What is Income from House Property?
Income from house property can be defined as the income or revenue derived through a house property. This income can be typically generated through rent. This includes commercial and residential properties as well as vacant land. All such income, whether residential or commercial, is subject to tax. If the property is used for residential purposes, it falls under Income from House Property, while the properties used for business purposes are treated as Income from business profession.
Different Categories of House Properties for Income Tax Purposes
As per the Income Tax Act, there are various categories of House Properties for Income Tax purposes -
Self-occupied Property
A self-occupied property is a home that an individual lives in. If someone owns only one such property, it is considered self-occupied, and no tax is charged on notional rental income. Home loan interest deductions are available but have certain limits.
Let-out Property
A let-out property is one that is rented or leased to someone else. The rental income from it is taxable under "Income from House Property." Owners can claim deductions for municipal taxes paid, a standard deduction of 30% on the net annual value, and interest on home loans.
Deemed to be Let-out Property
This category includes properties that are not rented out but are treated as let-out by tax authorities. It typically applies when the owner does not occupy the property due to work, business, or other reasons. Notional rental income is taxable, and deductions can be claimed for municipal taxes and home loan interest.
Under Construction Company
Properties under construction or not yet ready for occupancy are also considered for taxation. Income from these properties is not taxed until completion. Once ready, they are classified as self-occupied or let out based on their use or rental status.
What is the Taxability of Various Types of House Property?
Self-Occupied Property
A self-occupied property is one that a taxpayer owns and primarily uses for residential purposes, either for themselves or their family. An unoccupied property is also considered self-occupied for income tax purposes.
Until the Financial Year 2024-25 if taxpayer-owned multiple house properties, only one could be treated as self-occupied, while the rest were considered let-out. However, from the Financial Year 2025-26 onwards, up to two properties can be designated as self-occupied. If someone owns more than two properties, any additional ones will be treated as let-out, even if not rented out.
Let-Out Property
A property is classified as let-out if it is rented for any part of the year.
Inherited Property
A property inherited from parents, grandparents, or other ancestors can be classified as either self-occupied or let out, depending on its use.
How to Calculate Income from House Property?
Here are the steps you need to follow in order to Calculate Income from House Property -
1. Calculate Gross Annual Value (GAV)
The Gross Annual Value is the potential rental income a property can generate.
- If the property is rented out, the actual rent received during the year is considered the GAV.
- If the property is self-occupied, the GAV is considered zero.
2. Deduct Municipal Taxes
Municipal taxes paid during the year can be deducted from the GAV, reducing taxable income from house property.
3. Compute Net Annual Value (NAV)
The Net Annual Value is calculated using the formula:
NAV = GAV - Municipal Taxes
4. Apply Standard Deduction
The Income Tax Act allows a 30% standard deduction on the NAV for repair and maintenance expenses. This deduction does not apply if actual expenses have already been claimed.
5. Deduct Home Loan Interest
Interest paid on a home loan during the financial year qualifies for deduction under Section 24 of the Income Tax Act.
6. Calculate Income from House Property
The final income is determined as:Income from House Property = NAV - Standard Deduction or Actual Expenses
7. Handling Loss from House Property
If a self-occupied property is financed through a loan, the GAV is nil, and the home loan interest deduction may result in a loss from the house property. This loss can be adjusted against income from other sources.
| Particulars |
Amount |
| Gross Annual Value (GAV) |
xxx |
| Less: Municipal Taxes |
xxx |
| Net Annual Value (NAV) |
xxx |
| Less: Standard Deduction (30% of NAV) |
xxx |
| Income from House Property |
|
Multiple Self-Owned Properties
In cases where an individual possesses multiple properties, only two of them are considered as self-occupied, and the deemed NAV of the same is taken as nil. The annual value of the remaining properties is determined on the basis of the expected rent.
- Step 1. Determine the Expected Rent of the Property
The Reasonable Expected Rent is the estimated annual rental income a property can generate. It is determined by comparing the Municipal Valuation (assessed by local authorities) and the Fair Rent (prevailing rent for similar properties in the area). The higher of these two values is considered, but it cannot exceed the Standard Rent set under the Rent Control Act (if applicable).
- Step 2. Calculate the Actual Rent received or receivable
- Step 3. The gross annual value is determined by the higher value between (A) and (B).
How to Calculate Income From Self-Occupied House Properties?
An assessee can own up to two houses as self-occupied properties. If they own more than two, the additional properties will be considered deemed let-out for tax purposes.
Example Calculation
Let's consider an example:
Abhishek owns a house with a municipal valuation of INR 4,70,000 and has paid municipal taxes of INR 62,000. He also incurred a home loan interest expense of INR 3,58,000. The taxable income from this property is calculated as follows:
| Particulars |
Amount (INR) |
| Gross Annual Value (GAV) (For self-occupied properties, GAV is NIL) |
NIL |
| Less: Municipal Taxes (Not applicable for self-occupied properties) |
NIL |
| Net Annual Value (NAV) |
NIL |
| Less: Interest on Home Loan (Restricted to INR 2,00,000 as per Section 24) |
|
| Income from House Property |
(2,00,000) |
Note -
- If a property is used for business or profession and not for residential purposes, it is not taxed under "Income from House Property." Rental expenses for such properties also do not qualify for deductions under "Income from Business and Profession."
