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Tax Clarifications For Your Multiple House Property Investments

Chenoy Ceil 
on 04 July 2013


If you are wondering how many residential properties you can own? Well, legally speaking, there are no restrictions on owning more than one house property. Today, owning multiple house properties is fast catching up with the urban population and thus the various tax implications need to be necessarily analyzed to keep tax related worries at bay.�Generally, the requirement for another house arises when we want to reside in one property and lent out the other property, or when we have to reside in a rented property at another location on account of employment/business.�The importance of owning house property is immense for any individual but the pros and cons of owning two house properties are varied and complicated. Under the Income Tax Act, 1961, house properties are classified either as let-out property, deemed to be let-out property or self-occupied property.

Under Section 22 of the Income Tax Act, the annual value of a property, consisting of any buildings or lands appurtenant thereto, of which the assessee is the owner in the previous year only, is chargeable with tax under the head �Income from house property�. If you have a house property that is actually let-out, then the property will be taxed based on the annual value of the property, i.e. the actual rent (received or receivable) or the reasonable expected rent of the given property in a financial year, whichever is highest.

The gross annual value of the house property under Section 23 (1) of the I.T. Act, 1961, is derived after taking into consideration:

1.�Rent payable by the tenant (actual rent),

2.�Municipal valuation of the property,

3.�Fair rental value (market value of a similar property in the same area), and

4.�Standard rent payable under the Rent Control Act.

Once the gross annual value of the house property has been determined, municipal taxes can be deducted if the property is let out during the whole or any part of the previous year and if the municipal taxes were paid by the owner during the year. However, if the municipal taxes were due but were not paid during the year then deduction of this amount will not be allowed.

Further, deductions to the tune of 30% towards repairs and maintenance of the property is allowed,�irrespective of any expenditure incurred by the taxpayer�under Section 24(a) of the Income Tax Act, 1961 from the net annual value (gross annual value less municipal taxes). Further deductions on an accrual basis is allowed under Section 24(b) of the Income Tax Act, 1961 for any interest incurred on borrowed capital that is utilized for the purpose of construction, purchase, repair, renewal or reconstruction of the house property.

It is important to note here that as far as the self occupied property is concerned, the annual value of such property is considered as nil under Section 23 (2) (a) of the Income Tax Act, 1961. For self-occupied property, only the interest from loan is deductible and limited to a maximum of Rs. 1, 50,000, if the loan amount is borrowed for construction or acquisition of house property and such construction or acquisition has been completed within 3 years from the end of the financial year in which capital was borrowed. But if the loan amount is borrowed for any other purpose such as reconstruction, repairs or renewals of a house property then deduction is capped at Rs. 30,000. Further, it must be noted that for self-occupied house property the statutory standard deduction of 30% is not available and the only deduction available is the interest on borrowed capital.

The advantages of owning more than one house property are numerous. You can reside in the multiple properties, let it out or use it for purposes other than business or profession. However, if you own more than one house property then only one house property can be considered as self-occupied property having nil annual value, while the rest will would be considered let-out property or deemed to be let-out property under Section 27 of the Income Tax Act, 1961, having an annual value which is the higher of the rent earned or reasonable rental value of such property. For determining the annual value of the multiple house properties you have the choice of determining which property you want to declare as self-occupied house property. However, you cannot declare more than one property as self-occupied property and the other extra properties will be deemed to have been let out and will be taxed accordingly even if you do not actually let them out. Deemed let-out property is considered at par with let out property and for such properties a notional rental value is determined based on fair rental value and municipal valuation of the property. Thereafter taxes are determined accordingly for the property.

The inconvenience of having to pay tax on deemed let out property can be discouraging but you must know that in case of deemed let out properties there are no restrictions and deductions�on account of interest payable is unlimited under such head. So, it is upto you to decide carefully which house property you want to declare as self-occupied property if you have multiple house properties and thereby maximize the deductions allowed for the loan amount borrowed for acquiring such properties. Depending on the annual value of the property you can calculate the maximum benefit that you may receive.

Income from house property can be determined as under:

Further, for principal repayment of the housing loan in the above mentioned cases, deduction of upto Rs. 1,00,000 from the gross total income is allowed per financial year under Section 80C of the Income Tax Act, 1961.

Lastly, it must be noted that if under the above provisions, losses are incurred from the house property, then the same may be set off against income from another house property or against incomes under the other heads. Further, if there is any balance loss in any year that is not set off then the same may be carried forward, to be set off against the income from house property but only upto a maximum of eight assessment years.

For your knowledge, if and when the Direct Taxes Code (DTC) gets implemented then the tax deduction towards repairs and maintenance would be curtailed to 20% and the 80C provision of deduction towards housing loan principal repayment would also be discontinued. Further, the concept of deemed let-out property may also be discontinued under the DTC regime implying that if the house property is not actually let out in any given financial year then it shall not be taxable and no deductions would be available against such property. � � � ��

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