Two or More Self Occupied House Property

In our previous 2 posts we learned how Income from House Property is calculated and how you are taxed when you are the owner of ONE self Occupied House Property.

Let’s see what happens when you own more than one House Property.

2 or more self Occupied House Property

You own more than one Self Occupied House Property

In case you own more than 1 House Property and both or all are self occupied and not let out – which means either you’ve made one of them your residence and use the other one for some of your own purpose(not business or profession, since that is covered under the head Profits & Gains of Business & Profession). Your family, children stay there or you use the other one as a holiday home. In this case you will be allowed to treat only one of the properties as Self Occupied and all others are considered to be Deemed to be Let Out. Or simply, you income for this house property will be calculated as if it has been let out.

Any one property can be chosen as Self Occupied Property – The Tax Department wants you to assume only one of the properties to be self occupied and therefore the Gross Annual Value of such a house will be nil. And Interest on Borrowed Money (for purchase or construction) up to Rs 1,50,000 or Rs 30,000 (if taken for repairs or reconstruction) shall be allowed to be deducted.

For the remaining properties (one or more) there will be an assumption of being let out – The Tax Department does not impose upon you which of the properties should be considered as let out. That choice is completely yours. Also, in case of a let out property, there is no limit on the amount that you can claim towards interest on borrowed money which means there is no cap of Rs 1,50,000. Now here is the opportunity for you to save tax – choose the house you would want to declare as let out where you have higher interest cost and lower Annual Value and this will in turn reduce your overall tax liability. ( Note that – Loss under the head House Property is allowed to be deducted from other heads of income in the current year and can be carried forward for 8 years and set off against income from house property in those 8 years).

You are not questioned about 2 loans for both these houses – except of course by the banks – they will make sure you have sufficient capacity to pay off the loans. You are not asked by the tax department regarding your choice of deemed to be let out property.

Let’s look at this scenario with an example –

Mr. X owns 2 houses. One in Delhi and one in Gurgaon. The House in Delhi was purchased for Rs 70 lakhs. Loan on the house is Rs 30 lakhs. Interest on the loan is Rs 2,75,000. The house in Gurgaon was purchased for Rs 60lakhs by X. X was given a loan for this house too of Rs 40lakhs. Interest on the loan is Rs 3,40,000. X lives with his wife in Delhi – while his remaining family who work in Gurgaon live in the Gurgaon House. If X lets out the Delhi house he will earn an annual rent of Rs 3,00,000. If he rents out his house in upscale Gurgaon he will earn an annual rent of Rs 3,60,000. Municipal Taxes paid by him for both the houses are the same of Rs 10,000 each.

Let’s see what are X’s Choices

OPTION 1 Treat Delhi house as SELF OCCUPIED and Gurgaon House AS LET OUT.

Delhi House

Gross Annual Value                        Nil

Less: Municipal Taxes                     Nil

Net Annual Value                            Nil

Less: Interest max allowed          -1,50,000

Loss from House Property           -1,50,000 (A)

Gurgaon House

Gross Annual Value                        3,60,000

Less : Municipal Taxes                    -10,000

Net Annual Value                            3,50,000

Less: Standard Deduction             1,05,000

Less: Interest allowed (no limit)                3,40,000

Loss from House Property           -95,000 (B)

Total Loss from House Property (A) + (B) = 2,45,000

 

OPTION 2 Treat Gurgaon house as SELF OCCUPIED and Delhi House AS LET OUT.

Gurgaon House

Gross Annual Value                        Nil

Less: Municipal Taxes                     Nil

Net Annual Value                            Nil

Less: Interest max allowed          -1,50,000

Loss from House Property           -1,50,000 (C)

Delhi House

Gross Annual Value                        3,00,000

Less : Municipal Taxes                    -10,000

Net Annual Value                            2,90,000

Less: Standard Deduction             87,000

Less: Interest allowed (no limit)                2,75,000

Loss from House Property           -72,000 (D)

Total Loss from House Property (C) + (D) = 2,22,000

X’s Loss from House Property is higher when he opts for Option 1 in which we consider Delhi house as SELF OCCUPIED and Gurgaon House AS LET OUT.

So make the wise choice and save your hard earned money! Reach out to us if you need help to calculate your Income from House Property, write to us support@cleartax.in

 

 

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