More Than One Self Occupied House Property

Self Occupied House porperty, Let Out House Property, Deemed to be Let Out House PropertyIt is very common nowadays to own more than one house property in the upper class of our society. So it’s very important to know the tax implications of owning more than one house property so that it doesn’t hit hard on taxpayers.

Let us first know about the various types of House Property. It can be categorized as Self Occupied Property (SOP), Let Out Property (LOP) and Deemed to be Let Out Property (DLOP)

Self Occupied Property:  It means a house that is being occupied or is lying vacant for residential or commercial purpose, which is letting the owner to reside in that house is Self Occupied Property. The annual value of SOP is considered as nil. The only deduction that is available is towards interest on loan subject to ceiling limit of Rs.150000.

Let Out Property: If any of the house is actually let out and there is a rental income from the same, it will be taxed as LOP, based on its annual value, i.e., the actual rent or reasonable expected rent in a financial year (FY), whichever is higher. Deductions towards municipal taxes paid, repairs and maintenance (flat deduction of 30% of net annual value) and entire interest on housing loan are allowed. Deduction in respect of Housing Loan during the period of construction is allowed in equal installment over a period of 5 years commencing from the year of completion. It is very important to show the Annual Rent received at the time of computation of Net Annual value otherwise the department does not consider the loss from house property and show it as Nil.

Deemed to be Let Out Property: The property other than self occupied which is lying vacant is deemed to be let out and is almost same as Let Out property except few changes. Here notional rental value i.e. minimum realizable rent if the property had been let out is considered as its annual value. Deductions that are allowed to LOP is also allowed herein. The entire interest on loan (if the DLOP is purchased against a loan) is deductible.

Treatment if more than one Self Occupied House Property

There is a huge misconception amongst taxpayers that if no rent is earned during the financial year then there is no tax in respect of that property and so no rent should be shown. In actual, if an individual has more than one self occupied property then only one of the many house property can be considered as self occupied while all others will be considered as deemed to be let out property. However, the assessee he has the option to treat any one of the house as self occupied. The other property or properties which lie vacant will be treated as Deemed to be Let Out under the Income Tax Act. Thus, depending upon the income or loss from each house property one can consider the house property self occupied or deemed to be let out in order to reduce its taxable income for the relevant financial year.

Deduction towards principal repayment of the housing loan, up to a maximum Rs 1 lakh per FY (as part of the overall limit under Section 80C) can be claimed from the gross total income in all the above cases. Capital gain tax implications on sale are same for all properties.

In addition to the income tax implications, if an assessee own more than one house, which is neither rented by him (for more than 300 days in a FY) nor used for the purpose of business/profession, he would also be liable to pay wealth tax on the other house.  .

Moreover there are certain amendments proposed in the Direct Taxes Code (DTC) for the treatment of a house property, which include restricting the deduction towards repairs and maintenance to 20% and doing away with the current equivalent 80C provision of deduction towards housing loan principal repayment.

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