- Last Date to File ITR for FY 2022-23 (AY 2023-24) - Income Tax Return Due Date
- Income Tax Return (ITR) Filing FY 2022-23 (AY 2023-24): How to File ITR Online India
- Documents Required for Income Tax Return (ITR) Filing in India FY 2022-23 (AY 2023-24)
- How to Calculate Income From House Property
- 80G Deduction: Claim Tax Benefits on Donations to Charitable Institutions
- What is Income from House Property?
- What are the conditions for taxability of “Income from House Property”?
- Types of House Property under Income Tax
- How to calculate income from House property for income tax purposes?
- Steps to compute “Income from House Property”
- Calculation/Assessment of “Income from House Property” in both cases – Self-occupied and Let Out
- How to calculate the Gross Annual Value of House Property?
- Important terminologies related to “Income from House Property”
- What are the Deductions for calculating Income from House Property?
- How to Calculate Income for Self Occupied house property?
- How to Calculate Income from Let-Out House Property?
- What are the Tax Benefits on Home Loan?
- What are the income tax deductions on home loans for Joint Owners?
- How to Save Tax on Income from House Property?
What is “Income from House Property”?
The Income Tax Act has divided the income received by an individual into various heads for simplification of tax computation. One of these heads is “Income from House property.” The income earned by the ownership of a property is said to be Income from House property. If a taxpayer owns a house property and rents it, the rent received from that property is taxable.
Your house, building, office, or shop can be called house property. All the income from such properties is taxable, whether commercial or residential. If the property is used for residential purposes, it is taxed under income from house property. On the other hand, if the property is used for business or profession, it is considered income from business or profession.
Budget 2023 update:- The government has changed how capital gains on the sale of a residential property are calculated. The cost of acquiring a house property doesn’t include any home loan interest claimed as an income-tax deduction by the seller throughout its holding term. If it is proposed not to include the interest claimed earlier as a deduction as the cost of acquisition for computing capital gains. This may have an impact on taxpayers who are planning to sell their residential property in the future.
What are the conditions for taxability of “Income from House Property”?
The income from house property is added to your gross total income only when it fulfills three basic conditions -
- You are the owner of that property.
- Property consists of any buildings and/or land. The building can be a residential house, factory building, shop, office, etc.
- The property is used for any purpose except by you(owner) to run your business or profession.
Important Note: The rent from the vacant land is considered income from other sources.
Types of House Property under Income Tax
Under the Indian Income Tax Act, the term "house property" encompasses different types of properties for taxation purposes. Here are the types of house properties recognized for income tax in India:
- Self-Occupied Property: This refers to a house property that is used for one's own residential purposes. If an individual owns only one self-occupied property, it is treated as a self-occupied property for tax purposes. In such cases, the notional rental income is not taxable, and individuals can claim deductions on the home loan interest paid, subject to certain limits.
- Let-Out Property: A let-out property is one that is rented out or leased to another party. The rental income received from such a property is taxable under the head "Income from House Property." Individuals can claim deductions on the municipal taxes paid, standard deduction (30% of the net annual value), and interest on home loans.
- Deemed to be Let-Out Property: This category applies to properties that are not actually rented out but are deemed to be let-out by the tax authorities. It typically includes properties that are not occupied by the owner due to employment, business, or other reasons. In this case, the notional rental income is considered taxable, and deductions for municipal taxes and interest on home loans can be claimed.
- Under Construction Property: Properties that are under construction or not ready for occupation are also considered for taxation purposes. In such cases, individuals cannot claim rental income as the property is not let-out. However, once the construction is complete, the applicable treatment (self-occupied or let-out) will be determined based on the actual usage or rental arrangement.
How to calculate Income from House Property for income tax purposes?
The income tax categorizes your income under 2 categories for taxability of house property income.
|Self-Occupied House Property||This is the type of property that is self-owned and used for its residential purposes. The owner’s family or self may occupy this. An unoccupied property is considered a self-occupied property for income tax. Before the Financial Year 2019-20, if the taxpayer owns more than one house property, only one is considered self-occupied property, and the rest are assumed to be let out. From 2019-20 onwards, two properties are considered self-occupied properties.|
|Let Out House Property||Any house property that is rented for the complete or part of the year is considered as a let-out property for income tax purposes.|
|Note: Inherited Property Any property inherited from parents, grandparents, etc., can be considered self-occupied or let-out house property based on the abovementioned usage.|
Also, discuss Deemed to be let out. That if you own more than 2 house properties, then even if it is not let out, it will be deemed as let-out property.
