Self Occupied Property (SOP) & Tax implications

We often get to hear a term called as ‘Self occupied Property (House).’ This comes into picture, when we talk about, House Rent Allowance (or) while calculating the Income from House property (or) while claiming the tax deduction on home loan interest amount.

So, what is a Self occupied property  in terms of Income Tax?

Definition of a Self occupied property (SOP)

A self occupied property is one which is owned and used by you for your own residential purpose. You have to occupy the property throughout the year. Thus, a property or a house not occupied by the owner for his/her residence cannot be treated as a self-occupied property.

There is an exception to the above rule. If the following conditions are satisfied then the property can be treated as self-occupied and the annual value of a property (considered while calculating ‘Income from House Property’) will be NIL.

1. If you (tax payer) own a property;
2. If such property cannot be occupied by you, by reason of the fact that owing to your employment, business or profession carried on at any other place (other than the place where your self occupied property is there), you have to reside at other place in a building not owned by you;
3. If the property mentioned in (a) above is not let-out at any time during the year. (The property should not be let-out fully or part thereof);
4. No other benefit derived from such property.

(The Gross Annual Value (GAV), also called just the Annual Value, of a property is used in calculating the tax or rent which should be applied to the property).

Let us now understand few more points on Self-occupied property, like –

• What if I have one or more self-occupied properties? Which one should I choose as self-occupied property?
• Is my HRA fully taxable if I have a self-occupied property?
• How much can I claim as Income tax deduction under Section 24b, on the Interest amount paid for my home loan?
• If my self-occupied property is partly Let-out, what are the tax implications? Can I consider it as both let-out as well as SOP for claiming tax deductions?
• My self-occupied property is jointly owned (co-owned) then what are the tax implications?

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Do you own one or more Self occupied properties?

You may have a query like this one – ‘I own a house in Bangalore and plan to purchase another one. From income tax perspective, how many houses can be treated as self occupied? ‘

Answer is, only one residential property can be claimed as self occupied. Even If you occupy (or may be your parents) more than one property for your residential purpose, only one house is treated as Self Occupied Property. Which one to choose as SOP? It is left to your discretion. The other(s) are treated as “Deemed to be let out” (DLOP) properties.

Latest update (02-Feb-2019) : Budget 2019 – Currently, income tax on notional rent (on deemed to be let out property) is payable if one has more than one self-occupied house. No tax on notional rent on Second Self-occupied house has been proposed. So, you can now hold 2 Self-occupied properties and don’t have to show the rental income from second SoP as notional rent. This is with effective from FY 2019-20 / AY 2020-21.

You may kindly go through this interesting ET article @ ‘It won’t be easy to claim 2 house properties as self-occupied for tax purposes‘.

You also need to know that you may also have to pay wealth tax on the second house as only one residential property is exempted from it. However, if you give your second house on rent for more than 300 days in a year, it will not be subject to wealth tax.

Self occupied house property for business purpose?

If you use your SOP house for carrying on your business/profession then income from such property is not chargeable to tax under the head “Income from House property.” (This is covered under the head Profits & Gains of Business & Profession).

Self Occupied Property & HRA (House Rent Allowance)

If you live in your own house, the HRA given by your company is fully taxable. In this case, you are not entitled for HRA and the entire HRA amount is taxable. There are few exceptions to this, as below.

• What if you own a house and you are employed in a different place/city? In this case, you can claim HRA exemption.
• You may occupy a rented house and you may also have a own property in the same city/town. Then, in this case, are you entitled for HRA exemption? Is it taxable? First thing is , your self-occupied property will be treated as a ‘let-out’ property (even if it is left vacant). Secondly, you are entitled to receive HRA and it is not taxable. But, do remember that this is a tricky situation. Your reasons for staying in a rented house should be reasonable and justifiable (during tax scrutiny, if any).
• Another scenario can be – you stay in a rented property in a different city (due to your employment/business requirements) and your family (parents) stay in your own self occupied property. Under this scenario, you can definitely claim HRA exemption. Your own house is treated as SOP and annual value is treated as NIL. Even if your own property is kept vacant, it is still treated as SOP only.

