Income from house property – self-occupied and Let out.
An Overview of Income from House Property
Hello, in this post, we will discuss the Income from house property, their different types, and their computation. Let’s look at each section in detail :
What is income from house property?
A house property refers to any building, land, or apartment owned by an individual or an entity. A house property includes a wide range of buildings and lands that generate rental Income, including apartments, independent houses, shops, offices, warehouses, and factories. Additionally, the house property includes both residential and commercial properties.
Different types of house properties
1, Self-occupied property (SOP):
A Self-Occupied House Property is used for one’s residential purposes. The taxpayer’s family will occupy this property – Parents / Spouse / Children. For Income-tax purposes, a vacant house property is considered as self-occupied.
Earlier, the taxpayer could consider only one property as Self- occupied. But from the Financial Year 2019-20, the benefit of considering houses as self-occupied has been extended to 2 properties. So, now a homeowner can claim his 2 house properties as self-occupied and the remaining as let out for Income-tax purposes.
2, Let out property (LOP):
A house/building rented for the whole or a part of the year is a let-out house property for income tax purposes.
Deemed Let out: When a taxpayer owns more than two house property, the law mandates that only two (Prior to Budget 2019, it was only one property) such properties can be treated as self-occupied while the third one (irrespective of whether let out or not) will be deemed to be let out.
An inherited property i.e. one passed down from parents, grandparents, etc. can either be a self-occupied or a let-out property based on its usage.
Terms used in calculation of Income from House Property
- Gross Annual Value (GAV): The actual rent received by the property owner on renting out the house. For SOP, the GAV is NIL. GAV can also be calculated using the below four factors;
- Municipal Value: The value of house property as calculated by the municipal authorities for imposing municipal taxes.
- Fair Rent Value: It is the rent that a similar property with similar features in the same locality fetches.
- Standard Rent Value: It is the rent that is calculated and prescribed by municipal authorities
- Actual Rent Value: It is the rent that is actually received for letting out the house
- Gross Annual Value (GAV): The actual rent received by the property owner on renting out the house. For SOP, the GAV is NIL. GAV can also be calculated using the below four factors;
- Municipal Tax: It is the property taxes imposed by the municipality based on the value of the house.
- Net Annual Value (NAV): Net Annual Value = Gross Annual Value – Municipal Tax Paid
- Deductions:
- 30% of NAV u/s 24 – The taxpayer can claim 30% of NAV towards standard deduction u/s 24 of the Income Tax Act, irrespective of the actual expense incurred. This deduction will not be permitted in case the GAV is nil.
- Deduction on Interest of home loan – Deduction u/s 24 of the Income Tax Act is also available for interest paid during the year on housing loan availed on the property. One can avail a maximum of 2 Lakh deduction or actual interest paid whichever is least.
Note: The limit of 2 Lakh is for all properties irrespective of the no. of properties under Home loan.
- Pre-Construction Interest: The taxpayer is allowed to claim pre-construction interest as a deduction from the Net Annual Value, which is nothing but the interest payment on home loan made between the date of borrowing and date of completion of construction. This interest can be claimed in 5 equal instalments beginning the year of completion of construction besides the regular interest claim.
Computation of Income Under House Property - Self Occupied and Let Out:
Particulars | Self-occupied house property | Let out house property |
Gross Annual Value (GAV) | Nil | XXX |
Less: Municipal Taxes | NA | XXX |
Net Annual Value | Nil | XXX |
Less: Standard Deduction | NA | 30% of Net Annual Value |
Less: Interest on Housing Loan | Restricted to Rs. 2 lakhs | |
Income from House Property | XXX | (restricted to Rs. 2 lakhs from FY 2017-18) |
Deduction on interest paid to home loans
The house owners can claim a deduction on interest paid on home loans under Section 24 of the Income Tax Act. The limit under this section is Rs 2 lakhs.
The following conditions should be met if your deduction on interest is limited to Rs. 30,000 instead of Rs 2 lakhs:
- The loan for property purchase or construction should be availed after 1st April 1999.
- The purchase or construction needs to be completed within five years from the end of the financial year in which the loan was availed.
FAQ
1, Is income earned from renting out the property taxable?
Ans: Yes, the rent income is taxable based on the overall income of the property owner.
2, Can the revenue from house property be negative?
Ans: When the property is self-occupied, the Gross Annual Value and Net Annual Value are zero. Then any deduction of interest on home loan will be considered as a loss and the income will be negative.
3, Is all rent received taxable and must be reported on the ITR?
Ans: Yes, because rental Income is taxable, it must be disclosed when filing tax forms. Rent-related expenditures might be deducted from your rental revenue.
And with that, we end our discussion on Income from house property. If you have any questions, drop them in the comment section below.