Let’s understand the steps for the calculation of Income from House Property.
Steps to compute “Income from House Property”
The calculation of income from house property involves various steps. These steps are common to both the categories of house property Self-Occupied and Let Out. These are:
Calculations of Income from House property
The gross annual value of a self-occupied property is nil. In contrast, the gross annual value for a let-out property is the rent collected for the same house property.
When the property tax is paid, it is allowed to be deducted from the gross annual value of the property.
When the property tax is deducted from the Gross Annual Value, it gives the Net Annual Value.
30% of the Net Annual Value is allowed to be deducted as a rebate from the NAV under the Income Tax Act. Beyond 30%, no other expenses such as repair, reconstruction, or painting can be claimed as tax relief under the Act.
The interest paid during the financial year on the house loan availed is to be deducted under section 24 of the Income Tax Act.
The final value that arrives is your income from the house property. This is taxable at the slab rate applicable on your income.
If an individual owns a self-occupied property purchased on loan, claiming a deduction on home loan interest will result in loss as the Gross Annual Value of the house property will be nil. This loss can be adjusted in income from other heads.
Important note- The gross annual value of the let-out property is the rental value of the property. In such cases, the rental value should be higher than or equal to the realistic rent of the property determined by the municipality.
Calculation/Assessment of “Income from House Property” in both cases – Self-occupied and Let Out
|Type of House Property||Self-Occupied Property||Let Out Property|
| Gross Annual Value
Less: Municipal Taxes/ Taxes paid to local authorities
Net Annual Value
Less: Deductions under section 24
Limit to Rs 2 Lakh per annum
30% of NAV
|Important Note: From the F.Y. 2017-18, set of loss of income from house property from other sources of income is restricted to Rs. 2,00,000.|
How to calculate the Gross Annual Value of a House Property?
Assessment of Gross Annual Value of Self-Occupied House Property:
The annual value will be nil if the individual self-occupies the only property he or she owns. However, if the person has multiple properties with the purpose of self-occupation, only two properties are considered self-occupied, and their annual value can be specified as nil. The annual value of the remaining properties will be assessed according to the expected rent if the property is let out, I.e., deemed to be let out.
Assessment of Gross Annual Value of Let-Out House Property:
Reasonable Expected Rent is the amount for which the property can be reasonably expected to be let out from year to year. It is higher than the Municipal Valuation or Fair Rent of the property but cannot exceed the standard rent determined as per the Rent Control Act. Reasonable Expected Rent = Higher of Municipal Valuation or Fair Rent, subject to maximum Standard Rent
Important terminologies related to “Income from House Property”
Municipal value It is the value of the house property that is calculated by the municipal authorities for imposing municipal taxes.
Fair rent value It is the fair rent that can be charged for a similar property with the same features in the same locality.
Standard rent It is the rent determined under the Rent Control Act. The property owner cannot charge a rent higher than the standard rent fixed under Rent Control Act.
Net Annual Value (NAV) It is the value calculated as Gross Annual Value minus Municipal taxes paid.
Deductions These are the rebates given to the taxpayer as benefits for making investments. These are deducted to ascertain the Actual taxable income. The taxpayer can claim these deductions under section 24 of the Income Tax Act, 1961.
What are the Deductions for the calculation of Income from House Property?
The deductions under the head Income from house property are provided under section 24 of the Income Tax Act. These are
You can claim 30% of the Net Annual Value as a deduction of repairs, rents and so on (irrespective of the Actual expenditure incurred). If the Gross Annual Value is nil, this deduction is not applicable.
Home Loan Interest:
You can claim deductions for interest on home loans taken for the purchase, construction, reconstruction, and repair under this section.
How to Calculate Income for Self Occupied house property?
