1. Where the Annual Value of such House shall be Nil [Section 23(2)(a) & (b)]:
Where the property consists of a house or part of a house which—
(a) is in the occupation of the owner for the purposes of his own residence; or
(b) cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him,
the annual value of such house or part of the house shall be taken to be NIL.
2. Where the Annual Value of such House shall not be Nil [Section 23(3)]:
The annual value of self-occupied house shall not be Nil:
(i) if such house or part of the house is actually let during the whole or any part of the previous year; or
(ii) any other benefit therefrom is derived by the owner from such house.
In the above cases, the annual value shall be determined as per provisions applicable for let out properties i.e. under clause (a), (b) or (c) of section 23(1).
3. Where assessee has more than Two Houses for Self Occupation [Section 23(4)]:
If there are more than 2 residential houses, which are in the occupation of the owner for his residential purposes then he may exercise an option to treat any Two of the houses to be self-occupied. The other house(s) will be deemed to be let out and the annual value of such house(s) will be determined as per section 23(1)(a) i.e. the sum for which the property might reasonably be expected to let from year to year.
In other words, the annual value of two self-occupied houses opted by the assessee can be taken as Nil.
The assessee in this case, should exercise his option in such a manner that his taxable income is the minimum. Such option may be changed from year to year.
However, if an assessee has a house property which consists of two or more residential units and all such units are self-occupied, the annual value of the entire house property shall be taken as Nil as there is only one house property though it has more than one residential units.
Note :
1. Annual value as per Income-tax is after deduction of municipal taxes, etc. paid, if any.
2. The benefit of exemption of two self-occupied houses is available only to an individual/HUF.
3. If the assessee lets out his house to his employer, which in turn allots the same to him, as rent free accommodation, such house will not be treated as self occupied for the above purpose, because he is not occupying his own house in the capacity of owner.
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4. Deduction in respect of one or Two self-occupied houses where Annual Value is Nil:
Where annual value of one or two self-occupied house is Nil, the assessee will not be entitled to the standard deduction of 30%, as the annual value itself is Nil.
However, the assessee will be allowed deduction on account of interest (including 1/5th of the accumulated interest of pre-construction period) as under:—
(a) Where the property is acquired or constructed with capital borrowed on or after 1.4.1999 and such acquisition or construction is completed within 5 years of the end of the financial year in which the capital was borrowed |
Actual interest payable subject to maximum ₹2,00,000 if certificate mentioned in point 2 in box given below is obtained |
(b) In any other case, i.e., borrowed for repairs or renewal or conditions mentioned in clause (a) are not satisfied |
Actual interest payable subject to maximum of ₹30,000 |
Note.—
Where the assessee has opted for two houses to be treated as self occupied, the deduction of amount of interest given above shall in aggregate remain ₹30,000 or ₹2,00,000, as the case may be, whether assessee has opted for one residential house or two residential houses to be self occupied.
Thus the aggregate of the amount of deduction of interest in the case of first and second self occupied house shall not exceed ₹2,00,000.
Note :
1. It may be noted that the deduction of interest of ₹30,000 is allowed for purpose of repair or renewal or reconstruction of house property where as the deduction to the maximum of ₹2,00,000 is allowed only for acquisition or construction of house property, subject to other conditions being satisfied. Further, if conditions mentioned in para (a) are not satisfied i.e. capital is borrowed before 1.4.1999 or house is not completed within 5 years (3 years upto A.Y. 2016-17) of the end of the financial year in which the capital is borrowed, deduction of interest shall be allowed to the maximum of ₹30,000.
2. For getting deduction of interest of maximum of ₹2,00,000, it will be necessary to obtain a certificate from the person to whom such interest is payable specifying the amount of interest payable by the assessee for the purpose of acquisition/construction of the property or conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.
3. It may be observed that for let out/deemed to be let out property, the entire interest is allowed as deduction whereas in case of one or two self-occupied property the interest shall be allowed to the maximum of ₹30,000 or ₹2,00,000 as the case may be.
Amendment made by the Finance Act, 2020
If an individual or HUF opts to be taxed as per the new alternative regime under section 115BAC, and he/it has a residential house property as per section 23(2), meant for his self-occupation, the interest on money borrowed for purchase or construction or repairs of house property shall not be allowed as deduction. |
5. Computation of income of House Property which is Partly Let and Partly Self Occupied
In this case the annual value, deductions and the income of the part of the property which is let shall be computed separately under the let out property and the income of the portion or the part of the property which is self occupied shall be determined under the "self-occupied property" category.
E.g. where one unit is let out and the other unit is self occupied, then the whole property cannot be taken as a single unit. Municipal value or fair rent if not given separately, shall be apportioned between the let out portion and self occupied portion on built up area basis.
Similarly, where, in a building the ground floor is self-occupied and first floor is let out or viceversa, such a property shall not be treated as a single unit. Instead, income from first floor which is let shall be computed separately as per let out provisions and the floor which is self-occupied shall be computed separately as per self-occupied provisions. Municipal tax and interest shall also be apportioned on the basis of built up/floor area space.
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