Tax regulations

You can have a maximum of two independent houses under income tax regulations

After 52 months of service, I decided to do something on my own. Can I withdraw the entire amount from my Employee Provident Fund (EPF) account? I understand that for the withdrawal of the balance of the EPF to be exempt from tax, it is necessary to have completed five years of service. Is there an option/declaration form for a person who no longer seeks to practice a profession? Or will such a person have to pay the tax?

Answer: With regard to the taxation of sums accumulated in your pension account, they become taxable if you have not completed five years of service and contributions of at least five years have been paid into the account in accordance with the rule 8 of the Fourth Schedule to the Income Tax Act, 1961. Withdrawal before the stipulated period of five years is only exempt in very exceptional circumstances, such as the termination of employment of an employee due to health problems, due to the closure or shutdown of the employer’s business, or for any reason beyond the employee’s control. Since your case is not covered by these exceptions, and since you have not completed five years, all the money you withdraw with interest will become taxable in your hands. Moreover, in case the total amount exceeds Rs. 50,000, a tax of 10% will be deducted by the PF authorities or the PF trust. The employer’s contribution will become taxable under the heading “Salaries”, while the accrued interest and your contribution will be taxed under the heading “Income from other sources”. If there is no other income, you can claim a standard deduction on the income becoming taxable under the heading “Salaries”.

I own a house in Rajasthan, where my parents live, and for which I took out a mortgage. A substantial part of the loan has been paid for this house. I want to buy another house here in Pune, where I have lived for four years. Can I benefit from tax advantages for a mortgage for two houses simultaneously? Is it possible to forego the benefit of tax benefits on the first home, since the outstanding amount is not huge and the interest and the principal are only nominal?

Answer: There are no restrictions under income tax laws on the number of homes one can own or the number of homes one can qualify for a home loan. Tax laws also allow a person to have a maximum of two homes as a freelancer. The house occupied by your parents can be considered self-occupied for this purpose. So, the tax laws allow you to avail tax benefits of paying off a house for any number of home loans under Section 80C within the aggregate limit of Rs. 1.50 lakh every year. Similarly, for up to two independent houses taken together, you can claim interest deduction up to Rs 2 lakh each year. Thus, you can benefit from the tax advantages for the two mortgages simultaneously within the limits mentioned above.
The author is a tax and investment expert