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.

However, it is important for an individual, who is planning to buy a second home, to understand the tax implications under the Income-Tax Act 1961 of owning and maintaining the second home.

Second House is 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.

Even vacant house has tax implications 

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If you own more than one  Self Occupied Properties (SOP), you have a choice to treat any one of the properties as SOP. The other such property (ies) which lies vacant will be treated as Deemed Let Out Property (DLOP) under the Act.  If a property is treated as a DLOP, it is effectively put at par with a let out property as far as taxation is concerned. Hence, a notional rental value (method to calculate such value prescribed under the Act) is considered as the gross taxable rent for such property. You are allowed to claim a flat deduction of 30% for repairs and maintenance charges.

Second home is used as a holiday home

As the benefit of self-occupied property is available for only one home, the estimated annual rent will be considered as the taxable value.

Second House is 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

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. ( 2 Lakh from AY 2015-16), subject to certain conditions.

Please note Till FY 2016-17, loss under the head house property could be set off against other heads of income without any limit. However, form FY 2017-18, such set off of losses has been restricted to Rs 2 lakhs.

Effectively, if Assessee owns more than one house property & is kept for own use,

  • one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
  • Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above.

In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit. Please note Till FY 2016-17, loss under the head house property could be set off against other heads of income without any limit. However, form FY 2017-18, such set off of losses has been restricted to Rs 2 lakhs.

However, for the second house property, no deduction is available for repayment towards the principal portion of housing loan under section 80C.

Image courtesy of sscreations at FreeDigitalPhotos.net

(Republished with amendments on 29.06.2018)

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99 responses to “Taxability of second House under Income Tax Act,1961”

  1. UDIT RANA says:

    SIR, WHY 80 REPAYMENT OF PRINCIPAL AMT DEDUCTION IS NOT AVAILABLE IN CASE OF DEEMED TO BE LET OUT HOUSE PROPERTY?

  2. Aurabinda Sil says:

    Sir,
    I have constructed a house long ago and is registered in my name. This is used for my own family dwelling purpose, SOP. If I buy a flat now , second house property, for our own family use as the 1st house is insufficient and the flat is registered in the name of my wife who is a housewife, can it be taxable in my hands as DLOP ? Please advise.
    Thanking,

  3. Aurabinda Sil says:

    Sir,
    I Have constructed a house 20 years ago and am living in this house for 20 years. At present I intend to buy a flat for my own use. The flat ( second house property ) is taxable. My question is , how the notional rent / fair rent will be calculated. I will not let it out and will use for my own living. Can the Annual Value ascertained by the Municipal Corporation and shown in the tax bill sent to me annually by the corporation be treated as the Notional Rent ? Annual Value amongst others also means ,Notional Rent ‘ Please advise.

  4. SHRIKANT RAJARAM BADVE says:

    Sir, I read your article on taxability of second house. Sir my second house is vacant for the last 10 years. I pay property tax of Rs.1713/- The annual value of the flat in property tax receipt is given as Rs.28,000 (approx). I never included this in my taxable income which I should have done w.e.f. 2010 as I purchased my another house. I want to start a clean slate on tax front. Can I include Rs.28,000 as my deemed rent for current FY?

  5. Priyajit Ghosh says:

    Hi, My mother is having 2 flats in different locations. One is self occupied & other is let out. Now another flat which both me & my mother are purchasing as joint owner & scheduled to be completed by 31st March 2018. Now due to some official issues, I am thinking to register that flat Only in my mother name, then what will be the tax implication, wealth implications on that new flat (3rd one for her) ?
    Another doubt, can we claim deduction of the municipality tax that we pay annually in income tax? If yes, under which section can she claim deduction in Income tax?

  6. JAYDEV MODI says:

    My client has 2 house 1st house name of his mother and 2nd own name. but currently my client is living with his mother so 2nd house is vacant .WHETHER 2ND IS DEEMED TO BE LET OUT OR SELF OCCUPIED PLEASE GUIDE ME.

    THANKS ‘
    REGARDS
    JAYDEV MODI

    • sk sharma says:

      i have a flat in the joint name with my wife which we are using as our residence.we have another 25% built 10 marla house again in the joint name with my wife.10 marla plot was purchased by us in 2008 and built 25% in 2009.on this plot we also paid enhancement charges amounting to Rs 175000.i am filing it return and my wife is a housewife and is not filing return.Through an over sight i have omitted to include the income on 2nd property in my returns for all these years.The house was let out for nearly 8 months in a year for Rs 3000/-.please guide me as to what i should do to rectify the position.Regards
      sk sharma

  7. Jitendra says:

    Dear Sir,

    I have purchased the second flat on 12 Sept 2016. I have sold my old flat on 26.5 lac ( 12.42 lac purchase in April 2010) on 2.03.17. Could you please let me know what are the implications in the Income Tax.

    As on now I am living in Second flat and am salaried person.

  8. Jinav Satra says:

    I own 2 House Properties. 1 in my name and the other is jointly owned by my Son. I reside at Property 1 which is owned by me (SOP) and my son resides at Property 2. Will property 2 be considered as DLOP for me? If yes till what extent?

    Also can my son claim it as his SOP and still do I need to consider it as DLOP?

  9. Mani Pillai says:

    One of my client has own house in goregoan & has given it on rent since his office is at mulund & it is very difficult for him to travel from goregoan to mulund. He is currently living in thane on a rented flat.

    Also he had booked a flat in thane & has got a possession of flat in last month (i.e. Jan 17).

    Both the Properties are brought on loan

    Now my question.
    1. Can he get HRA Exemption against the rent paid for the rented house at Thane.

    2. Can he get the Full Interest benefit for both the house at thane & goreqoan considering rental income to be added while computing Income Tax

  10. Abhijeet says:

    I have one flat self occupied flat in Pune which loan has cleared last financial year.
    I want to buy one more flat in Pune by taking loan from SBI. The new flat will be SOP and current one will be rent out.
    Please guide me what is the benefit of income tax. How much Interest benefit?

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