Investing in real estate has always been a popular wealth-building strategy in India. While owning one property for self-use is the norm, many investors look to buy additional properties as a source of income or capital appreciation. However, owning multiple properties in India comes with distinct tax implications that every investor should understand to avoid legal troubles and optimize tax planning.
In this article, we’ll dive deep into how owning more than one property affects your income tax liability, exemptions available, how to calculate income from house property, and what recent changes in tax laws mean for property owners in India.
1. How Income from House Property is Taxed in India
Under the Income Tax Act, 1961, income from house property is taxable under the head “Income from House Property”. This income is computed on the basis of the annual value of the property, not necessarily the actual rent received. The annual value is determined based on the property’s potential to earn income.
The following factors determine the taxability:
- Type of property: self-occupied or let-out
- Number of properties owned
- Actual rental income or deemed rental value
- Home loan interest and principal payments
2. Self-Occupied vs. Let-Out Properties
Self-Occupied Property (SOP)
A self-occupied property is one where the taxpayer or their family resides. Until FY 2018-19, if a taxpayer owned more than one property, only one could be treated as self-occupied, and others were deemed to be let-out. However, from FY 2019-20 onwards, taxpayers are allowed to claim two properties as self-occupied.
Let-Out Property
Any property rented out during the year is considered a let-out property, and the actual rent received (or the fair market rent, whichever is higher) is taxable under the head “Income from House Property”.
3. Tax Treatment of Second and Subsequent Properties
If you own more than two properties, the following tax implications apply:
- Only two properties can be treated as self-occupied (with Nil annual value).
- Any additional property is treated as “deemed to be let-out”, even if it is not rented.
- The deemed rent is taxed as income based on the fair market value of similar properties in the area.
Deemed to be Let-Out Example:
If you own four houses and occupy two, then the remaining two are deemed to be let-out. Even if you don’t earn rent, you still pay tax on notional income from them.
4. Deduction on Home Loan Interest and Principal
Owning multiple properties and financing them through home loans gives you certain tax benefits:
Section 24(b) – Interest on Home Loan
- Deduction of up to ₹2 lakh per annum on interest for self-occupied property.
- Full interest amount deductible for let-out or deemed let-out properties (no upper cap).
Section 80C – Principal Repayment
- Deduction of up to ₹1.5 lakh on principal repayment (combined with other 80C deductions).
- Available for all residential properties, provided the property is not sold within 5 years.
Joint Loans and Ownership
If the property is jointly owned and both co-owners are paying EMIs, they can each claim deductions in proportion to their ownership share.
5. Vacant Property and Deemed Rent
Many property owners keep their second or third homes vacant due to convenience or poor rental demand. However, tax laws do not provide exemptions for vacant homes beyond two self-occupied ones.
- A vacant third property is taxed based on notional rent.
- It’s crucial to get a realistic estimate of rental value in the area to determine notional rent.
- You can claim municipal taxes and standard deduction (30%) on rental income or notional rent.
6. Capital Gains Tax on Sale of Multiple Properties
When you sell a property, you may earn a capital gain, which is also taxable.
Short-Term Capital Gain (STCG)
- If sold within 2 years of purchase.
- Taxed as per your income tax slab rate.
Long-Term Capital Gain (LTCG)
- Applicable if the holding period is more than 2 years.
- Taxed at 20% with indexation.
Exemptions under Sections 54, 54F
- Section 54: Available on sale of a residential property if you reinvest in another residential property.
- Section 54F: Available when you sell any capital asset (not just property) and reinvest in one residential house in India.
Note: You can claim these exemptions only for one new house, and not for multiple reinvestments.
7. Wealth Tax and Other Levies
Although Wealth Tax was abolished in 2015, earlier it was applicable on the value of additional residential properties. Now, there is no wealth tax on owning multiple properties.
However, property owners must be aware of:
- Stamp duty and registration charges
- Municipal property taxes
- Maintenance charges (in case of apartments or societies)
These costs, while not income tax, affect the net profitability of holding multiple properties.
8. Tips for Tax-Efficient Property Ownership
Here are a few smart strategies to minimize tax burden when owning multiple properties:
a. Choose Joint Ownership
Having a co-owner (spouse or family member) helps split income and deductions, reducing the tax liability.
b. Rent Out Idle Properties
Instead of keeping a third property vacant, renting it out can generate real income, which offsets the tax on notional rent.
c. Optimize Home Loan Deductions
Maximize the use of home loan deductions under Sections 24(b) and 80C. If needed, structure loans jointly.
d. Maintain Clear Records
Maintain proper documentation of rent agreements, municipal taxes paid, interest certificates, and maintenance bills.
e. Invest in Properties in Different Cities
This helps in diversified real estate investment and sometimes better rental yield or capital appreciation.
9. Conclusion
Owning multiple properties in India can be a smart long-term investment, but it comes with significant tax implications. The Indian tax system distinguishes between self-occupied, let-out, and deemed let-out properties. While deductions on home loans offer some relief, income from rental or notional rent, as well as capital gains on sale, must be planned carefully.
With informed planning, taxpayers can balance the benefits of real estate investment with tax efficiency. It’s highly recommended to consult a tax advisor or CA if you own or plan to own multiple properties, to ensure compliance and optimize your tax liabilities.
