Income from house property is earnings from property ownership, including rent from residential buildings, flats, shops, or attached land.
Owning and managing a residential property can get complicated for many. House owners need to spend time calculating house property income tax and tax benefits.
Let’s understand what classifies as ‘Income from House Property’. Income will be classified as income under this head as per Section 22 of the Income Tax Act, 1961, if the given conditions are met:
The taxpayer or assessee is the owner of the residential property
The residential property consists of all real estate owned by the said taxpayer
The residential property is not used for business or professional purposes
If the property is used for the above purposes, it will fall under ‘Income from Business and Profession’
Note that ‘house property’ mentioned here can be anything, such as a building, flat, shop, or office. It can also include land attached to these properties, but it must be used for residential purposes to qualify.
The following pointers will give you a clear idea about the computation of income from house property:
The gross annual value of a house refers to the total rent that can be collected from the house property. GAV is only applicable on ‘let-out’ and ‘deemed to be let-out properties’ as the GAV of a residential property is nil.
Once you have determined the GAV, subtract the property tax paid for the year. This will give you the Net Annual Value of the residential property.
30% subtraction of the NAV is allowed under Section 24.
Section 24 also allows for the deduction of interest paid on home loans for the property from the NAV.
Once you have deducted the 30% of the NAV and interest paid on the home loan, you will arrive at the final figure.
Note that this ‘Final Income from House Property’ will be taxed at the same tax rate applicable for your income slab.
The following tax deductions will be applicable to the different types of house properties:
A tax deduction of up to ₹2,00,000 is allowed under Section 24 of the Income Tax Act for interest paid on home loans for self-occupied properties. However, this deduction will be limited to ₹30,000 if:
Construction of the property is not completed within 5 years from the end of the financial year in which the loan was taken
Loan was taken before April 1, 1999
Loan is taken after April 1, 1999, for repair or renovation of the house property
The total interest paid or payable during a given financial year for these properties will be allowed for deduction. Deductions on the Gross/Net Annual Value of these house properties are also applicable, as mentioned in the section above.
Note that deductions on an ‘under construction property’ can be done in 5 equal instalments as pre-construction interest paid on the home loan.
A taxpayer can also claim a deduction against interest paid on a home loan as per Section 80EE of the Income Tax Act, 1961. However, the following conditions must be adhered to:
Deduction of up to ₹50,000 can be claimed in a given financial year
Taxpayer must not own any other property at the time of taking a home loan for the residential property
Loan must be sanctioned between April 1, 2016, to March 31, 2017
You can get a tax deduction of up to ₹2,00,000 on interest paid against a home loan for a self-occupied property under Section 22. However, this may be limited to ₹30,000 under certain circumstances.
You can calculate the Net Annual Value of a residential property by subtracting the property tax from the Gross Annual Value (GAV). The GAV of a house refers to the total rent that can be collected from the house property as per the reasonable rent set by the local municipality.
You can claim a deduction of up to ₹50,000 in a given financial year against the interest paid for home loans.
Any income you generate from your let-out properties after deduction will be taxed according to the tax rate applicable for your income slab.
Deemed to be let-out property refers to a house property that a taxpayer owns that is separate from his/her two self-occupied properties.
For tax purposes, the house property income tax will be similar to a let-out property. It means that the taxpayer will have to pay income tax based on the Net Annual Value (NAV) aside from deductions.
Income from house property is classified into two types. These include self-occupied house property and let-out house property.
Gross Annual Value is the potential income from a let-out property. It is calculated based on the rent received or expected, whichever is higher. Net Annual Value is the taxable value of a property. It is calculated after deducting the municipal taxes paid by the owner.
Rental income from a property, be it a building or a land, falls under the head ‘Income from House Property.’
As per Section 22 of the Income Tax Act, the rental income from property falls under this head. It can consist of a building or a land belonging to it where the assessee is the owner.
Income from property of the assessee occupied for business or profession does not fall under this head.