Double Property Ownership: Navigating India's Complex Income Tax Framework

The Classification of Residential Assets

Income tax regulations in India categorize residential properties based on their usage, which directly influences the tax liability of the owner. A property is deemed self-occupied if the owner resides there throughout the fiscal year. Conversely, a let-out property is any unit rented out for any duration. Current laws permit an individual to claim up to two houses as self-occupied, meaning their annual value is calculated as zero. Any additional residential holdings beyond this limit are classified as deemed let-out, regardless of whether they generate actual rental income.

Calculating Taxable Rental Income

For properties that are rented or deemed to be rented, the tax calculation begins with the Gross Annual Value. Owners can reduce this figure by deducting paid municipal taxes, provided these were settled during the relevant financial year. The resulting figure is the Net Annual Value. From this amount, taxpayers are entitled to two primary deductions:

• A standard deduction of 30% of the Net Annual Value for general maintenance and repairs.
• The full amount of interest paid on home loans for that specific property.

Interest Deductions and Loss Set-Offs

While interest on loans for let-out properties generally faces fewer caps, self-occupied homes are subject to a maximum interest deduction of 2 lakh INR under Section 24(b). If the total deductions for a property exceed the rental income, it results in a loss under the head Income from House Property. Taxpayers may set off this loss against other income sources, such as their salary, up to a limit of 2 lakh INR within the same assessment year. Any remaining loss can be carried forward for up to eight subsequent years, though it can only be offset against future house property income during that period.

Source: NDTV — Top Stories