Photo: iStock
Photo: iStock

If you own multiple properties, only one will be considered as self-occupied

Even if there are no financial gains from other properties, tax will need to be paid on their annual value

A lot of people still prefer to invest in real estate as compared to other financial assets, and people who can afford it end up with multiple properties. While some people have a house in the city of work as well as in their native place, there are others who buy one house for regular stay and invest in a weekend or holiday home in another city. Then there are others who buy in a second house for rental income and investment purposes.

However, if you have multiple houses, remember that there are tax implications on all the houses you own, except one. Irrespective of whether the houses you own are used by you or your family, either regularly or occasionally, from the income-tax point of view, only one house can be considered as self-occupied. While there is no tax to be paid on a self-occupied property, income from other houses or the annual value of the houses is taxable.

Here are the income-tax rules for a self-occupied property and other properties you may own.

According to income-tax rules, a self-occupied house is one that is occupied by the taxpayer throughout the year by her and her family. In case of a self-occupied house, income chargeable to tax under the head “income from house property" is considered either nil or negative (in case the taxpayer has taken a home loan for the property). Income tax Act, 1961 allows deduction of up to 2 lakh in respect of interest on housing loan in case of a self-occupied property, under Section 24(b).

However, in case the taxpayer owns only one property but does not use it for residential purposes owing to her employment, business or profession in another city or location, where she stays in a rented accommodation, the property she owns will be considered self-occupied if she does not let it out at any time during the year or derive any other financial benefit from it.

If a person owns and occupies more than one property for her residence, then one property of her choice can be considered as self-occupied, while all other properties will be treated as “deemed to be let out".

Even if the other properties remain vacant for the entire year and do not provide any financial gains to the taxpayer, they will be considered as deemed to be let out and tax will need to be paid on its annual value. 

According to Section 23 of the Income-tax Act, the annual value is “the sum for which the property might reasonably be expected to let from year to year". In other words, annual value is the potential rent that the property would have fetched if it was rented out. To calculate the annual value, you need to consider factors such as standard rent in case the property lies under the jurisdiction of Rent Control Legislation or rent based on the municipal value of the property or the rent equivalent to the rent other similar properties are fetching in the same locality. The higher of these will be considered the annual value of the property.

Once the annual value is calculated, you may be allowed to claim few deductions such as on taxes paid to the municipal department, standard deduction and interest paid on home loan that was taken for the purpose of purchase, construction, repair, renewal or reconstruction of the property.

If you own multiple properties and find it difficult to calculate the annual value or tax liability, it is advisable to contact a tax expert or chartered accountant.

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