What are the tax implications of owning more than one house?

People frequently ask me how many houses one can buy or own. The answer is as many as you want and can afford. So there are no restrictions under the tax laws or general laws on the number of houses you can own. Likewise, people also ask me how many houses one can obtain a home loan. Again, the answer is same; as many as you wish and you are able to service. But there are certain tax implications in case you own more than one house property. Let us understand them.

Capital gains exemption:

As per the tax laws in India, you can claim exemption from long-term capital gains (LTCG) if you buy or construct a residential house. The exemption for investment in residential houses can be claimed under two categories. One exemption is available under Section 54 for LTCG on sale of a residential house and the other one is available under Section 54F in respect of LTCG on sale of any asset other than a residential house. Capital gains exemption under Section 54F can be in respect of any land, commercial property or even shares of companies whether listed or unlisted.

For claiming an exemption under Section 54F, one of the conditions to be satisfied is that you should not be owning more than one house other than the one in which the investment is being made. So, in case you already own two houses on the date of sale of the asset subject matter of sale, you are ineligible to claim this exemption. It may be noted that no such pre-condition of owning a particular number of houses is prescribed under Section 54 in case the capital gain arises from the sale of a residential house and you want to claim exemption by investing in another house.

Deduction in respect of repayment of principal of home loan:

You can claim a deduction for principal repayment of home loan, taken for a residential house from specified entities such as banks, housing finance companies, central government, state government, etc, under Section 80 C up to Rs 1.50 lakh. This is a consolidated limit together with other eligible items like Employee Provident Fund, Public Provident Fund, equity-linked savings scheme, National Savings Certificate, tuition fee, etc. The benefit for deduction of repayment of the principal amount of home loan can be claimed for any number of home loans within the overall eligible limit of Rs 1.50 lakh. In case of home loan taken for an under-construction property, this benefit can only be claimed from the year in which the construction is completed or possession is taken.

Deduction for interest on money borrowed for buying or constructing a house:

The deduction in respect of interest can be claimed for any number of properties. It is available from the year in which the possession is taken. The interest paid during the construction period can be claimed in five equal instalments starting from the year of possession. Till last year, the tax laws allowed you to have one house property as self-occupied and deduction for interest was available for one such property up to Rs 2 lakh. But in the Interim Budget 2019, the limit for a self-occupied house which one can have has been increased to two but the overall limit of interest which can be claimed remains Rs 2 lakh, whether you occupy one or two houses for self-occupation. In case you have more than two self-occupied properties, you have to opt any two properties as self-occupied and then the other property/ies are deemed to have been let out and you have to offer notional rent for tax which the other property can fetch in the open market. For up to two self-occupied properties, this value is nil. For the properties which are let out or deemed have been let out, there is no limit up to which interest on money borrowed for house can be claimed, but there is a limit of Rs 2 lakh for losses under the head "Income from House Property" which can be set off against other income. However, the losses which remain unabsorbed can be carried forward to the next eight years to be set off against income from house property.

So from the above discussion, it becomes amply clear that instead of buying multiple houses in your own name, it makes sense for you to buy houses in the name of different family members.

The writer is a tax and investment expert