Tax Relief For Owners Of Multiple Properties
The privilege of being the owner of multiple properties comes at a cost—those who own more than one property have to pay income tax on properties that are not self-occupied. Even if this property is not given on rent, the notional annual value of the asset is taxed under the provisions of the income tax law. The law assumes you are earning rent from this property, and taxes your income thus earned. Your income from house property will be taxed based on the net annual value of the property, and not the gross annual value. The net annual value of the property is arrived at by deducting the amount of taxes you incurred towards paying the municipal body. According to Section 23 (1) (a) of the I-T Act, the annual value of a property should be the amount a property may typically earn in rent in a year.
Now, what happens, when you own two properties, one more valuable than the other, but you are occupying the one that is less in value, tax wise?
An owner should select that property as self-occupied which has the highest tax liability or has the highest notional rent.
But, what if you made a mistake and did the opposite? There is no reason to worry.
In case you declared the property that is less in value as self-occupied in your income tax declaration initially, you could opt for declaring the more valuable property during actual assessment, the Mumbai Bench of the Income Tax Appellate Tribunal has recently ruled. Such freedom helps home owners lower their tax outgo.
Since the owner declared this property whose annual value is significantly taxed, the annual income from this property would be termed nil, and no tax liability would arise on this property.
While giving its order in a case where the assessee owned three properties and made changes during actual assessment, the tribunal said that the Income Tax Act nowhere stated that the option of selecting a self-occupied property, once exercised, cannot be changed.
Also read: How Income From House Property Is Taxed