If any individual has acquired more than one house property, then only one property will be taken under consideration as self-occupied according to the present regulation. Even when the other property does not have a rent occupation still that property will be considered let out and national rent will have to be paid for taxation. This became rather tough for the families living afar from each other and even though those houses were occupied by family members only they still had o pay the notional income to tax. For helping such individuals, the interim Budget offers to allow two house properties being considered as self-occupied property. This is definitely a greeting move as the deemed rent is no longer considered taxable and is in a row with global principles. However, this amendment is likely to result in a difficult impact from a taxation point in some situations where the second house is taken on loan.
Suppose Mr. X owns two different houses with one property in Kolkata and another property in Rajarhat. Both these properties are currently self-occupied and there is no housing loan on the property. The deemed rental income has been assumed to be INR 100,000 per year. This individual will have tax liability under existing provisions, on account of the second property being treated as deemed let out.
Particulars
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Property 1 (Self Occupied)
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Property 2 (Deemed Let out)
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Net Annual Value (NAV)
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NIL
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100,000
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Less: Standard Deduction
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NA
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(30,000)
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Less: Interest on housing loan
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NIL
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NIL
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Income from house property
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NIL
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70,000
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With the offered change, the individual can now regard two properties as self-occupied. There will not be any income from house property in the above situation and subsequently, there will not be any tax liability.
When your property is on House loan
Let’s assume that there is a housing loan on both the properties and then the interest payment has been assumed to be INR 300,000 and INR 400,000. On viewing the impact we see of proposed changes in the Budget.
Under Existing Provisions
Particulars
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Property 1 (Self Occupied)
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Property 2 (Deemed Let out)
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Net Annual Value
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NIL
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100,000
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Less: Standard Deduction
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NA
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(30,000)
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Less: Interest on housing loan
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(300,000)
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(400,000)
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Income from house property
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(200,000)
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(330,000)
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The loss this person would undergo in the current year is INR 200,000 against salary or other income. Therefore, a loss which can be carried forward is INR 330,000 to be set off against future house property income.
Under Proposed Provisions
Particulars
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Property 1 (Self Occupied)
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Property 2 (Self occupied)
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Net annual value
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NIL
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NIL
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Less: Standard Deduction
|
NA
|
NA
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Less: Interest on housing loan
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(300,000)
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(400,000)
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Income from house property
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(200,000)
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Carried forward loss is none in this case. Therefore, the individual has a negative tax impact on account of the amendment anticipated. The amendment would impact individuals depending on individual circumstances, the quantum of interest and rent income.
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