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.

How to Calculate the Income from a Residential Property

The following pointers will give you a clear idea about the computation of income from house property:

  • Calculate Gross Annual Value of Property (GAV)

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.

  • Subtract Property Tax to Determine Net Annual Value (NAV)

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.

  • Subtract 30% of the NAV as per Standard Deduction

30% subtraction of the NAV is allowed under Section 24.

  • Deduct Interest Paid on Home Loan from the NAV

Section 24 also allows for the deduction of interest paid on home loans for the property from the NAV.

  • Final Income from House Property

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.

Tax Treatment of All Types of House Properties

The following tax deductions will be applicable to the different types of house properties:

  • Two Self Occupied 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:

  1. Construction of the property is not completed within 5 years from the end of the financial year in which the loan was taken

  2. Loan was taken before April 1, 1999

  3. Loan is taken after April 1, 1999, for repair or renovation of the house property

  • Let-Out or Deemed to be Let-Properties

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.

Deduction on the Interest Paid on Loans Under Section 80EE of IT Act, 1961

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

  • Value of the house property must not exceed ₹50 Lakhs and the loan amount must not exceed ₹35 Lakhs

FAQs on Income from House Property

How much tax deduction can I get on a self-occupied property?

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.

How is the Net Annual Value of a house property calculated?

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.

How much deduction can you claim against Section 80EE?

You can claim a deduction of up to ₹50,000 in a given financial year against the interest paid for home loans.

How much is the income tax on house rent received?

Any income you generate from your let-out properties after deduction will be taxed according to the tax rate applicable for your income slab.

What does ‘deemed to be let-out property’ mean?

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.

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