ITR filing: What you should know about tax filing if you own multiple houses

Not sure how to file taxes if you own multiple houses? This article explains everything you need to know about paying taxes in such a situation.

How to file an ITR if you own multiple properties

Figuring out taxes can be tricky. There are many rules and regulations, especially when it comes to properties. One interesting case is when you own multiple houses. While filing an Income Tax Return (ITR), you are required to disclose the number of houses you own.

You might be residing in one of these houses or you might have put them up for rent. If you own multiple houses, you can select two of them as ‘self-occupied property’, and the rest are treated as ‘deemed to be let out’ for taxation. 

Here are some things to keep in mind while filing your ITR if you own multiple houses. While this article is meant to be an informative guide, we highly recommend doing your due diligence before taking any steps.

Which ITR form to use if you own more than one property?

If you have more than one house and are filing your tax return, do not commit the common mistake of choosing the wrong ITR form. If you own several houses, you are not eligible for the ITR 1 form. The number of houses you have will determine the ITR form you should fill.

You might have to file ITR 2, 3, or 4, as the situation may be. Furthermore, you will have to present the details of each of your houses, including address, return of income, ownership percentage, and PAN details of co-owners.

Related: Different ITR Forms You Should Know About

Types of properties

When a taxpayer occupies a house for the entire year of assessment for residence, the house is deemed a self-occupied property. If you own multiple houses, you can select two properties as self-occupied, and the rest will be deemed to have been let out, irrespective of whether you put them up for rent or not. 

In the Interim Budget 2019-2020, the government did away with the tax on notional rent on the second self-occupied property.

There is also a third type of property, known as inherited property. It is what you inherit from your parents, grandparents, etc. Depending on its usage, it is treated as a self-occupied or rented property for the purpose of taxation.

Tax on rental income

As mentioned earlier, when you own more than two properties, the additional ones are deemed to be let out. The annual value of the house or houses is determined under Section 32(1)(a) of the Income Tax Act, 1961, and taxes are levied on that value.

The annual value is expected to be the rental value of the house, for which the owner is supposed to pay taxes. This value is calculated by considering the following.

  • Fair rent: The rent that a similar property can earn in the same or a similar area.
  • Standard rent: The rent ascertained for the property by the Rent Control Act.
  • Municipal value: The rent amount estimated by the municipal corporation of the given area.

Calculating notional rent for a property deemed to have been let out

Follow these straightforward steps to calculate the notional rent for a property deemed to have been rented out.

  • Determine the fair rent, standard rent, and municipal value.
  • Ascertain the annual value. It is taken to be the higher amount between fair rent and municipal value.
  • Compare the standard rent and annual value. The lower of the two figures is the notional rent.

Taxation of properties used for commercial purposes

If you have rented out your additional properties for commercial purposes, the taxation process becomes a little more complicated. It is typically judged on a case-by-case basis. 

Let us split it into two categories: (a) Property rent received that can’t be separated from other asset incomes, and (b) Property rent received that can be separated from income from other assets in the property.

In the first case, the entire property should be taxed either as income from different sources or profits and gains of business. In the latter scenario, the property will be taxed normally on the rent actually paid. 

Related: What Documents To Keep Ready While Filing Your ITR?

Are all rental incomes clubbed under the same property?

No, you are not allowed to club all rental receipts in the same calculation. For example, you cannot claim the expenses of one property while calculating the rental income of another. Please note that even though some properties are not rented out but are deemed so, they are taxable under the ‘Income from House Property’ head.

What deductions can one claim?

A tax deduction is a self-explanatory term. It lessens your tax liability by lowering your taxable income. By claiming deductions on your properties, you reduce your total tax liability arising from multiple property ownership.

Deductions against income from house properties

If you own a property, you can claim the following deductions on the income generated from it:

  • Municipal taxes: If the owner of the property pays municipal taxes, they can be claimed as a deduction.
  • Standard deduction: As per Section 24(a), 30% of the house property's Net Annual Value (NAV) can be claimed as a deduction of the property rented out during the prior year. 
  • Deductions against home loan: According to Section 80C of the IT Act, if you have taken a home loan, you can claim tax deductions up to Rs 1,50,000 on the principal repayment. You can also claim deductions for registration and stamp duty under the same section.

That’s not all; if you have a self-occupied home, you can claim deductions of up to Rs 2,00,000 against the interest, as per Section 24(b) of the IT Act. The same applies if you have rented out your property. However, you can only claim an overall loss of Rs 2,00,000 under the ‘House Property’ head. Any additional losses can be carried forward to the following years for set-off.

Related: How To File Your ITR Online

Remember, figuring out the right way to file your taxes is of utmost importance. Incorrect calculation of taxes could land you in serious trouble.

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