If a taxpayer owns more than one house, one of them will be deemed as self-occupied and the other one will be deemed to be given on rent.
Investing in Indian real estate is a hot favorite among Non Resident Indians (NRIs). And like every other investment, real estate comes with its share of tax challenges. As we approach the due date for filing tax returns in India for the year 2011-2012, let us look at a tax law relating to real estate that is peculiar to the Indian Income Tax. This law is applicable to both residents as well as NRIs. However, unless they have a regular relationship with a chartered accountant in India, NRIs tend to miss this particular law.
According to the Indian Income Tax Act, if a taxpayer (resident or NRI) owns more than one house property, only one of them will be deemed as self-occupied. There will be no income tax on a self-occupied property. The other one, whether you rent it out or not, will be deemed to be given on rent. If you have not given the second property on rent, you will have to calculate deemed rental income on the second property (based on certain valuations prescribed by the income tax rules) and pay the tax thereof.
1. If you have only one house in India and you have given it on rent, you would need to pay tax on rental income
2. If you have only one house in India and you have not given it on rent, you do not have to pay any tax on that property. This is because that house will be deemed as self-occupied and there is no tax on self-occupied property.
3. If you have two houses in India and have given both on rent, you would need to pay tax on rental income of both
4. If you have two houses in India and you have not given either on rent, then one house will be treated as ‘self-occupied’ and no tax will be levied. The other house will attract deemed rental tax provision. You will have the discretion to make the choice.