Learn the tax implications of redeveloping inherited property under Joint Development Agreements and how to maximize home loan interest deductions for multiple properties under both the old and new tax regimes in 2026.
Navigating Capital Gains on Redevelopment and Multi-Home Loan Deductions
l I inherited a property belonging to my grandfather. As it is an old house, we will give it to a builder for redevelopment. We will get two floors and some money. Do we have to pay any capital gains tax?—Mahesh Singh
Under Section 2(47) of the Income-tax Act, 1961, “transfer” includes sale, exchange or relinquishment of rights in a capital asset. In case of redevelopment of an inherited residential property, surrendering rights in the existing house in exchange for new floors and monetary consideration constitutes a “transfer” under the Act and accordingly gives rise to capital gains tax implications.
For computation purposes, the full value of consideration shall comprise the Fair Market Value (FMV) of the new floors (as on the date of agreement/handing over possession) together with the monetary consideration received. Since the property is inherited, the FMV as on 1 April 2001 (where applicable) may be adopted as the cost of acquisition, and the holding period of your grandfather shall be considered for determining the nature of capital gains. Accordingly, redevelopment triggers capital gains tax under the Income-tax Act, 1961.
l I had taken a bank loan for five years to buy a property which is self-occupied. I plan to buy another property with a loan and put it on rent. Can I get tax deduction on the interest paid for both the loans?—Deepak Kumar
Yes, you can claim deduction on interest paid on both loans, but the rules are different for each. For the self-occupied property, individuals opting for the old tax regime are eligible to claim a deduction of interest paid on housing loans up to Rs 2 lakh per annum, under Section 24(b) of the Income-tax Act, 1961.
However, under the new tax regime, no deduction is available for interest paid on housing loans relating to self-occupied properties. In case of a let-out property, there is no upper limit on deduction of housing loan interest under either tax regime. However, rental income from such property is taxable under the head “Income from House Property,” and the entire interest paid on the housing loan is allowable as a deduction without any monetary ceiling. So technically, interest on both loans is deductible, subject to these limits.
However, it is to be noted that if the total income under the house property results in a loss of more than Rs 2 lakh, then the maximum loss up to Rs 2 lakh is allowed to be set-off and the balance shall be carried forward.
The writer is managing partner, AKM Global, a tax and consulting firm. Send your queries to fepersonalfinance@expressindia.com
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