How to File ITR When You Have Multiple House Properties

Filing Income Tax Returns in India is a tedious task, especially for those who have multiple house properties. Depending on whether a property is self-occupied, let out or treated as let out, it will be taxed differently. It’s crucial to understand these tax implications to file accurately and maximize deductions.

A large number of taxpayers face challenges in selecting the right ITR form, calculating the annual value of their properties, and optimizing the deductions provided under the Income Tax Act. Similarly, listed changes in taxable income from house properties based upon rental income, notional rent, and claims of home loan interest deductions are significantly influenced. Filing taxes by tax mandates, while maximizing the benefit of available exemptions can lower tax liabilities.

Understanding 'House Property' in Income Tax

As per the Income Tax Act, for taxation, the term 'house property' is defined as any building or of land appurtenant thereto, in the possession or ownership of the taxpayer. Among them are houses, offices, shops, buildings, and the land attached to them. Income earned from such properties is taxable under the head ‘Income from House Property’.

The income from house property is calculated on the basis of annual value, classified as per the above category whether it is self-occupied, let out or deemed to be letted out.

Classification of House Properties

Properties houses are classified by how they are used:

1. Self-occupied property (SOP): Property occupied by the owner or his family for residence. There is no rental income received from the property by the taxpayer.
2. Let Out Property (LOP) – A property that you rent out to a tenant and earn rental income. This income is to be reported by the taxpayer in their ITR.
3. Determination Let-Out Property (DLOP): If a taxpayer owns more than two houses, any additional house (beyond two self-occupied houses) is considered deemed let out. Even if it remains vacant, it is subject to taxation based on notional rent.

Determining the Annual Value of House Property

You are looking at the potential that the property can generate annually:

• Self-Occupied Property (SOP): Rent free as no rental income
• LOP (Let-Out Property): Actual rent is the annual value.
• Property not deemed let-out (DLOP): Annual value is the deemed rent it could earn even if it is not let out. It is determined based on municipal valuation, fair rent or standard rent.

1.  Deductions Available

This is because there are two main deductions under Section 24 of the Income Tax Act.

• Standard Deduction: 30% of annual value for upkeep and repairs (exclusive for LOP and DLOP)
• INTEREST ON HOME LOAN: Interest paid on loans taken for property acquisition or construction:

• Self-Occupied Property: Maximum ₹200,000 per annum.
• Let-Out/Deemed Let-Out Property:Maximum ₹200,000 per annum, the entire interest paid is deductible.

Also, under Section 80C of the Income Tax Act, taxpayers can claim a deduction of up to ₹1,50,000 for principal repayment on home loans.

Filing ITR for Multiple House Properties

While filing the income tax return, you need to choose the ITR form based on your sources of income:

1. ITR-1 (Sahaj): For individuals with income from salary/pension, one house property, and other sources (excluding lottery winnings), with total income up to ₹5,000,000. If owning more than 1 house property, this is not applicable.
2. ITR-2: For individuals and HUF who earn income from more than one house property, capital gain as well as income from other sources.
3. ITR-3: For Individuals/HUFs having income from business/profession, along with income from house property, salary/pension, and other sources.

Steps to File ITR with Multiple House Properties

Step 1: Gather Necessary Documents

• Property details: address, ownership percentage, co-owners PAN.
• Rental agreements and rent receipts.
• Home loan interest certificates.
• Municipal tax payment receipts.

Step 2: Compute Income from Each Property

• Determine the annual value for each property.
• Apply deductions under Section 24.

Step 3: Choose the Appropriate ITR Form

• Select ITR-2 or ITR-3 based on your income sources.

Step 4: Fill in Property Details

• Provide accurate details for each property in the designated schedule of the ITR form.

Step 5: Compute Total Income

• Aggregate income from all sources, including house property, salary, and other incomes.

Step 6: Compute Tax Liability

• Apply the relevant tax slabs and deductions.

Step 7: Verify and Submit

• Review all entries, verify electronically or physically, and submit the ITR.

Practical Examples

Example 1: Two Self-Occupied Properties

Mr. A owns two houses, both self-occupied. Under the new provisions, both are considered SOPs with nil annual value, and no tax is payable on them.

Example 2: One Self-Occupied and One Let-Out Property

Ms. B owns one self-occupied house and another rented out at ₹20,000 per month. The annual value of the let-out property is ₹2,40,000. After a 30% standard deduction (₹72,000) and, say, ₹1,00,000 interest on a home loan, the taxable income from the let-out property is ₹68,000.

Common Mistakes to Avoid

1. Incorrect ITR Form Selection: Using ITR-1 despite owning multiple house properties.
2. Failure to Report Deemed Rental Income: Not declaring deemed rental income for a vacant second house.
3. Incorrect Deduction Claims: Claiming deductions exceeding permissible limits.
4. Failure to Include Property Tax Payments: Neglecting municipal tax payments before computing taxable income.

ITR Filing Challenges Faced by Taxpayers with Multiple House Properties

Filing ITR when you have multiple house properties presents some common challenges:

1. Complexity in Declaring Notional Rent: Many taxpayers fail to report deemed rental income, leading to scrutiny by the Income Tax Department.
2. Difficulty in Calculating the Correct Annual Value: Determining the fair rental value for deemed let-out properties can be challenging, requiring reference to municipal or standard rent values.
3. Overlooking Deductions and Exemptions: Some taxpayers miss out on claiming deductions under Section 24(b) for home loan interest.
4. Confusion in Selecting the Right ITR Form: Many individuals mistakenly file ITR-1 instead of ITR-2 or ITR-3, leading to notices from the department.

Pro Tips to Streamline ITR Filing for Multiple House Properties

To make the tax filing process smoother, keep the following tips in mind:

1. Maintain Proper Documentation: Keep records of rental agreements, municipal tax receipts, and home loan statements handy while filing returns.
2. Consult a Tax Professional: If you have multiple house properties, a tax consultant can help in correctly computing notional rent and availing maximum deductions.
3. Utilize Online ITR Filing Portals: Platforms like the Income Tax e-filing portal, ClearTax, and TaxBuddy provide step-by-step guidance for taxpayers with multiple properties.
4. Plan Taxes in Advance: If you are planning to buy another house, consider its tax impact. You can strategically claim deductions on home loan interest to reduce overall tax liability.

Frequently Asked Questions (FAQ)