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PF withdrawal tax based on taxable income in year of work
December, 11th 2015

We have assumed that you own the house you purchased in 2005 and you want to avail the home loan for a proposed second residential house, which is constructed and available for possession. You can avail the tax benefits for the interest and principal portions of the home loan that you propose to take.

The quantum of deduction towards interest portion depends upon whether the house against which the home loan is availed is a self-occupied property (SOP) or let out property (LOP) or deemed to be let out property (DLOP).

Also, when an individual owns more than one house, any one house at her discretion can be considered as SOP and the others, even if not actually let out, should be considered as DLOP. Accordingly, the deemed rent has to be offered to tax.

The rent has to be calculated by determining the rent at which the house may be let out, based on valuations of similar properties in the neighbourhood and certificates either from the society or a valuer.

Accordingly, if the second house is considered as SOP, you can avail deduction towards interest up to Rs.2 lakh per financial year (FY). If the house is LOP or considered as DLOP, the entire interest can be claimed as deduction against the net rental or deemed rental offered to tax.

In LOP or DLOP, you can also claim deduction towards actual municipal taxes paid during the FY and a flat standard deduction of 30% (after deduction of municipal taxes) towards repairs and maintenance charges.

Also, keep in mind that the deduction towards principal repayment of the home loan shall be capped to the overall limit of Rs.1.5 lakh under section 80C of the income-tax Act.

I had withdrawn my provident fund (PF) balance before completing five years of service. I left the job in April 2015. My tax liability for other incomes is nil for FY16, but my company has deducted tax at source (TDS). If my tax liability is nil but TDS is deducted, is it refundable?

We assume that during FY16, your estimated total income, including the amount withdrawn from PF after claiming eligible deductions, may not exceed the basic threshold limit.

However, tax on PF withdrawal will depend on your taxable income in respect of each FY of your rendering service, i.e., you will have to re-compute your tax liability for each of the FY of rendering service by treating the PF as an unrecognised PF. Such additional tax liability will be the tax on PF in the current FY of withdrawal.

In such a case, even after considering tax on PF as per the prescribed rule, if the tax payable is lower than the tax deducted at source, then the excess tax can be claimed as refund by filing your return of income.

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