Own multiple houses? Here’s how you should file your income tax return

• September 23, 2021
• CA Chandan Agarwal's Office

If you own more than two properties, irrespective of whether the other houses are vacant or occupied by you, they will all be deemed to be let out

If you own many houses, then the ‘self occupied property’ benefit is granted only to two properties as selected by you. The other property/properties are treated as ‘deemed to be let-out’ for the purpose of taxation. A self-occupied property means a property which is occupied throughout the year by the taxpayer for his residence. For those properties that are let out, or deemed to have been let out, you have to pay tax on rental income.

In the Interim Budget 2019-2020 the government exempted levy of income tax on notional rent on the second self-occupied house.

Tax on rental or notional rental income

If you own more than two properties, irrespective of whether the other house(s) are vacant or occupied by you, they will all be deemed to be let out. The annual value of such house(s) will be determined (under section 23(1)(a) of the Income-tax Act, 1961) on which tax will be levied.

Amit Maheshwari, Tax Partner, AKM Global, a tax and consulting firm, says the annual value is the expected rental value of the house, which is taxable in the hands of the owner. “It is calculated taking into consideration the fair rent, standard rent and municipal value,” he says.

Fair rent is the rent that a similar house can get in the same or similar location. Standard rent is the rent fixed for the house property under the Rent Control Act. Municipal value is the rent amount that is estimated by the Municipal Corporation of the area.

Here’s how you should calculate the notional rent for a property that is deemed to have been let out.

Step 1: Ascertain the fair rent, standard rent, and municipal value

Step 2: Calculate the annual value. This figure is the higher of fair rent and municipal value

Step 3: Compare annual value with the standard rent. The lower of the two the notional rent.

Can we club all the rental income under one head?

Clubbing of all the rental receipts in one calculation is not permitted. You cannot, for instance, claim expenses of one property in calculating the rental income of another property.

Naveen Wadhwa, DGM, Taxmann, explains that all houses, other than the two that have earmarked as ‘self-owned,’ shall be treated as deemed let-out. “As no actual rent is received from a deemed let-out property, the expected rent of such a property is deemed as annual value,” he says.

Such income, Wadhwa says, would be taxable under the head “Income from House Property.”

Deductions against income from house properties

You are allowed to claim several deductions when you own a property.

A) Municipal Taxes: Municipal taxes in respect of house property are allowed as deduction, if the taxes are borne by the owner.

B) Standard Deduction [Section 24(a)]: 30 per cent of net annual value of the house property is allowed as deduction if property is let-out during the previous year.

Deductions on a home loan