I am aware that on taking a second home loan, one needs to show one property as ‘self-occupied’ and the second as ‘rented out’. While there would be a IT benefit limit of Rs.1,50,000 on the interset for the ‘self-occupied’ home, there is no upper limit on the IT benefit for the interest payed on ‘rented out’ property. Hence, it is profitable to show the property with the higher loan amount as ‘rented out’.
Given the above, my query is as follows:
I am presently in a rented apartment in Hyderabad and have recently invested in a flat in Hyderabad, with a substantial loan. I would probably start living in this new flat after 2 years.
I also have a prior investment in Noida, for which the loan amount is small. This flat is close to completion and I would be putting it on rent.
Even though I would actually be staying in the Hyderabad house and renting out the Noida flat, to get the maximum IT benefit, is it possible to claim my Hyderabad property as ‘rented out’ and the Noida flat as self-occupied (say by my parents). This sounds absurd to me but after reading a few articles on this topic, I am confused as these articles claim that it is completely up to the loan taker to decide which property to show as rented out and which as self-occupied. I would be grateful to receive your kind advice on this issue.