February 4, 2023

Proudly owning a home is a dream come true for many of us and proudly owning a couple of home is a privilege. Most individuals take out a mortgage for buying home property. It’s common information that curiosity on housing mortgage is deductible as much as Rs 2 lakh beneath the Earnings Tax Act. It’s noteworthy that in contrast to a self-occupied home, there isn’t a restrict on the curiosity declare for a set free property beneath the Earnings Tax Act.

Are you able to personal three homes and pay no taxes on them?

Now, a self-occupied home property is used for one’s personal residential functions. If you happen to personal greater than two homes and they’re self-occupied, the Earnings Tax division will nonetheless take into account considered one of these homes as deemed set free and a notional revenue charged to tax.

Let’s take an instance. Suppose, Anant owns three homes – one every in Indore, Bangalore and Baroda. All three are self-occupied.

His dad and mom keep at Indore. He and his spouse keep at Bangalore. Anant’s son stays in Baroda alongside along with his spouse. Anant believes that since all three properties are self-occupied there can be no tax implication.

However, that’s a fallacious assumption. Anant can declare most two properties as self-occupied. Therefore, one of many properties can be deemed to be set free and deemed revenue can be charged to tax. Anant can decide the taxable revenue for every of the three properties utilizing the next components and choose the 2 properties with greater revenue as self-occupied.

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Calculating rental revenue on Let loose/ deemed let-out property

Willpower of revenue from home property as per Earnings Tax Act is a barely prolonged and sophisticated course of. Right here’s how it’s achieved.

Gross Annual Worth of the property would be the highest of the:
• Lease acquired or receivable

• Affordable Anticipated Lease

Affordable anticipated lease is greater of the Truthful Market Worth, Municipal Valuation, or Lease as per Lease Management Act, if relevant.

Step #1: Web Annual Worth is Gross Annual Worth minus Property Tax
Step #2: Normal deduction of 30 p.c of Web Annual Worth is on the market

Step #3: Curiosity on borrowed capital could be claimed as an expense, topic to sure phrases and circumstances.

Often folks avail of a house mortgage to buy a home. This mortgage has twin tax advantages. These are ― principal reimbursement of the housing mortgage deductible as much as Rs. 1.5 lakh beneath Part 80C, and curiosity on housing mortgage deductible beneath Part 24. Curiosity on housing mortgage is deductible as much as Rs 2 lakh for self-occupied property. If the property is rented out, all the quantity of curiosity is allowed as deduction with none restrict.

Carrying ahead your losses

At instances, curiosity on housing mortgage could end in a loss.

Let’s have a look at this instance of Harjit who owns three home properties ― two rented homes at Pune and Mumbai, and one self-occupied home at Ahmedabad. The Web Annual Worth of the homes at Pune and Mumbai are Rs 6 lakh and Rs 9 lakh respectively. Harjit has paid curiosity on mortgage for the three homes Rs 4 lakh (Pune), Rs 10 lakh (Mumbai), and Rs 2.5 lakh (Ahmedabad). The computation of revenue from home property can be achieved as follows:

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Computation of income from house property

Earnings from the Pune home can be set off towards the losses from the Mumbai and Ahmedabad homes. Therefore, internet loss from home property can be Rs 5.5 lakh. This Loss from Home Property Earnings could be set off towards revenue from another sources, viz. Wage, Home Property, Enterprise or Career, Capital Positive factors, and Different Earnings within the present yr. Nonetheless, the utmost restrict of set-off of loss from home property revenue is restricted to Rs 2 lakh.

The stability unabsorbed lack of Rs 3.5 lakh can be allowed to be carried ahead to the following evaluation yr. Unabsorbed loss could be carried ahead to a most of as much as eight years. Within the subsequent yr(s), such loss could be adjusted solely towards revenue chargeable to tax beneath the pinnacle ‘Earnings from home property’.

It have to be famous that the loss beneath the pinnacle ‘Earnings from home property’ could be carried ahead even when the return of revenue for the yr wherein the loss is incurred isn’t furnished on or earlier than the due date of furnishing the return.