Self-occupied or rented? Here’s how to claim tax benefits on second house property as per new rules

Many people in India own more than one residential property. While in some cases all the house property may remain self-occupied, in others, the second or more house property may be given to someone on rent. For income tax purposes, however, a house property, which is rented for the whole or part of the year, is considered as a let-out house property.

It is also quite usual for a majority of people to opt for home loans for buying house property these days. One can get tax benefits on one or more home loans. If you have also bought your homes by taking home loans, here’s how you can claim tax benefits on the second or more housing property as per the new income tax rules.

From the financial year 2019-2020 and onwards, the following tax benefits can be availed in relation to the second house property:

In case the Second Home is Self-Occupied:

Where a person holds two house property and both are not actually let out for the whole or part of the year, then both the properties can be treated as self-occupied and gross annual value shall be taken to be NIL as per Section 23 of the Income Tax Act, 1961. Effectively, “notional rent is not taxed even in respect of the second property. This was not the case prior to the 2019-20 financial year. In the past, the notional rent on the 2nd property used to be taxable,” says Sudhakar Sethuraman, Partner, Deloitte India.

The aggregate amount of deduction of interest on housing loan (from both properties), if any, is subject to a ceiling limit of Rs 2,00,000 and the principal repayment of housing loan is eligible for deduction under Section 80C of the I-T Act, subject to ceiling limit of Rs 1,50,000.

“It may be noted that, where an Individual or HUF opts for the new regime of taxation (from financial year 2020-21 and onwards), (i) interest on housing loan from self-occupied property and (ii) Principal repayment of housing loan will not be eligible for deduction,” says Sethuraman.

In case the Second Home is Rented:

Where the second property is let out for rent during the year, the actual rent received / receivable is taxable as gross annual value. However, the following can be claimed as deduction with respect to the let-out property:

# Actual payment of taxes levied by local authority in respect of such property under Section 24;
# Interest on housing loan, if any, under Section 24;
# Principal repayment of housing loan is eligible for deduction under Section 80C of the Income Tax Act, subject to the ceiling limit of Rs 1,50,000.

It may be noted that, “where an Individual/ HUF opts for the new regime of taxation (from financial year 2020-21 and onwards), (i) loss under the head income from house property will not be eligible to be set off against any other head of income and (ii) Principal repayment of housing loan shall not be eligible for deduction under Section 80C,” says Sethuraman.

Treatment of Loss from House Property for Taxation

In case of self-occupied house property, the income tax law limits the maximum deduction for the interest paid on housing loan to Rs 2 lakh. This limit is in aggregate for all the self-occupied house property and not separately for each self-occupied house property. However, for let-out or deemed to be let-out property, there is no such limit on claiming deduction for the interest cost incurred.

“In case of the situation of loss from house property, such losses can be set off from income under any other head of income during that year, up to Rs 2 lakh. Any loss left to be set off from the current year’s income can be carried forward to the next 8 assessment years. However, that will be eligible for set off in future years against income from house property only,” says Akhil Chandna, Director, Grant Thornton India LLP.

Let’s take an example where an individual owns 4 house property, 2 out of them are self-occupied and the remaining 2 are let-out. The total cumulative house property loss from all such house property is Rs 10 lakh. Please note that out of the aforesaid loss of Rs 10 lakh, only 2 lakh can pertain to self-occupied house properties. Further, the loss of Rs 10 lakh can be first set off against the income from any other head of income pertaining to that year, up to Rs 2 lakh. The balance loss of Rs 8 lakh will be carried forward to the future 8 years and will be eligible to be set off against the income from house property only.