ITR Submitting: How one can declare tax advantages on second home property as per newest guidelines

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ITR Filing: How to claim tax benefits on second house property as per latest rules

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New Delhi: Traditionally, property buying is considered as a good long term investment in India as it provides tax benefit, capital appreciation and rental income. Due to these reasons many people in India buy more than one house property. Typically, people fund these property purchases through a home loan. If you have bought more than one property with home loan then you can get tax benefit on the second property as well. Here’s how you can claim tax benefits on the second or more housing property as per the latest income tax rules.

Worth mentioning here is that from the financial year 2019-2020 and onwards, income tax rules pertaining to tax benefit on the second property have changed. However, the tax benefit will depend on whether the second property is self-occupied or rented out. 

In case the second house property is self-occupied:

If a person owns two house property and none of them are rented out then both the properties are treated as self-occupied and gross annual value for Income tax return (ITR) purpose shall be taken to be NIL as per Section 23 of the Income Tax Act, 1961. It means notional rent is not taxed. “However, prior to the financial year 2019-20, notional rent on the second property used to be taxable,” said Balwant Jain, Tax & Investment expert. 

In such a case, if you have home loan on both the properties then the aggregate deduction of interest on housing loans from both properties will be maximum Rs 2 lakh and the principal repayment of housing loan up to Rs 1.50 lakh is eligible for deduction under Section 80C of the I-T Act.

In the case of self-occupied property, any additional income remaining after deduction of Rs 2 lakh can neither be carried forward nor adjusted against any other income.

In case the second house property is rented:

If the second property is let out for rent during the previous financial year, the actual rent received / receivable is taxable as gross annual value. However, some deductions can be claimed with respect to the let-out property. Here is how to calculate the taxable value of rent out properties:

1. Determine Gross Annual Value (GAV) of the property: For a rented property, the rent collected on the property is considered as GAV.
2. Reduce Property Tax: Property tax is allowed as a deduction from GAV of property.
3. Find out Net Annual Value(NAV) : Net Annual Value is calculated as GAV minus property tax
4. Reduce standard deduction: 30% on NAV is allowed as a deduction towards expenses incurred for repair and maintenance of the property as per Section 24 of the Income Tax Act.
5. Reduce home loan interest: Deduct total interest paid on rented out properties. The resulting value is your income from house property. This is taxed at per the income tax slab of the individual. 

Treatment of loss from house property for taxation

In case of self-occupied house property, since the gross annual value is nil, claiming the deduction on home loan interest will result in a loss from house property. As per income tax law, maximum Rs 2 lakh loss from all self-occupied properties can be adjusted against income from other heads.

However, for let-out or deemed to be let-out property, there is no such maximum limit on claiming deduction towards home loan interest. 

“In case of let-out properties, if the net annual value after deduction of all home loan interest turns out to be negative, such losses can be set off from income under any other head of income during that year, to the extent of Rs 2 lakh. The remaining loss if any can be carried forward to the next 8 assessment years. However, that loss can only be set off against future income from house property only,” said Mr Jain.