Section 23(2)(a) tax treatment of self occupied house property

Where the house property consists of one house is the occupation of the owner for his own residence, the annual value (AV) of such house property shall be taken to be nil, As per section 23(2)(a), a house property shall be termed as self occupied house property or own residential house property where such house property or part thereof:

• is in the occupation of the owner for the purposes of his own residence or own residential house property;

• is not actually let out during the whole or any part of the previous year (PY); and

• no other benefit there from is formed by the owner.

Treatment: The annual value of such house property or part of the house property shall be taken to be nil.

HOW TO COMPUTE TAXABLE INCOME FROM SELF OCCUPIED HOUSE PROPERTY | SECTION 23(2)(a) OF INCOME TAX ACT | SELF OCCUPIED HOUSE PROPERTY SECTION 23(2)(a)

If a taxpayer occupies more than two house property as self-occupied, he is allowed to treat only two house as self-occupied at his option. The remaining self-occupied house properties shall be treated as ‘Deemed to be let out house property’.

Tax point: In the light of the above provision are as follows –

• Combination Fully self occupied treated as Self occupied property;

• Combination Partly self occupied & partly vacant treated as Self occupied property;

• Combination Partly self occupied & partly let out treated as Partly self occupied & partly let out;

• Combination Partly self occupied & partly use for business purpose treated as Self occupied to the extent used for self occupation.

NOTE:

(1) Available to: Benefit under section 23(2)(a) can be claimed by an Individual and HUF. The benefit is not available to other taxpayer like company, firm, etc.

(2) When owner want to change his option: It is not necessary that once a house property is treated as self-occupied property it shall be continuously treated as self-occupied property. Such option may be changed every year without any permission or instruction.

(3) When owner occupies a house in some other capacity: When the assessee occupies his house but not in the capacity of owner then benefit under this section cannot be claimed. Example- Owner let out the house to his employer & gets back the property as rent free accommodation. In such case, though the owner (assessee) himself occupies the house property but as an employee of the tenant & not as an owner. In such case, house property shall be treated as let-out & not self-occupied.

(4) When more than one house property used in a combined form: If an assessee has a house property, which consist of two or more residential units & all such units are self-occupied used in a combined form, the annual value (AV) of the entire house property shall be taken as nil as there is only one house property, though it has more than one residential unit.

COMPUTATION OF TAXABLE INCOME OF SELF OCCUPIED PROPERTY

Net annual value (NAV) of self-occupied house property shall be taken as nil. As a consequence, deduction under section 24(a) (standard deduction) shall also be nil. Interest on loan under section 24(b) shall be allowed, subject to certain ceiling.

Computation at a glance:

Net Annual Value = Nil

Less: Interest on borrowed capital (fund) under section 24(b) = ***

Income from house property = (***)

Standard deduction under section 24(a) is not available.

NET ANNUAL VALUE

Net Annual value (NAV) of two self-occupied house property, at the choice of the taxpayer, is taken as nil. He can choose those house property as self-occupied through which tax liability can be reduced. 

Normally (but not always) house property with higher gross annual value (GAV) is treated as self-occupied house property but it is advised to calculate total income (TI) under the head ‘Income from house property (HP)’ by applying each option separately and then choose the option which reduces total income.

INTEREST ON LOAN UNDER SECTION 24 (b)

Interest on loan taken for construction, erection, acquisition, repair, renovation or extension is allowed according to the following:

• Maximum Interest allowed in aggregate ₹ 2,00,000:

Where loan is taken / received on or after 01/04/1999 and following conditions are satisfied -

(1) Loan is utilized for construction or acquisition of house property on or after 01-04-1999;

(2) Such construction or acquisition is completed within 5 years from the end of the fiscal year in which the capital was borrowed; and

(3) The lender certifies that such interest is payable in respect of the loan used for the acquisition or construction or erection of the house or as refinance of the earlier loan outstanding (principal amount) taken for the acquisition or construction or erection of the house.

• Maximum Interest allowed in aggregate ₹ 30,000: In any other case.

Taxpoint: In any case, deduction in respect of interest on loan on self-occupied house properties cannot exceed ₹ 2,00,000 in a year.

NOTES:

(a) Calculation and deduction of interest for the period of pre construction and post construction, acquisition, etc.

(b) Assessee shall always have nil income or loss upto ₹ 2,00,000 from properties under section 23(2)(a).

In shortly, treatment of interest on loan is as under:

(1) Subject to other two other conditions. If other two conditions are not fulfilled, then maximum limit is restricted to ₹ 30,000.

(2) Including interest for pre-construction period.

(3) Aggregate limit for all house properties treated as self-occupied house property.