Prior to Budget 2019, when an assessee owned more than one residential house, only one property was considered as self-occupied, and the other was considered as deemed let-out. After Budget 2019, an assessee can own two houses as self-occupied houses, and more than two houses will be considered as deemed let out. Before proceeding further, there are certain scenarios of self-occupied to be discussed:
- Property used for business and profession: If the property is used for business and not for residential purposes, then no income will be considered under the head “income from house property,” and rent expenses in regards to house property will not be allowed under the head “Income from business and profession.”
- Provided to employees as residential quarters: Where the house property is provided to the employees as quarters, then the property is considered as a part of the business but where any rent is charged from the employees for the same, rent received will be taxable under business and profession.
Example for Calculation of Income from Self-Occupied House Property
To understand how income is computed for self-occupied properties, let's take an example:
Mohan owns a house property, the municipal value of which is INR 2,50,000 and the municipal tax paid by him is INR 53,000. Interest on the home loan paid by Mohan is INR 2,88,000. Compute the income of Mohan.Solution:
|A.Gross Annual Value (for self-occupied properties, GAV is considered NIL)||NIL|
|B.Less: Municipal Taxes (For self-occupied, municipal taxes are considered)||NIL|
|Net Annual Value (A-B)||NIL|
|Less : Interest on home loan As per section 24, interest is restricted to INR 2 lakh)||(2,00,000)|
|Income from House Property||(2,00,000)|
How to Calculate Income from Let-Out House Property?
Where the assessee owns more than one house(for F.Y.2022-23) and two houses are considered as self-occupied and (for F.Y.2022-23), the remaining are deemed let-out properties. Let's discuss a case study on calculating income from deemed let-out properties.
Example for Calculation of Income from Let-Out House Property
Sita owns a house property that is let out throughout the year. Municipal Value is INR 1,45,000, Fair rent INR 1,36,000, standard rent INR 1,24,000, and actual rent received is INR 1,15,000.Municipal taxes paid by the tenant INR 5,400. Interest on home loan paid INR 3,50,000. SIta also has income from the Business of INR 7,12,000.
Compute net income of sita from house property.Solution:
A.Gross Annual Value Reasonable Rent: (A) 1,24,000 Higher of MV and FR 1,45,000 Maximum to Standard rent i.e. 1,24,000
Actual rent received: (B) 1,15,000
GAV is higher of A and B
|B.Less: Municipal Taxes (In case of deemed let out, municipal taxes can only be claimed if paid by the owner and here, the tenant has paid)||NIL|
|Net Annual Value (A-B)||1,24,000|
|Less : Interest on home loan||(3,50,000)|
|Income from House property||(2,26,000)|
|Less: Set off from Business income (restricted upto INR 2,00,000)||2,00,000|
|Net Income From House property||(26,000)|
What are the Tax Benefits on Home Loan?
a. Tax Deduction on Home Loan Interest: Section 24: Under section 24 of the Income Tax Act, 1961, any interest paid on a home loan can be claimed as a deduction but restricted to up to Rs. 2 lakhs for self-occupied properties. The interest is sub-categorized into the pre-construction period and post-construction period.
b. Tax Deduction on Principal Repayment : Sec 80C provides a deduction on principal repayment of the home loan upto INR 1,50,000 in one F.Y.
C Additional tax deduction under Section 80EEA: In the Budget 2019, new section 80EEA has been inserted to provide additional tax benefits to the home buyers having house property upto Rs 45 lakhs on the interest paid on home loan upto INR 1.5 lakhs. This deduction is over and above the deduction under section 24.To gain detailed tax benefits on home loan buyers, visit our guide
What are the income tax deductions on home loans for Joint Owners?
A.Neither Co-owners nor co-borrowers
- The taxpayer can claim a deduction of up to Rs 2 Lakh on home loan interest in two cases:
- The owner self-occupies the house property or
- If the house property is vacant.
- If the property is rented out, the entire home loan interest is allowed as a deduction from the tax.
- Taxes can be saved up to Rs. 1,50,000 within the overall limit under Section 80C during repayment on the principal amount of the loan.
A few conditions on which this deduction can be claimed are:
- (i) The loan must be availed for the construction of purchase of the new house property.
- (ii) Till five years from the time of possession, the property should not be sold off.
- (iii) Stamp duty, registration charges, and other related expenses are directly allowed as deductions under Section 80C, with a limited amount of Rs. 1.5 Lakh. This can be claimed in the same year you make the payments.
