Mar 102015

More Than One Self-Occupied Properties – Tax implication

It is important for an individual, who is planning to buy a second home, to understand the tax implications under the Income-Tax Act 1961 of owning and maintaining the second home.

Second House is Self-Occupied

If an individual owns more than one house property for his use, then any one property as per his choice is treated as self-occupied and its annual value is computed to be nil.

The second house is treated as being rented-out and its estimated rental income is treated as taxable income.

Second home is used as a holiday home

As the benefit of self-occupied property is available for only one home, the estimated annual rent will be considered as the taxable value.

Even vacant house has tax implications

If a property is treated as a Deemed to be Let out Property, it is effectively put at par with a let out property as far as taxation is concerned.

Hence, a notional rental value is considered as the gross taxable rent for such property. You are allowed to claim a flat deduction of 30% for repairs and maintenance charges.

Which option is better in case two houses are in possession?

If you have two houses to be self-occupied it is always better to rent it out at reasonable value or standard rent applicable in the area due to following reasons:

  1. Will increase your wealth base and minimise your wealth tax bill
  2. You can claim unrestricted interest deduction
  3. You can claim benefit by way of deduction of municipal taxes
  4. Your return will show feel good factor in terms of disposable income capacity

Second House is Let-Out

If the second house is let-out to a tenant, the actual rent received, subject to certain conditions, is treated as the taxable income under the head ‘Income from House Property’.

Deduction for Municipal Taxes

The taxes paid to the local authority, generally the municipal taxes, are allowed as deduction in the financial year, in which such taxes are actually paid.

This is irrespective of whether these taxes pertain to the current financial year or the earlier year. Therefore, an individual should keep a track of the municipal taxes paid and claim this deduction accordingly.

Interest Deduction

Whether the second house property is deemed to be let-out or actually let-out, the actual interest paid on the housing loan is allowed as deduction.

This is contrary to the case of a self-occupied property, wherein the maximum interest on housing loan is restricted to Rs 150,000 p.a. ( 2 Lakh from AY 2015-16), subject to certain conditions.