- Dec
- 08
- 2009
Taxability of second House under the Income Tax Act,1961
People buy a second home for many reasons, which, inter-alia, include as an investment for capital appreciation; to use it as a holiday home; to get a regular stream of income by way of rentals; or to diversify their investment portfolio. Whatever be the reason, an important aspect to be considered at the planning stage is the tax implication of owning and maintaining the second home.
Second House — Self-Occupied
If an individual owns more than one house property for his use, then under the provisions of the Income Tax Act, 1961 (the ‘Act’), any one property as per his choice is treated as self-occupied and its annual value is computed to be nil. The other house property is deemed to be let-out and a notional rent as per the provisions of the Act is computed as the taxable income under the head ‘Income from House Property’. In other words, the second house is treated as being rented-out and its estimated rental income is treated as taxable income.
Second House — Let-Out
If the second house is let-out to a tenant, the actual rent received, subject to certain conditions, is treated as the taxable income under the head ‘Income from House Property’.
Deduction for Municipal Taxes
The taxes paid to the local authority, generally the municipal taxes, are allowed as deduction in the financial year, in which such taxes are actually paid. This is irrespective of whether these taxes pertain to the current financial year or the earlier year. Therefore, an individual should keep a track of the municipal taxes paid and claim this deduction accordingly.
Deduction for Repair & Maintenance
Further, a sum equal to 30% of the annual value of the house property is allowed as deduction towards repair and maintenance charges. It is pertinent to note that this deduction of 30% is a fixed percentage, irrespective of the actual amount incurred by the individual i.e., irrespective whether an individual incurs more or less amount, he can only claim a deduction for 30% of the annual value of the house property.
Interest Deduction
Interestingly, in both the above scenarios, i.e., whether the second house property is deemed to be let-out or actually let-out, the actual interest paid on the housing loan is allowed as deduction. This is contrary to the case of a self-occupied property, wherein the maximum interest on housing loan is restricted to Rs 150,000 p.a., subject to certain conditions.
Hence, investment in house property even if it is a second house, does have its own tax benefits. If one is lucky enough to own more than one house property then s/he can avail of tax benefits mentioned above, in respect to the second house.
Sandeep Kanoi+
I am having one house right now. I am planning to buy second home without selling my first home. My question is if I buy second home and in near future, say 1 yr, I sell first home and use this money to repay second home, will I be able to avoid capital gain? As the sequence in my question is reverse to easy available rule on capital gain, I will appreciate if someone can share inputs on this situation – whether capital gain can be avoided if first home is sold after 1-2 yrs of purchase of second home? Thanks in advance
From M.R.Sahdev
Dear Taxguru,
I have written a comment to you on 9th August but I have not received any reply sofar.
I shall be very grateful if you kindly send your valuable advice urgently. Regards
M.R.Sahdev
I shall be grateful if you kindly clarify the following points.
My son,employed at Bangalore ,has a house at Bangalore.2 years back, he was tranferred to Gurgaon where he took a rented house.Now after 2 years ,he has purchased a house of his own at Gurgaon and recently shifted to this house, .
For his first house at Bangalore,the loan amount has come to an end. The house has been let out for the last about 2 years.He has paid income tax on the ‘income from House property’ during these 2 years.
For the second house at Gurgaon, he has taken a bank loan for which he has been paying EMIs since July 2011.
Now if he declares the Bangalore house as’ self occupied’, kindly advise the tax treatment from the second house at Gurgaon which he is now actually occupying.Can this second house be treated as ‘self leased’ house?.Is there any benefit out of ‘self leased’ under the provisions of law? Please throw some light on this aspect also.
In case you need any other information from me, I shall be too pleased to furnish the same.
I shall be highly obliged for your early response on my e mail.
Thanks and regards.
I have cleared the housing loan of my self occupied property and have purchased a second house in Dec’ 10. I have availed a loan and the EMI has already started. I’ll be getting the possesion somewhere in May 2012.Let me know if i can claim the stamp duty and registration charges along with the principal and interest paid on the second house property?
Iam having one house property at Patna acquired through staff loan of my organisation.and presently let out as my posting is at present at Delhi. and i am residing in my company’s flat
I have availed a second housing loan during FY 2010-11 to acquire another house at Noida, Poseession of which is likely to be in july 2013. Deduction of loan installment ahs already been started with release of Ist installment.
My query : Whether Interest accrued on second housing loan will qualify for tax benefit for FY 2010-11 ? If yes, what will be ceiling?
Hi,
I have 2 Flats , both are taken on Loan. If i rent one house & Stay in the other house then please suggest what all i can avail under HRA deduction & Interest Deduction ..Can i have the Interest paid for both he houses deducted from my Taxable Income..
I believe i am supposed to show the rent from the Property rented out as Income while doing Tax Calculation.
Regds/Nitin
Yes. Since itsa deeming provision the highest of the three, 1.actual rent received , 2.Assessable value as per Corporation assessment value for tax levy , 3. Fair rent( market rent receivable if let out) will have to be offered to tax.
If one chooses not to let out the second house or if one is unable to find a tenant in a given year, is he still liable to pay tax on the ‘notional’ rent for the second house ?
Thanks,