Tax­ing is­sues for mul­ti­ple homes

HT Estates - - HTESTATES - Divya Baweja, Divya Agar­wal and Tarun Garg

In­vest­ing in res­i­den­tial prop­erty is pre­ferred due to many rea­sons such as cap­i­tal ap­pre­ci­a­tion, hol­i­day home, reg­u­lar in­come source and di­verse in­vest­ment port­fo­lio, apart from the fact that a per­son gets a home to live in. How­ever, it is im­por­tant to be aware of the tax im­pli­ca­tions aris­ing on ac­count of own­ing more than one house prop­erty.

Tax breaks are also avail­able when an in­di­vid­ual pro­cures loans for pur­chas­ing a house and ac­cord­ingly, de­duc­tion from tax­able in­come is avail­able on prin­ci­pal re­pay­ment of home loan.

This is capped at ₹ 1.5 lakh un­der Sec­tion 80C of the In­come Tax Act, 1961 (‘the Act’). This is ir­re­spec­tive of the num­ber of homes owned and the pur­pose for which they are be­ing used (ie whether for self-occupation or let­ting out).

In case of a self- oc­cu­pied prop­erty, in­ter­est de­duc­tion on home loan is re­stricted to ₹ 2 lakh in a tax year. For a prop­erty that’s let out, de­duc­tion is avail­able for the ac­tual in­ter­est paid dur­ing the tax year.

In case of loss un­der the head ‘house prop­erty’ then the same can be set off against in­come un­der the other heads in the same tax year. Any bal­ance loss, which is not set off, can be car­ried for­ward up to eight tax years and ad­justed only against house prop­erty in­come in such tax year(s).

If an in­di­vid­ual has more than one prop­erty in his name and if all such prop­er­ties are be­ing used for self-occupation or are ly­ing va­cant, then only one of such prop­er­ties could be con­strued as self-oc­cu­pied and its an­nual value would ld be taken as ‘nil’. The choice of treat­ing any one house prop­erty as self-oc­cu­pied is solely at the owner’s dis­cre­tion and can vary with each tax year.

The other house prop­erty/ prop­er­ties will get clas­si­fied as “deemed to be let out” and fair rental value of each of such prop­er­ties would need to be of­fered to tax. Gover nment poli­cies with re gards t o ready reck­oner rates can also be seen as one of the re­spon­si­ble fac­tors. For in­stance, in the re­cent years of 2013-2015, the Ma­ha­rash­tra gov­ern­ment has been in­creas­ing ready reck­oner rates by 15-20% across the city. This is a sig­nif­i­cant jump for a city whose prices are al­ready on the far side of high - and con­sid­er­ing that in other ma­jor cities, the in­crease was rel­a­tively mod­er­ate. For in­stance, Gur­gaon wit­nessed an in­crease of merely 10-12% dur­ing the same pe­riod. These fac­tors limit the mar­ket’s abil­ity to bring in new sup­ply at speeds that matches with the rise in de­mand. In­vestor ac­tiv­ity: High in­vestor ac­tiv­ity al­ways plays a big

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