Having multiple houses is not very uncommon these days. If you are planning to rejoice the rental income from these properties, hold on. Something is ready to pinch you hard. It is called Income Tax. We often focus on paying tax on our salary, deductions under section 80C, etc and thereby simply neglect the house property income.
You might have skipped the part ‘House property income’ while filing your taxes last year under the impression that such income may not be traced. However, IT dept is acting fast against such practices. Instead of not stating the house property income, why not think of minimizing the tax burden on this it? Before knowing how to do it, it’s important to know how self occupied properties and rented properties are treated for the purpose of income tax.
Self Occupied property for Income tax
A self occupied property would be the one which is used for your occupation. The tax benefits/deductions allowed for this are:
1) Annual value will be treated as Nil.
2) Principal part of home loan (up to Rs. 1 lakh under section 80C) and interest part (up to Rs. 1.5 lakh under section 24)
Rented property for Income tax
A rented property is the one which derives rental income for you. The tax benefits/deductions for such properties are:
1) Municipal taxes paid
2) 30% standard deduction
3) Interest part of home loan without any upper limit (Principal part doesn’t qualify for deduction here).
4) Exempt from wealth tax if it is rented for more than 300 days in a year.
How else can you save tax?
If you have multiple properties, you have the option of choosing one as self occupied and others would be treated as rented. Interesting part here is that you can even choose the one which you are not residing as self-occupied. If you want to save maximum tax, you need to choose the one with highest rental income as self occupied and the rest as rented.
There is another way to save tax. You can register your house in your spouse’s name so that each one will have one property as self occupied, for which there will not be any tax.