Income Tax I How to Calculate Tax for ITRs on Multiple Properties

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How To Calculate Tax For ITR On Multiple Properties | Photo credit: BCCL

Some of us own multiple properties such as a house, office, store, or land. But in the eyes of the tax authorities, all these properties are the same, whether they are commercial or residential properties. All of these are classified under the heading “Income from real estate” in the income tax return. However, when such a good is used for commercial purposes or for any commercial activity, it is then taxed under the heading “business and professional income”. However, the expenses incurred for its repair or maintenance can be deducted from the business expenses.

Tax on “independent properties”

For tax purposes,

Real estate that is vacant or occupied by the taxpayer or his parents, spouse or children for residential purposes is considered independent for tax purposes. As of fiscal year 2019-2020, up to two of these properties are considered for the benefit of independent ownership and others are considered “considered rented” by the tax department. Prior to FY20, the independent ownership advantage was extended to only two properties. Rental income tax must be paid on property leased or deemed to be leased. In the 2019-2020 provisional budget, the government exempted from income tax the imputed rent of independent houses.

Tax on rented goods

Anything beyond two detained on behalf of the taxpayer, whether occupied or vacant, will be deemed leased. The tax is calculated on the fair value of the rent or the municipal value of the house under section 23 (1) (a) of the Income Tax Act.

The fair value of the rent is what a similar home at the location recovers while the standard rent is set under the government rent control act. The municipal value is estimated by the Municipal Corporation of the region. After considering the fair rent, standard rent, and municipal rent on these properties, calculate the annual value, which is the greater of the fair rent and the municipal value. The lower of the annual value and the standard value is the notional rent.

The expected rent on deemed rental property, beyond two exempt independent dwellings, is the annual value, which is taxable under “Home ownership income”.

Please note that expenses incurred on one property cannot be adjusted against rental income from another property when filing the tax return.

Deductions available

Municipal taxes on a property are allowed as a deduction if the taxes are paid by the owner. In addition, 30% of the annual home equity value of the home is allowed as a standard deduction under Section 249 (a) of the Information Technology Act.

Home loan deduction

Deduction on repayment of principal up to Rs 1.5 lakh under Article 80C of the Data Protection Act. A deduction is also allowed for registration and stamp costs.

For independent residences, an interest amount of up to Rs 2 lakh under section 24 (b) is also allowed. Ditto in the case of a leased property.


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