Under Indian Income Tax Law, income from house property is one of the categories where even notional incomes are determined and liable to tax. Every individual who owns more than two self-occupied properties has to treat the remaining as deemed let out and offer notional rental income. A property is treated as self-occupied property if the same is used by an individual for his residential usage. Also, no other benefit should be derived from such property. Till FY 2018-19, only one house could be treated as self-occupied, and from FY 2019-20, two properties are allowed. However, it is important to note that the total housing loan interest allowed as a deduction from both the properties together is capped at INR 2 Lakhs.
The Income Tax provisions treat a property as ‘self‑occupied’ if it satisfies any one of the following conditions:
- The owner of the property is using it for his residential usage; or
- The property is vacant due to an individual’s employment, business, or profession in another place, where he has to reside in a property not belonging to him.
Let us understand the law with few illustrations.
Arun, an individual living in Bangalore owns 2 houses and both are utilized for his own usage. Arun uses Bangalore house for his self-occupation and the other one is situated in his native place outside Bangalore used by Arun himself during his visits to native place. As per law, Arun can treat both as self occupied properties as both are used for self usage.
Varun, an individual living in Bangalore, owns 2 houses one in Bangalore used for his family and another one in his native place kept vacant. Varun would need to treat the house situated in a native place as ‘deemed let-out’ property and offer notional rental income. The house situated in native is not self-occupied, hence the condition (1) mentioned above is not satisfied. The house situated in native, not satisfying condition (2) as Varun stays in his own house in Bangalore.
It is important to note that condition (2) has two parts. One part states that the house should be vacant due to an individual’s employment or business in another place and hence this property is vacant. The second part states that the property being used in place of employment or business should not be an individual’s own property. In Varun’s case, the native property though vacant due to employment in Bangalore, the second part, i.e. individual’s stay in place of employment should be at a property not owned by him is not satisfied. Hence, the native place property though vacant and even if not intended for let-out, still needs to be treated as deemed let-out property offering notional rental income.
From the above illustrations, it is clear that if a property needs to be treated as self-occupied for income tax purposes, then it should satisfy one of the conditions mentioned above. Also, the income tax provisions have not defined what instances would be treated as own usage.
Generally, the individual’s personal occupation alone is treated as self-occupied. The property occupied by parents or any other family members and which is not used by an individual for his personal stay is not treated as self-occupied. This principle has been upheld in a few Income Tax rulings also.
In case of individuals who qualify as ‘resident & ordinarily resident’ in India are liable to offer global income to tax in India. They need to apply the above-said principles/ conditions even to the properties they own abroad in addition to properties owned within India. Suppose an individual who has come to India on employment, owns one house in India (used for self‑occupation) & another one abroad in USA (kept vacant & not used for letting out or self-usage), then he has to offer the house in USA under ‘deemed let-out’ basis as he does not satisfy either of the conditions discussed above. Similar issue arises even for non-residents who stay in own house abroad and have vacant house within India which is neither used for the self purpose or letting out purpose.
Based on the above points, each individual needs to analyze his case though he may own only two properties, whether both can be claimed as self-occupied for income tax purposes.
The above information of Income from house Property is for general understanding and awareness purposes only. It is highly suggested that the readers discuss their facts specifically with their respective tax consultants to determine the appropriate compliances applicable for their specific case.