People constantly snub the tax involvement points before buying any second house property. I write this article for those people who are recently planning to buy the second house. I am sure this article will help you to understand the tax implication of house property income of the second house or more house/flats.
One house or part of a house used by you for your own residence is exempted from tax. If you have two or more houses are used by your own residence, you have the option to choose one of the self-occupied house, for which you would like to get an exemption from tax and its annual value will be Nil. The second house or other houses deemed to be rented out as per income tax act whether not actually rented out.
What is Annual Value of house property and how it is determined?
The annual value means the amount for which the property might reasonably be expected to be let out from year to year. However, if the actual rent received or receivable in respect of any let out property.
The annual value is always taken to be NIL in case of one self-occupied property. So it is very important and beneficial to plan his taxes legally.
Now get to the main issue, if you have second house property or planning to buy it.
How to calculate annual value/taxable value of property another then self-occupied property?
As I earlier discussed the assessee has the option to choose only one house as self-occupied property. Rest of property is assessable by the income tax as follows.
Condition 1: if the house is actually rented out –
  • The actually rent received is treated as house property income
Condition 2: if the house is not actually rented out –
  • The notional rent as per income tax act treated as house property income.
From the annual value the following deductions are available u/s 24 of the income-tax ACT w.e.f. asst. Year 2002-03.
  • Taxes paid to local authority,
  • Taxes paid to municipal corporation – municipal taxes
  • 30% of the annual value of the house property as repair and maintenance charges ( The deduction is fixed @ 30% whether assessee incurs more or less amount on repair and maintenance of the house) as per sec. 24(a)
  • Actually Interest paid on housing loan whether deemed to be let-out and actually let-out
(For self-occupied property, maximum interest on housing load is restricted to Rs. 1,50,000 p.a., subject to certain conditions.)
Where the assessee owns only one house property and it cannot actually be occupied by him because it is situated at a place other than a place where he is employed or carries on business or profession, in such a case also the annual value of the property is taken as nil provided the property is not actually let out.
The rent is computed based on the current market rates and are taxable. So be obvious on the intention of buying a second house before actually buying it.
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