- If a property is provided as residential accommodation to employees, it is considered a business asset. However, any rent received from employees for such accommodations is taxable under the "Business and Profession" head.
How to Calculate Income From Let-Out House Property?
Here’s an example. Manak owns a property that has been rented out for the entire year. The property details are as follows:
- Municipal Valuation (MV): INR 6,53,000
- Fair Rent (FR): INR 5,56,000
- Standard Rent (SR) (as per Rent Control Act): INR 4,66,000
- Actual Rent Received: INR 4,20,000
- Municipal Taxes Paid (by tenant): INR 10,400
- Home Loan Interest Expense: INR 2,80,000
Computation of Net Income from House Property
| Particulars |
Amount (INR) |
Gross Annual Value (GAV): Determined as the higher of the reasonable rent (MV or FR, subject to SR) and actual rent received.
Reasonable Rent: Higher of MV (6,53,000) and FR (5,56,000) = 6,53,000 - Capped at Standard Rent: 4,66,000
Actual Rent Received: 4,20,000
GAV is the higher of the two (4,66,000 vs. 4,20,000)
|
4,66,000 |
| Less: Municipal Taxes (Deductible only if paid by the owner; here, paid by tenant) |
NIL |
| Net Annual Value (NAV) (GAV - Municipal Taxes) |
4,66,000 |
| Less: Interest on Home Loan |
(2,80,000) |
| Income from House Property |
1,86,000 |
Note -
- The Gross Annual Value (GAV) is determined by comparing the reasonable expected rent and actual rent received. Here, the reasonable rent (INR 6,53,000) exceeds the standard rent (INR 4,66,000), so the GAV is restricted to INR 4,66,000.
- Municipal taxes are deductible only if paid by the owner. Since the tenant paid them, no deduction is allowed.
- Home loan interest is deductible under Section 24 of the Income Tax Act.
- The final taxable income from house property is INR 1,86,000.
Deductions on House Property Income
Home Loan Interest Tax Deduction
Under Section 24 of the Income Tax Act, 1961, taxpayers can claim a deduction on the interest paid for a home loan. For self-occupied properties, the deduction is capped at INR 2 lakhs. The interest is further divided into two categories:
- Pre-construction period interest
- Post-construction period interest
Tax Deduction for Principal Repayment
Section 80C allows a deduction of up to INR 1,50,000 per financial year on the principal repayment of a home loan.
Additional Tax Benefit under Section 80EEA
Section 80EEA provides an additional tax benefit for homebuyers who purchase a property valued up to INR 45 lakhs. It offers a deduction on the interest paid on home loans, up to INR 1.5 lakhs. This benefit is in addition to the deductions available under Section 24.
Income Tax Deductions on Home Loans for Joint Owners
For Individuals Who Are Neither Co-Owners Nor Co-Borrowers (Single Owner):
Individual taxpayers can claim a deduction of up to Rs. 2 lakh on home loan interest under the following circumstances:
- If the property is self-occupied.
- If the property is vacant.
- If the property is rented out, the entire home loan interest is eligible for tax deduction.
Taxpayers can also claim a deduction of up to Rs. 1.5 lakh under Section 80C for principal repayment of the loan.
To qualify for these deductions, the following conditions must be met:
- The loan must be used for constructing or purchasing a new house property.
- The property must not be sold within five years from the date of possession.
- Stamp duty, registration charges, and related costs are eligible for deduction under Section 80C up to a maximum of Rs. 1.5 lakh in the same year the payments are made.
Co-Owners and Co-Borrowers:
When a property is co-owned and co-borrowed, each co-owner can claim a deduction on home loan interest up to Rs. 2 lakh (if the total interest exceeds Rs. 4 lakh).
Each co-owner can also claim deductions for principal repayment, stamp duty, and registration charges under Section 80C, with a maximum limit of Rs. 1.5 lakh. The deduction for each benefit is proportional to their share of ownership in the property.
Co-Borrowers Who Are Not Co-Owners:
If an individual is only a co-borrower but not a co-owner of the property, they cannot claim deductions for the interest paid on the home loan. Similarly, they are not eligible for deductions related to principal repayment, stamp duty, or other costs.
Co-Owners Who Are Not Co-Borrowers:
If an individual is a co-owner of the property but not a co-borrower, they cannot claim a deduction on the interest paid on the home loan.
However, co-owners can still claim deductions for stamp duty and registration charges under Section 80C, with a maximum limit of Rs. 1.5 lakh, proportionate to their share in the ownership of the property.
Additional Tax Deductions for First-Time Homeowners:
First-time homeowners are eligible to claim an additional tax deduction of up to Rs. 50,000 on home loan interest under Section 80EE. This benefit is not applicable to under-construction properties.
From calculating your house property income and filing your ITR to helping you achieve the maximum possible tax savings, our experts are here to guide you through your entire tax journey. Book an online CA now!
