Income from house property - Self Occupied and Let out

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?

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

Deductions:

  • 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

Particulars Value
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.

Calculate Income from house property here.

This ends the post. Also, let us know your opinion by commenting below.