Annual Value of Self-Occupied Property – Special Treatment
Your own home is not just an asset; it's a tax shelter! For a Self-Occupied Property (SOP), the government assumes you earn zero income, but allows you to claim a loss (interest deduction). Tax planning at its finest!
What is Self-Occupied Property (SOP)?
A property owned by you which is:
- Occupied by you for your own residence.
- Unoccupied because employment requires you to live elsewhere (in a specific building not owned by you).
Condition: It must not be let out at any time during the year.
1. Zero Annual Value (Section 23(2))
For an SOP, the Gross Annual Value (GAV) is taken as NIL.
Unlike Let-Out property, we don't calculate MV, FR, or SR. Municipal Taxes: Deduction NOT allowed (since GAV is Nil).
Therefore, Net Annual Value (NAV) is always NIL.
2. Deduction for Interest (Section 24(b))
Since NAV is Nil, deducting interest results in a LOSS from House Property. This loss can be set off against Salary or Business income (up to ₹2 Lakh).
Limits on Interest Deduction:
| Case | Limit (Max Loss) |
|---|---|
| LOAN 1: Taken for Purchase/Construction on/after 1-4-1999 AND Completed within 5 years. | ₹2,00,000 |
| LOAN 2: Taken for Repairs/Renovation/Renewal (Any date). | ₹30,00,000 |
| LOAN 3: Taken before 1-4-1999. | ₹30,000 |
Note: The total limit for SOP interest (Loan 1 + Loan 2) cannot exceed ₹2,00,000. (e.g., if you have ₹1.8L purchase interest + ₹40k repair interest, total allowed is ₹2L, not ₹2.2L).
3. Multiple Houses (Amendments)
Old Rule: Only 1 house treated as SOP. Others Deemed Let Out. New Rule (Current): You can claim up to TWO houses as Self-Occupied (SOP). Both will have NIL GAV.
Aggregate Limit: The ₹2 Lakh interest deduction limit is the TOTAL for both houses combined, not per house.
If you own 3+ houses:
- Select any two as SOP.
- The third (and others) will be treated as Deemed Let Out Property (DLOP).
- DLOP: Taxed on Expected Rent (MV/FR) even if vacant/not rented!
Computation Format for SOP
Loading calculation…
Comparison: SOP vs Let Out (LOP)
| Feature | Self-Occupied (SOP) | Let-Out (LOP) |
|---|---|---|
| GAV | Always NIL | Higher of ER vs AR |
| Municipal Taxes | Not Deductible | Deductible (Paid) |
| Std Deduction | Not Available | 30% of NAV |
| Interest Limit | Max ₹2 Lakh / ₹30k | No Limit (Full interest allowed) |
| Loss Allowed? | Yes (Max 2L) | Yes (No cap on HP head loss calculation, but set off vs other heads capped at 2L) |
Pre-Construction Interest (PCI)
Interest paid before the property is completed/acquired is Pre-Construction Interest.
- Accumulate total PCI.
- Claim it in 5 equal annual installments starting from the year of completion.
- SOP Limit: The deduction (Current Year Interest + 1/5th PCI) is still subject to the overall ₹2L cap.
Practical Example
Mrs. A owns two houses (Both SOP):
- House 1: Interest ₹1,80,000 (Purchase 2021).
- House 2: Interest ₹50,00,0 (Repairs 2022).
Calculation:
- NAV House 1: Nil.
- NAV House 2: Nil.
- Total Interest: ₹1,80,000 + ₹50,000 = ₹2,30,000.
- Max Admissible Interest: ₹2,00,000.
- Loss from House Property: (₹2,00,000).
Summary
- SOP: House used for own residence. Up to 2 houses can be SOP.
- GAV/NAV: Always NIL. No tax payment on SOP.
- Interest Deduction: Creates a loss. Max ₹2,00,000 for purchase/construction (if within 5 years). Only ₹30,000 for repairs.
- Deemed Let Out (DLOP): If >2 houses, extra houses are taxed on notional rent (Expected Rent).
- Municipal taxes are NOT deductible for SOP.
Quiz Time! 🎯
Loading quiz…
Next Chapter: Deductions u/s 24! 📉
Loading calculator link…