Hello, in this post we will discuss about the Income from house property, their different types, and its computation.
We will cover the following:
- What is income from house-property?
- Different types of house properties
- Some Terminologies used in the calculation
- Calculation of tax
- Tax Deduction on Home Loans
What is income from house property?
A house property refers to any building or land or an apartment owned by an individual. The Income Tax Act does not differentiate between a commercial or residential property. All types of properties come under the head “Income from house property”
Different types of house properties
- Self-Occupied House Property
- Let Out House Property
Self-Occupied House Property
A Self-Occupied House Property is used for one’s own residential purpose. This property can be occupied by the taxpayer’s family – parents / Spouse / Children. For the purpose of Income-tax, a vacant house property is considered as self-occupied.
For the Financial Year 2019-20, the benefit of considering houses as self-occupied has been extended to 2 houses. So, now a homeowner can claim his 2 house properties as self-occupied and remaining house as let out for the Income-tax purposes.
Let out house property
A house property rented for the whole or a part of the year is termed as let out house property for income tax purposes.
Terminologies used in the calculation
Annual Value: The actual rent received or to be received by the property owner on renting out the house.
Municipal Value: The value on house property as calculated by the municipal authorities for imposing municipal taxes.
Fair rent value: It is the rent which a similar property with similar features in the same locality fetches.
Determine Gross Annual Value (GAV) of the property – The GAV of a self-occupied house is 0. For a let out property, it is the rent collected for a house on rent.
This is the highest of:
- Rent received
- Fair market value
- Municipal Valuation
Net Annual Value: Net Annual Value = Gross Annual Value – Property Tax
- 30% of NAV towards standard deduction – The assessee can claim 30% of NAV towards standard deduction u/s 24 of Income Tax Act irrespective of what the actual expense incurred is. This deduction will not be permitted in case if the GAV is nil.
- Interest on home loan – Deduction u/s 24 of Income Tax Act is also available for interest paid during the year on housing loan availed.
Calculation of tax on Income from house property
|Gross Annual Value (GAV)||ABC|
|Less: Municipal Taxes||(XYZ)|
|Net Annual Value (NAV)||XXX|
|Less: Deduction under Section 24||(DEF)|
|Standard Deduction @ 30%||(GHI)|
|Interest paid on Borrowed Loan||(JKL)|
|Income from House Property||XXX|
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||Not Applicable||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||No limit|
|Income from House Property||XXX||(restricted to Rs. 2 lakhs from FY 2017-18)|
Tax Deduction on Home Loans
The house owners can claim a deduction for interest on home loan 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 should be availed after 1st April 1999 for property purchase or construction.
- The taxpayer can claim benefits for repairs or reconstruction work of an existing property.
- Also, processing and prepayment charges shall be regarded as interest payment.
- The purchase or construction needs to be completed within 5 years from the end of the financial year in which the loan was availed.
You can also see how this works in Saral TaxOffice:
This ends the post. Also, let us know your opinion by commenting below.