UPDATE: With budget 2017-2018, loss from house property has been limited to 2 Lakhs only. Means, even if you own two houses and paying more than 2 Lakhs interest, you are allowed to deduct only 2 Lakhs from the taxable income.
If you are a tax payee in the 30% tax bracket and paying EMI for more than one house, you could save upto Rs.1,65,000! As per clauses in Section 24(b) of the Income Tax Act, 1961, a tax payer is eligible for a deduction of upto Rs. 2,00,000 for self occupied property and upto Rs. 2,00,000 for rented out property on the interest paid for the housing loan. Before assessment year 2017-2018, there was no limit on the amount for which the tax deduction was allowed for rented out properties but this year onwards, the limit is same independent of whether the property is rented out or self occupied.
Let's explore each section in detail.
Tax Benefits on Self Occupied Property
A deduction of upto Rs.2 Lakhs is allowed on the interest paid on your self occupied property, if it is on single ownership. If the property is on joint ownership, based on the EMI contribution, you can divide the interest between you and your partner or you can claim 100% of the total amount after getting a declaration from your partner stating he/she is not claiming any tax benefits on the interest paid. Thus, if you are on the top tax bracket, you can save upto Rs.60,000.
Apart from the above benefit, under Section 80C, you can deduct the principal amount paid in the financial year, upto Rs.1,50,000, from the taxable amount. Thus a maximum of Rs.45,000 additional amount can be saved.
Tax Benefits on Let Out Property
Say, you have purchased a flat in Bangalore but you had to change your job and had to migrate to Mumbai. You purchased another flat in Mumbai and you are paying EMI for both the flats. You might have rented out your flat in Bangalore, and thus earning a decent rent. As per Section 24, you are eligible for a deduction of another Rs.2 Lakhs from the interest you are paying to the bank, provided the income from the rent is deducted(excluding other factors like maintenance, property tax etc.) from the total interest paid.
Please note, you won't be able to claim any benefits on the principal amount you paid on the let out property.
Conclusion
A saving of Rs.60,000 from the interest part of self occupied property, an additional Rs.45,000 from the principal part and another Rs.60,000 from the let out property together will save you a total of Rs.1,65,000! Don't wait for the last day to file income tax, consult a tax consultant NOW and start filing your returns.
Disclaimer: The facts and figures presented above are for your reference only, there are some exclusions and inclusions which were not considered to simplify the calculations, please consult a tax consultant before filing your returns.