B. Co-owners and co-borrowers
- In the case of co-owners of house property who are also co-borrowers of a home loan that is self-occupied, each can claim a deduction on interest on the loan limited to Rs. 2 Lakh(provided interest on a loan is more than equal to Rs.400000)
- Each of them can claim the deduction on principal repayments, stamp duty as well as registration charges under Section 80C with the overall limit of Rs.1.5 Lakh. The ratio of the deduction of each benefit will be in the same proportion as the share of ownership in the property.
C. Co-borrowers, not co-owners
- If one individual is just a co-borrower of a loan and is not the property owner, he or she is not entitled to claim interest on the home loan paid.
- If one is not a co-owner of house property, then he is not entitled to any benefits on principal repayment, stamp duty, etc.
D. Co-owners not co-borrowers
- 1.If one individual is just a co-owner of a loan and is not the co-borrower of the property, he or she is not entitled to claim interest on the home loan paid.
- 2. Each can claim the deduction on stamp duty and registration charges under Section 80C with an overall limit of Rs.1.5 Lakh. The ratio of the deduction of each benefit will be in the same proportion as the share of ownership in the property.
E. Tax deductions for Homeowners who own property for the first time
An additional tax benefit of up to Rs.50,000 can be claimed by homeowners on interest on a home loan under section 80EE
Note - This benefit is not availed for an under-construction property.
How to Save Tax on Income from House Property?
Paying taxes on property is a big pain. One should plan carefully to avoid huge amounts of taxation. There are numerous ways to save taxes on Income from House Property. They are:
If the taxpayer has jointly taken a home loan with his or her spouse or someone else, both can claim tax exemption on payment of interest and principal.
Planning a second home
If one property is already registered in the taxpayer's name, it is always a better idea to register another property in the name of the individual’s spouse or any relative. This way, one can avoid excess taxation on the properties.
If numerous individuals own the property, the tax on Income from House Property can be divided among co-owners to lessen the burden on a single person.
The house properties that one owns and are vacant will still be taxed on the fair rental value. So it is always a good idea to let out any or all empty properties, which will bring income, and there will be no loss because of the taxation.
Ownership of multiple properties
If a taxpayer owns multiple properties, then two house properties can be claimed as self-occupied, and the rest shall be treated as deemed let out or let out, as the case may be. So it is always important to evaluate the tax liability of all the properties and choose the highest tax liability property as your home and let out the remaining. One can change self-occupied property every year if needed.
You must have learned the basics of Income from House property and the calculation of taxes, including the conditions for taxability, deductions, and how to save tax on income from house and property. However, tax computation can still be a hassle for non-finance background individuals. You can get expert guidance from the best eCAs in town. Book eCA now and experience a smooth and easy efiling of ITR.
Frequently Asked Questions
Q - Is the income from the rent of property taxable?
Yes, the property is taxable based on its annual value for rent received by the owner.
Q - Can the income under the head Income from House Property be negative?
Only in case the house property is self-occupied the Gross Annual Value and Net Annual Value are nil. If in this case you have interest, then this is a loss as it is a negative income.
Q - Are all rent received must be shown on ITR and taxable?
All the rental income must be reported when filing the tax returns as they are taxable. The general expenses that are associated with the rent can be deducted from your rental income.
Q - Can I claim HRA and a Home loan both?
a. If the taxpayer has a house but is living in a rented accommodation because of some issues he or she can claim HRA (House Rent allowance) for the rent they are paying for the house where they stay as well as deductions on interest up to Rs. 2 Lakh on the home loan.
b. If the taxpayer has a let out property and stays in a rented house he or she can claim HRA (House Rent allowance) for the rent he or she pays and also the entire interest she pays during the entire year on the home loan.
Q - Can I get tax benefits on a home loan for an under-construction property?
Yes, interest paid on a home loan during under construction property can be claimed as a deduction under section 24 only after completion of the construction. The deduction can be in five equal installments.
Q - What is the limit on interest on housing loans?
Under Section 24, the limit for interest deduction for a self-occupied property is INR 2 lakh whereas for let-out property, there is no limit defined under this section. However, if the loan is taken for repair or renovation of the self-occupied property, the limit is INR 30,000.