What Is The Taxability Of Rental Income Of That Second Home?

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One wonders what are the tax implications of the rental income on the second home which is rented out .Let us assume Mr Mahesh 40 Years of age owns two houses in Mumbai. One at Vashi in Navi Mumbai and the other home at Borivali West in Mumbai. Mr Mahesh stays at the Borivali flat and gives the Vashi Flat for rent at the rate of INR 3 Lakhs per annum after deducting municipal and other standard taxes. So What Are The Tax Implications In This Case? Mr Mahesh will have to pay the tax on his rental income earned on his Vashi Flat .If Mr Mahesh a salaried employee earns INR 8 Lakhs and receives rent of INR 3 Lakhs the total income earned by Mr Mahesh is INR 11 Lakhs per annum and he is taxed at the rate of 30%.Mr Mahesh makes use of deductions of INR 1 Lakh under Section 80 C for investments made in the Public Provident Fund and deductions of INR 35000 under Section 80 D for the health policies taken for himself his elderly parents and his spouse. Now his taxable income is INR 9.65 Lakhs and this amount is taxable at 20%.

Let us consider the notional rent for the Borivali Flat is INR 5 Lakhs per annum and the notional rent for the Vashi Flat is INR 3 Lakhs per annum. In this case Mr Mahesh has the option to select any of the properties as self occupied. The other property will be treated as deemed to be let out and taxed as per the estimated annual rent. Mr Mahesh stays in the Vashi flat and his family stays in the Borivali Flat. Mr Mahesh has the option to treat either of the two flats as self occupied and the other is deemed to be let out. The Flat considered to be let out will be taxed as per the estimated yearly rent. Mr Mahesh will treat the Borivali flat as self occupied because the notional rent is INR 5 Lakhs which is higher than the notional rent of the Vashi apartment which is INR 3 Lakhs. So Mr Mahesh will have to pay tax on the estimated rental income of INR 3 Lakhs after deducting municipal and standard taxes on his Vashi Flat. Let us assume a third case in which one of the flats is self occupied and the other flat is vacant .Then even though this Flat does not generate any rental income Mr Mahesh has to pay taxes on the estimated rental value of the unoccupied flat.

Deductions are available as per the Income Tax act 1961 for the municipal taxes paid during the year. All expenses such as insurance, repairs and annual maintenance of the house avail a deduction of 30% as a flat standard deduction irrespective of the expenses actually incurred If a loan is taken for purchasing the second property then the annual interest paid on the loan is available as a deduction. This deduction is available irrespective of whether the property is given for rent or not. In case the property is given on rent the entire interest amount is tax deductible irrespective of whatever this amount is. In case the second house is not rented and kept vacant then the interest amount on your home loan which is deductible is INR 1.5 Lakhs .One needs to note that wealth tax has to be paid on the second property as only a single unit is exempt from wealth tax. However if the second house is given on rent for a minimum period of 300 Days in a year no wealth tax needs to be paid.

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