Tax Benefits on Housing Loan

We booked two flats—one in my name and another in the name of my wife. We also took two separate loans from our respective employers to part finance purchase of flats. We did this to build an asset by financing it out of the cheaper loan and the expected rental income. Now that the concession in the rate of interest is being taxed as a perquisite, will you suggest that we sell one flat and repay the entire loan?

Sanjay Chawla, New Delhi

I cannot comment on your query with accuracy since I do not have the financial details. Having said that, I would like you to calculate the net cash inflow on account of rental income after making following adjustments for tax benefits:

1. Interest actually paid up at the end of financial year, proceeding the year in which property is acquired/constructed, is deductible in five equal installments starting from the year in which the house is constructed/acquired.

2. Once the property is acquired or constructed, interest payable on the housing loan is deductible in full in case of rented properties. In case of self-occupied properties, the upper limit is Rs 1,50,000 per annum.

This article was originally published on January 15, 2003.