The author is a tax and investment expert and can be reached on jainbalwant@gmail.com
An NRI cannot claim deduction on home loan interest against his/her Indian income for a property bought in India if the loan has been taken abroad. A taxpayer can maintain only two properties as self-occupied, and will have to pay notional rent on any other properties. Consider liquidity, investment horizon, and returns before investing in capital gains bond
I am living in the US. I am thinking of buying a property in India. If I borrow money here in the US to buy a house in India, can the interest paid be deductible against my Indian income?
Unfortunately, the answer is in the negative. Any interest that is payable outside India on which tax has not been paid or deducted and in respect of which there is no person in India who may be treated as an agent under Section 163, such interest cannot be deducted while computing your total income for the year. Therefore, if you intend to buy property in India, it is best to avail of a home loan from an Indian institution.
I own a house in Mumbai where I stay with my family. I also own one house in my native place that I have inherited from my father, and which is lying under lock and key. I am planning to buy a property in Pune which would also be for my personal use. I do not intend to let it out on rent. My chartered accountant has told me that income from this house will be taxed in my hands on a notional rent basis. Is this true? How can I be taxed for rent if I don’t rent out the property?
Your CA is right. A taxpayer is allowed to have a maximum of two house properties as self-occupied. Any property beyond these two house property reserved for self-occupation is treated as deemed to have been let out, even if they remain unoccupied. In such a situation, a notional rent based on the market rental will have to be offered for taxation. The taxpayer has the option to opt any two house as self-occupied for this purpose and the remaining houses will be treated as deemed to have been let out.
In case you have not borrowed any money, I would advise you to treat the Mumbai and Pune houses as self-occupied and the one at your native place as deemed to have been let out, as the market rent of the native place would be very low compared to the Mumbai and Pune properties.
Depending on whether you opt for the old tax regime or the new regime and whether you have borrowed for the Mumbai and Pune house, the most beneficial option would vary.
I have sold my property and plan to invest in capital gains bonds of Rs 50 lakh to reduce my capital gains tax liability under Section 54EC of the Income-tax Act, 1961. Is it worth investing in bonds at low interest rate for five years or should I invest in bank fixed deposits (FD) or mutual funds (MFs) for short period by paying taxes looking at the fact that investment in FD or MF have easy liquidity?
The answer to your question would depend on various factors. The first and foremost factor to be considered would be the returns which you would be able to generate on the amount invested after paying the taxes. The other factors would be your fund requirement in the next five years during which time your investments in these bonds would remain illiquid.
Looking at the fact that the tax payable on long-term capital gains (LTCG) without availing indexation benefits is only 12.50 per cent, it may be beneficial for you to pay tax and have the benefit of higher returns and higher liquidity. The capital gains bonds offer only a return of 5 per cent per annum.
The author is a tax and investment expert and can be reached on jainbalwant@gmail.com
(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)