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Self occupied or deemed to be let out property?

Bunty (personal) (55 Points)

24 December 2017

I have one self-occupied flat on which there is no homeloan. This year I purchased joint shared property with my brother. So I become co-owner of this property and my brother first time property owner. How can I claim my share of EMI as homeloan deduction? currently this new property is vacant and my brother is staying with me.

Please guide what is the correct way to get the incometax benefit on this joint property.

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10 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160860 Points)
Replied 24 December 2017

" How can I claim my share of EMI as homeloan deduction? currently this new property is vacant?"

For you it will be deemed let out (second property)....... so, your share of home loan interest will be fully deductible (subject to cap of 2 lakhs from IFHP), but deemed rental income will be chargeable as IFHP.

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sudip sharma (article) (734 Points)
Replied 24 December 2017

in case of self occupied property you are the owner of the property to the extent of your share in this property. so presently you have to house property and as per Income Tax Act any individual is entitled to have one house property. you are entitled to take deduction of interest on EMI under section 24(B) and as per the principal amount is concerned you can take deduction under 80c. please make comparison of income of both the houses and select the the house with lower income.

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sudip sharma (article) (734 Points)
Replied 24 December 2017

as per as your brother is concerned as he has only one house so he is entitled to take deduction of interest on EMI under section 24(B) and principal amount under section 80c

Bunty (personal) (55 Points)
Replied 24 December 2017

Thank you both for your replies. May I know when we choose any property for deemed to be let out property, what tax proof need to be submitted? In my case I have not given any of these property on rental so how can I create rental income and does that need rent receipts to be generated and submitted as proof?

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160860 Points)
Replied 24 December 2017

When any one of the two properties is vacant........ (means no rent receipt), the annual rent value is arrived as per the market rate and is added for tax assessment.

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lalith h b (12 Points)
Replied 24 December 2017

Dhiraj sir "last reply"
the annual value will be nill because of no rental reciept? being not let out to others?
please clarify..

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160860 Points)
Replied 24 December 2017

According to Section 23(1)(a) of the Income Tax (I-T) Act, the annual value of your property is the amount it is expected to earn you when let-out from year-to-year. Based on four factors, the annual value of a property is arrived at.

A) Municipal value

For the purpose of charging local taxes, municipal bodies evaluate your property.

B) Actual rent received or receivable

This is the amount you receive from your tenant on an annual basis. However, your actual income would be calculated on the basis of who pays the utility bills of the rented unit.

C) Fair rent

The rent that similar properties with similar amenities in similar areas earn is the fair rental value.

D) Standard rent

Areas where the Rent Control Act is in place, a standard rate is fixed. Landlords of such property have to stick to this amount, irrespective of the market value of their properties.

Now, the annual value of your property will be the highest among these amounts—the rent received or receivable, the fair market value or the municipal valuation.

Refer: gross-annual-value-of-house-property

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Bunty (personal) (55 Points)
Replied 26 December 2017

I got one more further query. The above given link looks to me all virtual calculations. Now suppose I use some formula and come to some highest amount rental income. Let's take example that I am getting rental per month Rs. 15000/- Then for a year it will be 1,80,000 which is suppose to be higher rental amount.

Then I see at one side I will get 2 lacs deduction and other side I will show 1.8 lacs income so net I will get 20,000 deduction benefit only. In this case then does it even make sense to even show second property ownership? I can't see any benefit of taking homeloan then.

This year flat is vacant (got possestion last month only) but next year we may give it on rent, hence asking above question.

CA abhishek Jain (Associate manager) (106 Points)
Replied 22 October 2019

Sir,

The limit of Rs.2lacs is as per second proviso to section 24. As per the proviso, interest limit for loan obtained for acquisition of property covered under proviso 1. Proviso 1 talks about property covered under section 23(2). Section 23(2) talks about self occupied property and property which could not be occupied becuase of business/employement in other city.

Therefore, can we take view that since deemed let-out does not covered by section 23(2) and thereby proviso 2 should not be applicable to deemed let out property, and therefore there should not be limit of any interest to claim against deemed let out income.

Please correct me if I am wrong.

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