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House property could be your home or any other building, including factory buildings, offices, shops, godowns and other commercial premises, or any land attached to the building like a parking lot, garden, garage etc. The Income-tax Act does not differentiate between commercial and residential property. Every type of property is taxed under the head ‘Income from House Property’ in the income tax return(ITR). You may compute such house property income using the calculator here Income From House Property Calculator. Follow the below steps to understand how the calculator is used in computing your house property income under various circumstances:
Where the property is occupied by you for your own residence or remains unoccupied throughout the year, then the income of 2 such house properties can be taxed as ‘Income from Self-occupied Property’ where the taxable amount shall be nil. However, you may claim interest on a home loan.
Select the assessment year for which you wish to file your ITR and enter the interest amount on the home loan paid during the previous year. You will now see your house property income generated on the screen. (calculator allows an interest amount of more than INR 2,00,000 for self-occupied and the answer doesn’t appear)
Where the property is let out on rent for the entire year;
Follow the above steps and while filling amounts in the ‘Annual lettable value’ section, fill in the ‘loss of rent due to vacancy’
Calculating income from house property in India is an essential aspect of determining your taxable income. Here's how you can calculate income from house property:
Step 1: Determine the Type of Property
Step 2: Calculate Gross Annual Value (GAV)
Step 3: Deduct Municipal Taxes
Step 4: Calculate Net Annual Value (NAV)
Step 5: Deduct Standard Deduction
Step 6: Deduct Interest on Home Loan
Step 7: Calculate Income from House Property
Step 8: Include it in Your Total Income
It's essential to note that the rules and deductions related to income from house property may change over time, so it's crucial to refer to the latest tax regulations or consult a tax expert for the most accurate calculations and to ensure compliance with the current tax laws.
Scenario: Mr. Sharma owns a house property that is let out for rent. He paid Rs. 10,000 in municipal taxes during the year. He has a home loan for this property and paid Rs. 2,50,000 in interest on the loan during the year.
Step 1: Determine the Gross Annual Value (GAV) For a let-out property, GAV is the higher of the fair rental value or actual rent received. Let's assume Mr. Sharma received an annual rent of Rs. 3,60,000 for the property.
Step 2: Deduct Municipal Taxes Deduct the municipal taxes paid. In this case, it's Rs. 10,000.
GAV - Municipal Taxes = Rs. 3,60,000 - Rs. 10,000 = Rs. 3,50,000
Step 3: Calculate the Net Annual Value (NAV) The NAV is Rs. 3,50,000.
Step 4: Deduct Standard Deduction For let-out properties, you can deduct a standard deduction of 30% of the NAV.
Standard Deduction = 30% of Rs. 3,50,000 = Rs. 1,05,000
Step 5: Deduct Interest on Home Loan Mr. Sharma paid Rs. 2,50,000 in interest on the home loan for this property. This entire amount can be deducted.
Step 6: Calculate Income from House Property NAV - (Standard Deduction + Interest on Home Loan) = Rs. 3,50,000 - (Rs. 1,05,000 + Rs. 2,50,000) = Rs. (-Rs. 2,05,000)
In this case, the income from the house property is negative, which means there is a loss from house property of Rs. 2,05,000. This loss can be set off against other heads of income, such as salary or business income, to reduce the overall taxable income.
Property may or may not yield a rental income. Thus, the income received or which could have been received if such property was let out on rent is categorized under the head ‘Income from House Property’.Property here means:
Therefore, the property could either be residential or commercial.
For a Self-Occupied Property: The Gross Annual Value (GAV) is typically considered as zero for tax purposes.
For a Let-Out Property: GAV is the higher amount between the actual rent received and the fair rental value of the property.
For a Deemed to be Let-Out Property: GAV is calculated as if it were rented, similar to a let-out property.
Determining the GAV is the first step in calculating income from a house property for tax purposes in India.
Check for the following three conditions to check whether your income from any property will be taxable under the head ‘Income from House Property’:
A self-occupied property is one that is used by you for your own residential purpose. If you own more than two such self-occupied properties, then only two such properties of yours will be treated as self-occupied and the rest will be treated as deemed to be let out property. The income from the house property shall be accordingly determined for both these properties.
Yes, for Income-tax law, if there is a property, there will be income. However, the income could be either NIL, negative or positive. Thus, the income shall be computed even if you don’t receive rent from such property. However, there is an exception to this rule in the case of ‘property occupied by the owner for the purpose of his business.’ However, it is to be noted that the taxation of house property is different for ‘Self Occupied Property’, ‘Let out Property’ and ‘Vacant Property’.
The rent received can be taxed as ‘income from house property’ in your hands only when you are the owner of the property. However, in the given case, you are not the owner of the property but the tenant, and therefore, you are not legally entitled to receive any income from such property. Hence, the rent received by you from sub-letting or partly sub-letting the property shall not be taxed as Income from House Property but will be taxed as ‘Income from other sources.’
As per the Income Tax Act, the one who owns the building need not necessarily be the owner of the land upon which it stands. Therefore, in the given case, you will still be considered an owner of the house property, and its income shall be subject to tax as ‘Income from House Property’.
