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What is self occupied property (for nri)

CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)

18 August 2019

If a NRI owns 2 residential properties in India which are not factually let out, then can he claim that both properties as self-occupied (for AY 2019-20) and assessed their income as NIL?

Can it be challenged by the assessing officer with an argument that NRI/ his family members don't live in these properties so the whole intent of giving exemptions for self-occupied house property under the law is defeated and accordingly, these properties can be treated as deemed to be let out and can be taxed?

Experts, please advise.

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13 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 18 August 2019

For Assessment year 2019-20, only one (any) can be declared as SOP; another will be deemed let out.

One SOP cannot be challenged for any reason.

CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 18 August 2019

A recent amendment allows 2 properties which can be claimed as SOP. My concern is under this scenario where AO can always argue that none of these 2 properties were actually occupied for self purposes by the NRI/ his family members.

What is your view?

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 18 August 2019

The amendment (of 2 SOP) is applicable from AY 2020-21.

CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 18 August 2019

Thanks, sir for this information. However, in AY 20-21 will it be possible to get this exemption provided that none of the properties is actually used for self-occupation purposes. Can AO make this taxable as the intent of this exemption is no longer valid (as none of the properties is self-occupied)?

If there is no straight answer then do confirm this.

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160332 Points)
Replied 18 August 2019

You can claim exemption as per the provision of act, provided not actually let out.

Kapadia Pravin (17249 Points)
Replied 18 August 2019

These deeming provisions are as per Act duly enacted. Can not be challenged. From AY 2020-2021 two house properties will be SOP provided they are not actually let out.

debora M (BUSINESS DEVELOPMENT MANAGER) (1697 Points)
Replied 19 August 2019

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.

Put simply,

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.

CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 19 August 2019

Thanks but your reply is relevant to the era when the Income tax Act provided an express exemption of one self-occupied property. In AY 20-21, Act provides an exemption for 2 self-occupied house properties so considering above, NRI can claim tax benefit even if both houses remain vacant throughout the previous year relevant to AY 20-21.

Kapadia Pravin (17249 Points)
Replied 19 August 2019

very true sir

Suresh Thiyagarajan (Student) (3986 Points)
Replied 20 August 2019

1. According to sec 23(2), if the property is self-occupied or has not been let out during the year no income from such property will be let out be charged to tax during the year.
2. However, as per sec 23(3) and 23(4), this will not be applicable if the house property is let out during the year and the owner has more than one house property.
3. The above provision was extended to 2 residential property from the AY 2020-21. Up to AY 2019-20, Self Occupied Property will be applicable only to the extent of 1 house till AY 2019-20.
4. In your case for the AY 2019-20, only one house property will be allowed as Self Occupied (at your option) and the other house property will be considered as deemed to be let out and accordingly be charged to tax.
5. However, from the AY 2020-21, both the above residential properties, if not actually let out during the year and accordingly be not charged to tax as per sec 23(2) (FY 2019-20).
Please correct me if the above interpretation has an alternative view.

CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 20 August 2019

Is it really necessary to occupy these 2 house properties to claim self-occupied property benefits? Think from a NRI assessee point of view who always stay outside India.

Suresh Thiyagarajan (Student) (3986 Points)
Replied 20 August 2019

1. That’s not necessary. If it is not actually let out during the year then house property will not be charged to tax.
2. I am aware many NIR's have house property in India and stay abroad without renting it out. In that case, Deemed to be let out concept will not apply here.
3. To answer your question, it is not necessary to occupy the house property to take the annual value as Nil.
Please correct me if the above solution has an alternative view.

Mehmood Khan (2 Points)
Replied 08 February 2021

Hi,

Is this rule to consider 2 properties as self occupied applicable for NRIs? While submitting returns for AY2020-21 through taxspanner, it didn't allowed me to declare 2 properties as self occupied.

I am aware that some benefits are not available to NRIs, so was not sure on this.