If you own many houses, then the 'self occupied property' benefit is granted only to two properties as selected by you. The other property/properties are treated as ‘deemed to be let-out’ for the purpose of taxation. A self-occupied property means a property which is occupied throughout the year by the taxpayer for his residence. For those properties that are let out, or deemed to have been let out, you have to pay tax on rental income.
In the Interim Budget 2019-2020 the government exempted levy of income tax on notional rent on the second self-occupied house.
Tax on rental or notional rental income
If you own more than two properties, irrespective of whether the other house(s) are vacant or occupied by you, they will all be deemed to be let out. The annual value of such house(s) will be determined (under section 23(1)(a) of the Income-tax Act, 1961) on which tax will be levied.
Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm, says the annual value is the expected rental value of the house, which is taxable in the hands of the owner. "It is calculated taking into consideration the fair rent, standard rent and municipal value," he says.
Fair rent is the rent that a similar house can get in the same or similar location. Standard rent is the rent fixed for the house property under the Rent Control Act. Municipal value is the rent amount that is estimated by the Municipal Corporation of the area.
Here’s how you should calculate the notional rent for a property that is deemed to have been let out.
Step 1: Ascertain the fair rent, standard rent, and municipal value
Step 2: Calculate the annual value. This figure is the higher of fair rent and municipal value
Step 3: Compare annual value with the standard rent. The lower of the two the notional rent.
Can we club all the rental income under one head?
Clubbing of all the rental receipts in one calculation is not permitted. You cannot, for instance, claim expenses of one property in calculating the rental income of another property.
Naveen Wadhwa, DGM, Taxmann, explains that all houses, other than the two that have earmarked as ‘self-owned,’ shall be treated as deemed let-out. “As no actual rent is received from a deemed let-out property, the expected rent of such a property is deemed as annual value,” he says.
Such income, Wadhwa says, would be taxable under the head “Income from House Property.”
Deductions against income from house properties
You are allowed to claim several deductions when you own a property.
A) Municipal Taxes: Municipal taxes in respect of house property are allowed as deduction, if the taxes are borne by the owner.
B) Standard Deduction [Section 24(a)]: 30 per cent of net annual value of the house property is allowed as deduction if property is let-out during the previous year.
Deductions on a home loan
You can claim income-tax deductions on principal repayment up to Rs 1.5 lakh under Section 80C of the IT Act. You can also claim a deduction under section 80C for the registration and stamp duty.
Further, for a self-occupied home, you can claim an interest amount of up to Rs 2 lakh under Section 24 (b) of the IT Act. Similar is the case if the property has been rented out. However, the overall loss one can claim under the head of house property is restricted to Rs 2 lakh only. Additional losses above Rs 2 lakh can be carried forward to subsequent years for set-off.
Also, the government has extended the additional tax deduction of Rs 1.5 lakh on interest paid (Section 80EEA) on housing loan for purchase of affordable homes by one more till March 31, 2022.
Which income tax return (ITR) form is to be used?The number of properties you own also decides which ITR form you should choose to file your return. Wadhwa of Taxmann says: “An assessee having more than one house property is not eligible for ITR-1. The assessee has to furnish the return of income in ITR-2/3/4 as the case may be. Further, he needs to furnish the details of each house property, such as address, percentage of ownership and PAN of co-owners, in return of income.”