One can claim deduction on only one residential property occupied by him

If a person is the owner of more than one residential property, only one of the properties which he chooses will be treated as a self-occupied property. So, the other properties owned by him, even if is lying vacant will be treated as a “deemed let out property”.

Fate of the “deemed rent”:

The deemed rent of the other property will be taxable. The deemed rent will be calculated by assuming the rent that may be obtained if it is let out, which is based on valuations of similar properties in the locality.

Deduction available:

One can claim deduction for the actual municipal taxes paid and a deduction of 30% after deducting the municipal taxes as its maintenance charges against the deemed rent of the property. Moreover, the total interest on housing loan is allowed for deduction against its rental value. The rest amount of rent will be thereafter taxable under the category “income from house property”.

In addition to the above, one can claim deduction for the repayment of principal part of the housing loan up to a limit of Rs.1 lakh each financial year under section 80C of the Income Tax Act.

As you own more than one residential property and if the other ones are rented out for at least 300 days in a year, there can be wealth tax effects on the other houses.

If you rent out the other house properties, the rental value is taxable. Moreover, you can claim deductions for its municipal taxes and housing loan interest payment against the rental value. But if the property is rented out for a period of more than 300 days in one year, wealth tax implications can be avoided.

Quantum of deduction:

The amount of deduction of the interest part of the housing loan of the residential property depends upon whether the residential property is self-occupied one or a let-out property.

If the property is a self-occupied one, then the deduction shall be limited up to Rs.1.5 lakh per financial year as per section 24 of the Income Tax Act, 1961. But on the other hand, if the property is a let-out property, then the whole amount of interest on house loan is allowed as deduction against the net rental value of the property.

Moreover, for payment of the interest on housing loan of a property which is under construction, according to section 24, deduction towards interest is allowed only from the year in which the house is completed. The interest paid during the period before the year in which the construction is completed is deductible in five equal installments, starting from the year in which it was constructed. The evidence of completion of construction is obtained from a completion certificate issued by the builder.