In India, the Income Tax Act allows for two self-occupied properties under certain conditions, but the rules for tax treatment of multiple properties can be a bit tricky. To answer your question directly:
Can Both Properties Be Treated as Self-Occupied?
Yes, you can treat both properties as self-occupied, but there are specific conditions and limitations under the Income Tax Act that you must be aware of.
Key Points to Consider
Self-Occupied Property Definition:
Under the Income Tax Act, self-occupied property refers to a property that is used for your own residential purposes and is not let out.
A taxpayer can only claim two properties as self-occupied properties. Any additional property, beyond two, will be considered as "deemed to be let-out", and the rental income will be taxable under Income from House Property.
Two Self-Occupied Properties:
The Income Tax Act permits two properties to be considered self-occupied for tax purposes. So, if you own both a farmhouse and an apartment in the city, you can treat both as self-occupied provided they are not rented out.
Example: If you stay in the city property during weekdays and use the farmhouse on weekends, both properties can qualify as self-occupied as long as neither is rented out.
Provisions for More Than Two Properties:
If you own more than two properties and treat them as self-occupied, the third (and subsequent) property will be deemed to be let-out for tax purposes, and you will be required to report rental income on the third property, regardless of whether it's actually rented out or not.
The rental income is calculated based on the notional rent (i.e., the fair market rent) of the property.
Taxation of Self-Occupied Property:
For each self-occupied property, you are entitled to claim a deduction of ₹2 lakh on the interest paid on a home loan under Section 24(b).
However, if your property is deemed to be let-out, then the notional rental income will be subject to tax, but you will be able to claim deductions for municipal taxes paid and interest on the home loan (subject to the ₹2 lakh limit for interest on self-occupied properties).
Key Takeaways
If you own two properties—one is a farmhouse and the other is in the city—and you use both properties personally, you can treat them both as self-occupied properties for tax purposes.
Important: You are allowed to claim two properties as self-occupied, and any third property (if applicable) will be considered let-out and will attract notional rental income taxation.
You can continue to claim deductions on home loan interest for both properties (subject to the ₹2 lakh limit per property for self-occupied homes) and deductions for municipal taxes, if applicable.
Scenario Example
Farmhouse: Used on weekends, not rented out, so considered self-occupied.
City House: Used on weekdays, not rented out, so also considered self-occupied.
You can treat both properties as self-occupied and claim deductions for interest paid on home loans for both properties, provided you do not own more than two properties that are self-occupied.
Conclusion
In your case, since you own two houses and both are being used personally (even if they are used on different days of the week), you can treat both the farmhouse and the city residence as self-occupied properties under the Income Tax Act. However, if you acquire any additional properties, they will be subject to notional rent taxation. Always ensure to maintain accurate records and consult a tax professional if you have further queries or complex situations.
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