An individual can purchase a house property for two purposes: a self-occupied property (SOP) or a rented property. A property used for personal residential purposes is called an SOP; property let out for rent is called a rented property. When a property is neither self-occupied nor rented, it is deemed rented under tax law.
Taxation Standards
The annual value of a self-occupied property is deemed nil, so taxation does not apply to its annual value. Rented properties are subject to taxation under the head ‘income from house property.’ When a property is neither self-occupied nor rented, a notional rent value is calculated as gross taxable rent.
When a first and second house are rented out while the owner occupies a third property, both rented houses fall under taxation. With joint ownership, taxes are split between owners based on their share of ownership value.
On Second Home Loans
Deductions on the principal amount of the loan under Section 80C are not applicable to second homes. However, tax benefits do apply to interest payments — interest on home loans for second homes, once fully deductible, is now capped at up to ₹2 lakh.
The difference between rental income and interest paid (up to ₹2 lakh) can be carried forward for eight years and adjusted under house property income in future years.