You Can Have Maximum Two Self-occupied Houses Under Income Tax Regulations

After completing 52 months of service, I have decided to do something on my own. Can I withdraw the full amount from my Employees’ Provident Fund (EPF) account? I understand that for the withdrawal of the EPF balance to be tax-exempt, one has to complete five years of service. Is there any option/declaration form for a person who is no longer looking to do a job? Or is it that such a person will have to pay the tax? 

Answer: As far as the taxability of the money accumulated in your provident fund account is concerned, it becomes taxable if you have not completed five years of service, and contributions for at least five years have been made in the account as per rule 8 of the fourth schedule of the Income Tax Act, 1961. The withdrawal before the stipulated period of five years is exempt only in very exceptional circumstances, like an employee’s job being terminated due to ill health, due to the closure or discontinuance of the business of the employer, or for any reason beyond the control of the employee. As your case is not covered under these exceptions, and since you have not completed five years, whatever money you withdraw along with the interest will become taxable in your hand. Moreover, in case the aggregate amount exceeds Rs. 50,000, tax at 10 per cent shall be deducted by the PF authorities or PF trust. The employer’s contribution will become taxable under the head "Salaries", whereas the interest accumulated and your contribution will be taxed under the head "Income From Other Sources". If there is no other income, you will be able to claim a Standard Deduction against the income becoming taxable under the head "Salaries".

I own a house in Rajasthan, where my parents live, and for which I have taken a home loan. A substantial portion of the loan has been paid in respect of this house. I want to buy another house here in Pune, where I have been staying for the past four years. Can I get tax benefits for a home loan for two houses simultaneously? Is it possible to forgo the advantage of tax benefits on the first home, since the amount outstanding is not huge, and the interest and principal amount are only nominal now? 

Answer: There is no restriction under the income tax laws about how many houses one can own or how many houses one can take a home loan benefit for. Tax laws also allow a person to have a maximum of two houses as self-occupied. The house occupied by your parents can be treated as self-occupied for this purpose. So, tax laws allow you to avail yourself of the tax benefits in respect of repayment of a home for any number of home loans under Section 80C within the overall limit of Rs. 1.50 lakh every year. Likewise, in respect of a maximum of two self-occupied houses taken together, you can claim a deduction for interest up to Rs 2 lakh every year. So you can claim the tax benefits for both the home loans simultaneously within the limits discussed above.
The author is a tax and investment expert