If you have more than 2 house property, it might be difficult for you to plan your tax on your income from house property in such a manner that you can reduce your tax liability.
Because people don't know that even if their property is self-occupied, they are still liable to income tax. For example, if you have three house property, your one property out of three shall be deemed to be let out property and accordingly, you will be liable to pay tax.
Earlier as per the provisions of Section 24 of Income Tax 1961, if you had two-self-occupied property, you had to consider one house property out of two as deemed let out and accordingly, you had to calculate income tax accordingly on that deemed let out property.
Let us do Tax Planning for House Property Income
Suppose you have three houses -HP 1, HP 2 and HP 3. Now you have to plan which house property is to be deemed as let-out property because as per Finance Act 2019, out of three property, one property has to be deemed to be let out property mandatorily.
LET US MOVE AHEAD
Income under the head of House Property for A.Y. 2020-21
Particulars | HP 1 | HP 2 | HP 3 |
---|---|---|---|
Market Value(MV) Per annum | 5,00,000 | 5,60,000 | 5,30,000 |
Fair Rent(FR) Per annum | 5,75,000 | 4,75,000 | 5,80,000 |
Standard Rent(SR) Per annum | 5,50,000 | 5,70,000 | 5,75,000 |
Gross Annual Value=Lower( Higher(MV,FR), Standard Rent) | 5,50,000 | 5,60,000 | 5,75,000 |
Less: Muncipal Taxes Paid by owner | 56,000 | 50,000 | 20,000 |
Net Annual Value(NAV) | 4,94,000 | 5,10,000 | 5,55,000 |
Less: 30% of NAV | 1,48,200 | 1,53,000 | 1,66,500 |
Less: Interest on Borrowed Capital | Nil | 55,000 | 1,75,000 |
Income from House Property | 3,45,800 | 3,02,000 | 2,13,500 |
Option 1: HP 1 and HP 2 are taken as Self Occupied Property
If HP 1 and HP 2 are taken as Self Occupied Property, the income from house property shall be-Particulars | Amount |
---|---|
HP 1 (Self Occupied Property) | Nil |
HP 2 (Interest deduction restricted to INR 30,000) | (30,000) |
HP 3 Deemed Let Out | 2,13,500 |
Income from House Property | 1,83,500 |
Option 2: HP 1 and HP 3 are taken as Self Occupied Property,
If HP 1 and HP 3 are taken as Self Occupied Property, the income from house property shall be-
Particulars | Amount |
---|---|
HP 1 (Self Occupied Property) | Nil |
HP 2 (Deemed Let Out) | 3,02,000 |
HP 3 (Self Occupied Property) | (1,75,000) |
Income from House Property | 1,27,000 |
Option 3: HP 2 and HP 3 are taken as Self Occupied Property
If HP 2 and HP 3 are taken as Self Occupied Property, the income from house property shall be-
Particulars | Amount | |
---|---|---|
HP 1 (Deemed Let Out) | 3,45,800 | |
HP 2 (Interest deduction restricted to INR 30,000) | (30,000) | |
HP 3 (Self Occupied Property) | (1,75,000) | |
(Total Interest deduction restricted to INR 2,00,000) | (2,00,000) | |
Income from House Property | 1,45,800 |
Since Option 2 is most beneficial, so you must choose HP 1 & HP 3 as your self occupied property and HP 2 as your let-out property. Considering this tax planning, your tax liability shall be INR 1,27,000 WHICH IS LOWEST
Assumption
In the case of HP 2 Loan is taken for repairing purpose and in the case of HP 2, the loan is taken for acquiring a new house property
This tax planning has been done taking into consideration the provisions of the Income Tax Act, 1961 applicable to AY 2020-21
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DISCLAIMER
The information provided in this article is for general informational purposes only. All efforts have been made to provide accurate information in this document, however, it should not be perceived as professional or legal advice. The reader should consult a professional before making any decision based upon this document. Under no circumstance, the author or the publisher shall have any liability to you for any loss or damage of any kind incurred as a result of the use of this information.
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