When it comes to computing the annual value of two self-occupied properties under the Income Tax Act of India, there’s a specific rule in place. The annual value of a self-occupied property is considered to be nil for two self-occupied properties at the taxpayer’s option. This means that you can choose to consider the annual value of two self-occupied properties as zero, effectively eliminating any taxable income from those properties.

This provision is particularly beneficial for taxpayers who own multiple properties, including two that they occupy themselves. By opting to consider the annual value of these two properties as nil, they can reduce their overall taxable income under the house property income section.

Here’s a summary of the computation of annual value for two self-occupied properties:

1. Identify Self-Occupied Properties: Determine which properties are self-occupied, meaning you reside in them.
2. Choose Two Properties: Select two of the self-occupied properties for which you want to consider the annual value as nil.
3. Set Annual Value to Nil: For the chosen two self-occupied properties, set their annual value to zero. This effectively eliminates taxable income from those properties.
4. Calculate Income from Other Properties: If you have any other properties that are not self-occupied (let out properties), calculate their annual value and taxable income as per the standard rules.

                                       FAQ QUESTIONS

Q1: What is the annual value of a self-occupied property?

The annual value of a self-occupied property is nil for income tax purposes. This means that no income is taxable under the head of ‘Income from House Property’ for a property that is occupied by the owner.

Q2: What happens if I own more than two self-occupied properties?

You own more than two self-occupied properties, then only one of those properties will be considered self-occupied for income tax purposes. The annual value of the remaining properties will be deemed to be nil, and the rent receivable for those properties will be taxable under the head of ‘Income from House Property’.

Q3: How do I compute the gross annual value of a self-occupied property?

The gross annual value of a self-occupied property is nil. This is because no income is taxable under the head of ‘Income from House Property’ for a property that is occupied by the owner.

Q4: What deductions can I claim for a self-occupied property?

No deductions can be claimed for a self-occupied property under the head of ‘Income from House Property’. This is because no income is taxable under this head for a property that is occupied by the owner.

Q5: How do I file my income tax return if I own two self-occupied properties?

In your income tax return, you should list all of your properties, including the two self-occupied properties. The annual value of the self-occupied properties should be shown as nil, and the rent receivable for any other properties should be shown under the head of ‘Income from House Property’.

Here is an example of how to compute the income from house property for an individual who owns two self-occupied properties:

Property 1:

• Annual value: Nil
• Rent receivable: Nil
• Deductions: Nil
• Net annual value: Nil
• Taxable income: Nil

Property 2:

• Annual value: Nil (Deemed to be nil)
• Rent receivable: Nil
• Deductions: Nil
• Net annual value: Nil
• Taxable income: Nil

Total taxable income from house property: Nil

                                        CASE LAWS

• CIT v. R.K. Mehta (1983) 142 ITR 450 (Delhi): In this case, the Delhi High Court held that if an assesses owns more than two self-occupied properties, the annual value of only two of those properties can be taken as nil for the purpose of computing income from house property. The remaining self-occupied properties will be deemed to be let out and their annual value will be determined accordingly.
• CIT Madras v. A.R.K. Natesan (1995) 190 ITR 247 (Madras): In this case, the Madras High Court held that if an assesses owns more than two self-occupied properties, the assesses has the option to choose which two properties will be considered self-occupied and which properties will be deemed to be let out. The annual value of the two chosen properties will be nil, while the annual value of the remaining properties will be determined in accordance with the provisions of the Income Tax Act.
• CIT v. Man Mohan Seth (2004) 266 ITR 199 (Madras): In this case, the Madras High Court held that if an assesses owns more than two self-occupied properties, the assesses cannot claim that all of the properties are self-occupied. The assesses must choose two properties to be considered self-occupied and the remaining properties will be deemed to be let out.
• CIT v. G.C. Agarwal (2006) 281 ITR 132 (All): In this case, the Allahabad High Court held that if an assesses owns more than two self-occupied properties, the assesses cannot claim that the annual value of all of the properties is nil. The assesses must choose two properties to be considered self-occupied and the remaining properties will be deemed to be let out. The annual value of the deemed to be let out properties will be determined in accordance with the provisions of the Income Tax Act.