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Here’s how you should file ITR if you have multiple properties with deductions

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There are different types of ITRs (Income Tax Returns), depending upon the taxpayer you are. When you are doing your taxes, the taxes on your properties do come into the picture. The house that you live in is termed as a self-occupied house. Since you live in that house, you get the benefit of not paying any taxes on them. Things are different when you own too many properties. You can choose any two properties from all your properties as self-occupied properties. The two that you choose will get the tax benefit. However, other properties will be treated as ‘deemed to be let-out. The tax implication on these residences is that you have to pay tax on rental income. According to the Government of India in the Interim Budget of 2019-20, income tax is exempt on the notional rent on the second self-occupied property.

Tax implication on notional rental income 

When you own too many properties, other than the two you choose for the tax benefit, all others will be deemed to be let out for tax purposes, even if the house is vacant or occupied by you. The meaning of ‘deemed to be let out’ is basically being available for rent or temporary occupancy. Section 23 (1) (a) of the Income Tax Act of 1961 determines the annual value of the properties on which tax needs to be levied. The annual value of the house determines the expected rental value of the house. The owner of these properties is liable to pay taxes.

While calculating the notional rent for a property, it takes three components of the property into consideration – fair rent, municipal value, and the standard rent. Fair rent simply means the rent of a similar house in the same location. Municipal value is the rent amount that the Municipal corporation fixes according to areas. The standard value is simply the fixed rent of the house property according to the Rent Control Act. Once you understand these components, here is how a notional rent is calculated-

  • Find the fair rent, municipal value, and standard rent of your property that is deemed to be let out.
  • Then, between your fair rent and municipal value, whichever is the higher number, is termed as your annual value.
  • Once you find the annual value, compare it with the standard rent. Whichever is lower amongst the two is your notion of rent.

Clubbing of rental income 

When you file taxes, all your properties other than the two that you have mentioned as self-owned, will be considered as deemed to be let out. Since it is deemed to be let out and there is no actual rent being received from the property, they usually consider the expected rent of such properties its annual value. These incomes come under the basket of income from House Property. No individual may club all the rental receipts into one number. One cannot claim the expenses of one property when they are calculating the rental income of another property. Each rental income needs to be calculated and mentioned differently. In case of confusion, you can use the income tax calculator while doing your taxes. 

Tax deductions for income from house properties. 

When you own a property, you can claim several deductions to pay fewer taxes. Here are some standard deductions that most property owners claim:

Standard deduction

Under section 24 of the Income Tax Act, you can claim the deduction of 30% of the net annual value of your property for which you are filing the claim. However, this is only allowed if your property is let out during the previous years.

Municipal taxes

When you own a property, you pay a municipal tax on it. Hence, the tax that you have already paid to the government as municipal taxes is deducted from your tax payable of the property. 

Deduction against a home loan

Under section 80C of the Income Tax Act, you can claim tax deductions on the principal amount of up to Rs.1,50,000 annually. Under the same section, you can claim a deduction for registration and stamp duty. For any properties, you can claim an interest amount of up to Rs.2,00,000 under Section 24 (b) of the Income Tax Act. When you have a home loan, it can deduct the interest amount under this section. Under each property, one can claim the overall loss annually up to Rs.2,00,000 only. You can also pay an advance tax beforehand to avoid any deadlines issues. Any additional amount above it, you can carry forward to subsequent years for set-off. 

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