It might not be easy to claim 2 house houses as self-occupied for tax purposes: View

Owning one residence is a need but owning two houses is probably a compulsion. If someone has to maintain two houses, one for his instant circle of relatives and any other for his dad and mom, as in step with cutting-edge guidelines he has to pay tax on the notional hire of such 2nd residence assets. As of now, i.e. for Financial Year (FY)2018-19 the Income-tax Act (‘I-T Act’) allows a taxpayer to assert both of the residence assets as self-occupied house assets, and all other residential homes are deemed to be permit-out.
Due to modern-day socio-financial conditions, an character may additionally must hold homes at special places, which will be due to his employment, children’s training, residence for mother and father, so on and so on. Thus, this concept of deemed rent to levy tax on the notional income of 2d residence belongings has been regarded as negative and negative by the character taxpayers.
To deliver alleviation to person taxpayers, the Income Tax Act has been amended via the Interim Budget, 2019 allowing taxpayers to say any residence houses as self-occupied. In different phrases, from FY2019-20 onwards a taxpayer will not be required to pay tax at the notional hire of the second house property, if conditions specified in Section 23(2) are happy.
Existing Provision
As according to the provisions of the I-T Act for FY2018-19, if a person owns a couple of residence property and none of them has been let-out throughout the yr (even for a single day), then he can deal with both of the house belongings as self-occupied, and all other house houses are deemed to be allow-out. As a result, the market hire, a similar property might fetch if let-out for the entire year, is deemed because the annual price of such belongings and someone has to pay tax on it although he does not earn any earnings from such belongings. Thus, a person can have best one self-occupied residence property as per the provisions of the I-T Act for the modern FY, and he has to pay tax on all different house homes even though they had been mendacity vacant or occupied by way of any family member.
New Provision
The Finance Minister, in his finances speech, said that considering the issue of the middle-elegance taxpayers who’ve to keep households at two locations as a result of their process, kid’s schooling, care of mother and father, and so on., Section 23(4) turned into proposed to be amended with effect from Financial Year 2019-20. As in step with the new provision, if an assessee owns more than homes, then he can claim the yearly fee of any of the two house homes as nil. Thus, a person could be no longer required to pay tax available on the market hire of the second one house belongings. It seems that this variation could convey terrific comfort for those taxpayers who’ve to keep two homes. However, there’s a trap.
As consistent with phase 23(2) a belonging are handled as self-occupied house assets if it meets any individual of the following two conditions:
1. If it’s far occupied with the aid of the proprietor for his own house; or
2.If it cannot be occupied by means of him owing to employment or commercial enterprise at every other place, and he resides at that different location in a rented house/house not belonging to him.
Let’s understand this with an example assuming that new provision is in pressure. Mr Ajay Kapoor is from Delhi, and he works in Bengaluru. He owns homes in both those towns, Delhi and the Bengaluru. He remains in his own residence at Bengaluru, and his parents occupy his Delhi house. In one of these scenario, his residence at Bengaluru will be dealt with as self-occupied as he occupies it for his residence. However, his residence at Delhi shall now not be treated as self-occupied because of condition no. 2 mentioned above. This situation is deemed to be fulfilled if he, regardless of owning homes – one in Delhi and one in Bengaluru – still lives in a separate rented residence or a house not belonging to him in Bengaluru. In this kind of situation both the houses that he owns shall be dealt with as self-occupied.
This circumstance of staying in the rented residence become applicable as in keeping with the unamended I-T provisions relevant to the modern-day 12 months.However, with the provisions being amended w.E.F FY2019-20 onwards if this circumstance isn’t comfy, it will no longer fulfill the objective behind introducing this modification.
Often taxpayers and dept. Are at loggerheads in recognize of circumstance no.1, that house ought to be occupied by the proprietor for his house. When a property is deemed to be occupied for own house has not been described inside the Income-Tax Act.
This issue, whether or not a house belongings may be deemed to be occupied for own house if family participants of the owner occupy it, has been evaluated by numerous Courts and Tribunal. In most instances, it has been held by way of the judiciary that the belongings need to be retained through the owner for his private career for deeming it to be a self-occupied property. An proprietor of a property can permit his circle of relatives members to live therein, however it must be retained through him for his personal profession also. Therefore, a assets might not be dealt with as self-occupied if the proprietor doesn’t retain it for personal occupation.


In the above example, as in step with the judicial pronouncements, the house at Delhi might not be dealt with as self-occupied as the owner does not hold it for his non-public occupation. Hence, within the instant case, he’ll not be able to take the gain of the amendment and residence in Delhi shall be handled as deemed let-out in case he is staying in his personal residence in Bengaluru.
As there are judicial pronouncements in opposition to the taxpayers on this difficulty, the profits tax department need to clarify that a house property shall be deemed to be self-occupied even supposing the circle of relatives contributors occupy it. The rationalization could be very a lot had to justify the goal behind the change of no longer levying tax on notional hire if taxpayers hold homes to aid their youngsters or parents.

Eddie Bowers
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