No. In the case of transfer of house property by a person to their spouse for inadequate consideration (i.e., for any amount lower than its market value), then the person transferring it shall be deemed to be the owner of such house. The only exception to this rule is when the transfer happens due to their agreement to live apart from each other. In which this case, the transferee who receives such property will be the owner of the house property. (Section 27(i) of the Income Tax Act) In the backdrop of the above provisions, you will be deemed to be the owner of the house property and therefore, any income arising from it shall be taxed in your hands.
Yes, as per the provisions stated in the above FAQ. Your spouse will be required to discharge tax in respect of any income received from such house property.
As per section 27(i) of the IT Act, in the case of transfer of property by a person to their minor child for inadequate consideration, the person transferring it shall be deemed as the owner of such house. The only exception to this rule is when the property is transferred to a minor married daughter.
Based on the above provision, you shall be the deemed owner of the house property in the given case, and therefore, any income from such property shall be taxable in your hands.
The income from house property is determined after allowing certain deductions from the property’s annual value or lettable value. Following are the steps for computation of income from house property:
|Gross Annual Value (GAV) / Annual Value
|Net Annual Value (NAV)
Deduction of municipal taxes from GAV will give you NAV.
Note: The municipal taxes are only deductible if they are paid and NOT when the amount is due.
|Deductions under section 24:
a. 30% of NAV
b. Interest on home loan
|Deduct 30% from NAV Deduction of interest on home loan serviced for purchase or construction of the house property Note: Only the loan that is used to purchase/ construct the property shall be considered. Any loan taken against the property shall not be considered for the interest deduction.
Annual value is the term used in the Income-tax Act for the computation of income from house property. It is the amount that the property yields in a year as income, rent, service charges, etc. This forms the base for the computation of ‘income from house property’. Relevant additions/subtractions are made from such value to arrive at ‘income from house property.
The income chargeable to tax in the case of a let-out property is computed under the head "Income from house property" in the following manner:
|Gross annual value
|Less: Municipal taxes paid during the year
|Net annual value
|Less: Deduction under section 24
|Income from house property
Gross annual value is the higher of the following:
Expected Rent (ER) and
Actual rent received or receivable during the year.
However, the ER is higher of fair rent and municipal value, but a such higher amount shall be restricted to standard rent, i.e. say higher of fair rent and municipal value is ‘X’, then ER shall be lower of than X and standard rent. Municipal taxes paid can be deducted to arrive at the net annual value.
Gross annual value is the higher of the following:
Expected Rent (ER) and
Actual rent received or receivable during the year.
However, the ER is higher of fair rent and municipal value, but such a higher amount shall be restricted to standard rent, i.e. say higher of fair rent and municipal value is ‘X’, then ER shall be lower than X and standard rent. Municipal taxes paid can be deducted to arrive at the net annual value.
Annual value of upto 2 self-occupied properties can be taken to be NIL. Note that deduction for municipal taxes shall not be allowed in respect of such property/properties as annual value here means net annual value.
If a property is self-occupied for part of the year and let-out for the remaining part of the year, then the ER for the whole year shall be considered for determining the GAV. Such ER for the whole year shall be compared with the actual rent for the let out period. The higher amount shall be adopted as the GAV. However, municipal tax for the whole year is allowed as a deduction provided it is paid by the owner during the given financial year.
Annual value of upto 2 self-occupied properties can be taken to be NIL. The other self-occupied/ unoccupied properties shall be treated as ‘deemed let out properties’. The ER shall be taken as the GAV. Municipal tax paid by the owner during the given financial year can be claimed as deduction.
In the given case, both the parts of the house shall be treated as independent house properties i.e. they will be considered as 2 different house properties.
Their income shall be computed as under:
Likewise, it can be applied to multiple units of the house property
Yes, you will be eligible to claim a deduction of interest paid on the loan borrowed from friends and relatives as the source of the loan does not matter. However, the loan taken must be utilized for acquisition, construction, reconstruction, repairs or renewal of the house property. However, note that to claim deduction of principal amount under section 80C, loan must be taken from a financial institution.
There is no limit on the amount of interest which can be claimed as deduction in case of a let-out property. Therefore, the entire amount of interest paid can be deducted from annual value.
Yes, the rent received can be taxed in the hands of the co-owners in proportion to their ownership in the said property.
Any unrealized rent of the past periods shall be taxable in the year in which such income is realized (whether or not you are currently the owner of that property). The standard deduction of 30% of such unrealized rent shall be allowed. Taxable amount= Unrealised rent – 30% of Unrealised rent.
Yes. The entire amount of property tax paid can be claimed as deduction as the deduction is on a payment basis. Thus, it can be claimed in the year in which it is paid.
You can reduce your taxable income by the amount of principal you pay on your home loan EMI every year under Section 80C. The maximum deduction you can claim is Rs 1.5 lakh. However, this benefit is only valid if you keep the house property for at least five years after taking possession. If you sell it before that, the deduction claimed earlier will be added back to your income.
If you are a resident individual and you have only one house property, you need to file ITR 1 or ITR 4. If you have income or losses from multiple house properties you need to file ITR 2 or ITR 3.
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