TAX TALK-07.11.2011-THE HITAVADA

TAX TALK-07.11.2011-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“SECOND HOUSE PROPERTY: INCOME TAX IMPLICATONS”
Query 1]
I have some confusion regarding house property income. Please clear my doubts.
1. I have taken two home loans. One home is in place of work and other in different city. Both the house properties are self occupied & have not been let out. One loan is 10 year old; employer has given it with lesser interest rate and the other taken last year only. New Loan amount: Rs. 11 Lacs for 15 year term, Interest Rs. 1,12,858/- & Principal Rs. 72,088/- in the first year.
2. I have not let out other home. I want to take interest benefit for both loans can I? Please explain whether it is possible?
3. Which Form I have to use for filing Income Tax Return? ( Two Home loans)
4. How to file return, detailed steps for claiming loss on house property?
5. I have already paid tax without counting 2nd loan and I want refund now. Can I get refund?
6. Since other home is not let out, can I show income from house property as zero?
7. Please give general guidelines as most of information available is regarding one self occupied house only like Interest deduction limit of Rs. 1,50,000/- is for the first self occupied home. Some say this limit is not applicable to 2nd (if let out)? or even if vacant ?) [Mahesh Avadhani-mahesh25771@hotmail.com]
Opinion:
1. The income from house property is taxable on the basis of its“Annual Value”. The term “Annual value” is elaborated at point No. 6hereunder.
2. The tax implication / housing loan benefit for the second houseproperty is not similar/ same as applicable to the first houseproperty. The second house property has a different tax treatmentunder the Income Tax Act-1961.
3. One house used by the tax payer for his/her own residence is exemptfrom tax as its annual value is treated as Nil.
4. Where the assessee owns only one house property and it cannotactually be occupied by him because it is situated at a place otherthan a place where he is employed or carries on business orprofession, in such a case also the annual value of the property istaken as nil provided the property is not actually let out.
5. If taxpayers have two or more houses which are used for ownresidence, then assessee have the option to choose one of the house (according to his own choice) as self-occupied house, for which an assessee would like to get anexemption from tax and its annual value will be considered as Nil. Thesecond house (or other houses) shall be deemed to be have to been let out [whether not actually let out].
6. What is Annual Value of house property and how it is determined?The annual value means the amount for which the property mightreasonably be expected to be let out from year to year. However, ifthe actual rent received or receivable in respect of any let outproperty is higher, it shall be treated as its Annual Value. Theannual value is always taken to be NIL in case of one self-occupiedproperty.
7. How to calculate annual value/taxable value of property:Annual value of property is considered as higher of the following:(i) Actual rent received a year; (ii) Reasonable expected rent of the property.[ The reasonable expected rent is deemed to be the sum for which the property might reasonable be expected to be let out from year to year and is normally higher of (a) municipal value; (b) fair rent. However, if the property is covered by a Rent Control Act, then the amount so computed cannot exceed the Standard Rent determinable under the Rent Control Act.]As mentioned earlier, the assessee has the option to choose only onehouse as self-occupied property. Rest of property is assessable toincome tax on the basis of its annual value.
8. Deductions:From the annual value the following deductions are available under theIncome Tax Act: -a] Municipal Tax paid.b] 30% of the net annual value of the house property towards Repair &Maintenance charges (Deduction is fixed @ 30% whether assessee incursmore or less amount on repair and maintenance of the house).c] Actual Interest paid on housing loan whether house is actually letout or is deemed to be let-out.d] For self-occupied property, maximum interest on housing load isrestricted to Rs. 1,50,000 p.a., subject to certain otherstipulations.
9. Effectively, if Assessee owns more than one house property & is kept for own use,a] one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.b] Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above. In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit.However, for the second house property, no deduction is available for repayment towards theprincipal portion of housing loan under section 80C as clause ( xviii)to section 80C of the I T Act reads as under: -"(xviii) for the purposes of purchase or construction of ‘ a’ residential house property the income from .....".
The replies to other parts of your queries are as under:
1. You are a salaried Assessee & may not be having Income under the head “Income from Business/Profession”. In this case, you have to file Income Tax Return in ITR-2 as you own more than one house property.
2. You have to fill up the “Schedule-HP” (Details of Income from House property) in the ITR-2 which is self explanatory. The loss from House property can be shown in the “Schedule CYLA” (Details of Income after set off of current year losses) from House property) & “Part-B- TI” (Computation of Total Income).
3. You can get the refund if it is due after computing the income & tax as elaborated above.
4. Even if any of the house property is not actually let out, the income of one of the house property will be taxable on notional basis. Income cannot be shown as Zero.

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