Deduction Of Interest On Home Loan Is Applicable In Full If House Is ‘Let Out’

I stay in a rented house and claim house rent allowance (HRA). I do not own any house. Now I want to buy a house by taking a home loan and let out the house for earning rental income. As the new house will be ‘let out’, can I claim the full interest from the rent for income tax purposes, even when technically this is not a second house. Can I continue to claim HRA?  

Answer: Under the Income Tax laws, deduction under Section 24(b) for interest on loan taken for purchase of a house is restricted to Rs. 2 lakh per annum, if the house is self-occupied. But if it is let out, then the entire interest can be fully claimed under Section 24(b). The deduction in respect of interest is available in full as long as the house is actually let out, irrespective of the fact whether this is your sole house or additional house. 

Though you are allowed to claim full interest in respect of a ‘let out’ house, there is a restriction of Rs. 2 lakh of loss under the head “income from house property” which you can set-off against other income during the same year. The unabsorbed loss for the year is allowed to be set-off against house property income in eight subsequent years.

As far as the tax benefit for HRA is concerned, as long as you are paying rent in respect of a house occupied by you and not owned by you, the same is available to you even if you own any other residential property.

I am a non-resident Indian (NRI) since 2015, and I am working in Sudan. I have invested in various mutual fund schemes in India from my existing non-resident ordinary (NRO) account. The present value of the entire investment is Rs. 50 lakh. Now, I wish to redeem all the investments in mutual fund and invest the money in a foreign currency non-resident (FCNR) account. Can I do so by transferring the money from my NRO to non-resident external (NRE) account?  

Answer: Since the investments were made from your NRO account, the redemption proceeds of your investment in mutual funds will be credited in your NRO account only. The Reserve Bank of India (RBI) has put certain restrictions on transfer of funds from an NRO account to an NRE account or for remittance of funds abroad. According to RBI guidelines, an NRI can remit funds abroad or transfer them from his/her NRO account to his/her NRE account for up to a maximum of $1 million per financial year without having to seek any specific permission from the RBI. Since the amount which you want to transfer from your NRO account to NRE account does not exceed $1 million, you do not need any specific permission. 

That said, for transferring the amount from your NRO account to your NRE account, you will need to produce a certificate from a chartered accountant certifying that the taxes in respect of the money which is being transferred from the NRO account to your NRE account have been paid. 

This certificate is issued in form No. 15 CB, and your application for such transfer has to be made in form No. 15CA. Since tax will be deducted by the mutual fund house, you will not have any additional tax liability, and you will be able to transfer the whole of the sale proceeds after you comply with the procedural requirement.