capped to Rs2 lakh per financial year. Where the property is let out or is required to be treated as ‘deemed’ let out, the interest paid on the home loan can be fully claimed as deduction against the net rental value or deemed rental value offered to tax. A residential property occupied by the owner for her own residence is considered as self-occupied. But if you own two properties and both are self-occupied, then one of the properties, at your discretion, is required to be treated as ‘deemed’ let-out. A notional rental income (determined based on rent a similar property is expected to earn) is then required to be offered to tax. 

Beginning financial year 2017 -18, the loss arising from all house properties owned (whether self-occupied or let-out or deemed let-out) that can be set-off against income from other heads of income in the same financial year is capped at Rs2 lakh. The remainder of the loss that cannot be set-off against income in the same fiscal is then required to be carried forward to future years (up to eight financial years) to be set off against taxable income from house property in such fiscals.

Suppose you wait until the maturity of your fixed deposit (FD) when interest is actually credited to your account, you may miss out on the tax deducted at source (TDS) credit over the years. The income-tax department allows TDS to be adjusted against tax payable where corresponding income has been reported. If you do not report the interest income you earn each year, you may not be able to take credit of TDS deducted against it.

I understand the “pushing to higher bracket” if tax paid is at the end of maturity.  I would like to know the impact of ‘missing out on TDS’ , advance tax etcetera if tax on FD interest is paid at the time of maturity instead of each financial year. What is the impact of TDS getting deducted in the previous years and will advance tax come into picture and keep on adding interest for 3 years until time of maturity? Can you please give the detailed breakup of the calculation of both ways and describe how much loss would happen if tax is paid at the time of maturity instead of each FY?

—Name withheld on request

The interest earned by an individual from FDs is fully taxable either in the year in which the interest accrues or the year in which it is received (that is, when the FD matures), depending on the method of accounting regularly followed or adopted by the taxpayer.

Further, where the FD interest payable to a resident taxpayer during the tax year exceeds Rs10,000, the banks paying such interest will withhold tax (TDS) at the rate of 10% from the interest accrued and remit such TDS to the tax authority. You can claim credit for the TDS withheld by your bank in the tax year in which you offer the interest income to tax (that is, either the tax years of accrual or the tax year of maturity). 

In case you wish to offer the interest income only in the tax year in which the FD matures (cash system of accounting), you will need to ensure that you have sought a carry forward of the TDS in each of the tax years in which your bank has withheld TDS on such interest.

The details of TDS will need to be reported in each tax year in your tax return form and you will need to specify the amount of TDS carried forward and brought forward (as the case may be) appropriately in each tax return form filed by you. 

In either case, you will need to pay advance tax if your net tax liability for the year after considering the TDS exceeds Rs10,000 per annum.

If there is a default or shortfall in the payment of advance taxes, you will be liable to pay interest as well.

Parizad Sirwalla is partner (tax), KPMG.

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