Self Occupied House/Property – Home Loan – Income Tax Benefits FY 2023-24

I f you have taken a loan to purchase your Self occupied property, you are eligible for few income tax benefits/tax deductions under old tax regime (only) for FY 2023-24.

• The Interest payable on home loan of a ‘self–occupied‘ property ‘ can be claimed as tax deduction. Under Section 24 (b) of The Income Tax Act. Tax Deduction on home loan interest for a self–occupied property is up to Rs 2 lakh.
• Under Section 80C – Deduction on repayment of principal amount on home loan is up to Rs 1.5 lakh.
• To acquire self occupied property, If you go for a joint home loan along with your spouse in the ratio of let’s say 50: 50, then both of you can claim these benefits separately. So the combined limit will be Rs 3 lakh (principal component) under Section 80C and 4 lakh (Interest component) under Section 24.
• An additional income tax deduction of up to Rs. 1.5 lakh for interest paid on home loans borrowed during 01-04-2019 to 31-3-2020 has been proposed in Budget 2019-20. This will be available under New Section 80EEA. That takes the total deduction to upto Rs 3.5 lakhs (existing Rs 2 lakh limit + Rs 1.5 lakh new proposal). This new Tax deduction is applicable on loan taken to buy a a self-occupied ‘affordable housing property’ only. Properties costing up to Rs 45 lakh are considered as affordable.

(If you take home loan for repair/renovation/reconstruction of your self occupied house, then the maximum Tax deduction limit on account of interest is Rs 30,000 only)

Self Occupied Property – A portion of it is Self-occupied & another portion is Let-out: Tax implications

This scenario can be like this – You have bought a two- storey (floors) building through a home loan. You have occupied one floor and rented out the other one throughout the year. In this case, income of each portion has to be computed separately, as if the let-out portion were Let-out property and the Self-occupied portion were SOP.

How to claim housing loan interest on this partly let out property? The home loan interest amount can be apportioned (shared) between the let-out portion and SOP.

For Example : Mr Kejriwal owns a Duplex Flat in New Delhi, which has two floors with separate entry for each floor. He has given one floor on rent and another one is self-occupied by him. His housing loan interest amount is Rs 5 Lakh in a Financial Year. Can he claim interest amount for let-out and self-occupied portions separately?

The answer is, YES. The property is treated as 50% let-out and 50% as SOP. The total interest amount has to be divided equally i.e., Rs 2.5 Lakh per portion.

The maximum interest amount that he can claim u/s 24 (b) for self occupied property & Let-out portion is Rs 2 Lakh only. So, out of Rs 2.5 Lakh, he can only claim Rs 2 Lakh as tax deduction.

There is no maximum ceiling limit (on interest amount) for Let-out portion. So, He can go ahead and claim the entire Rs 2.5 Lakh as tax deduction.

(Kindly note that the apportionment of the interest amount can be done based on plinth area (or) built-up floor area (or) any other reasonable basis).

Self Occupied Property – Partly Let out & Partly Self occupied (Time-basis)

If your property is self-occupied for part of the year & let-out for remaining part of the year, then the income from your House property shall be calculated for the whole year as ‘Deemed Let-out Property’ only. There won’t be any ceiling limit to One can claim tax deduction on “payment of interest amount” of up to Rs 2 lakh on home loan. I believe that it is not treated as Self Occupied Property.

How to calculate Income from House property?

Firstly, we have to determine the Gross Annual Value. The gross annual value of up to two self-occupied properties is zero. Whereas in case of Let out house, it is the rent collected.

Latest news : Budget 2016-17 – Home Loan Tax Benefits & Self Occupied Property :

Existing rule : To claim tax benefits on home loan of a Self-occupied Property, the construction has to be completed within 3 years from the end of the Financial Year in which the capital (home loan) borrowed.

(Post last updated on 23-Sep-2023)