Income from House Property - House property income | House property deduction | calculate house property income

Income from House Property

Hello guys,

So, last time we have learn about Income from Salary and now this time we would be know about Income from House Property, So here we go-

After read this article you will be understood about these heads;

1. Basics of House Property
2. Steps to Calculate Income from House Property
3. Deductions
4. Treatment of unrealized rent and arrears of rent [Explanation to section 23(1)]
5. Co-owner and Deemed Owner
6. Set-off of loss from House Property

 

1. Basics of House Property

House property could be your home, a shop, a building, or some land attached to the building. The Income Tax Act assumes no difference in all these properties. All types of properties are taxed under the head ‘income from house property’ in the income tax return. An owner for the purpose of income tax is its legal owner.

When a property is used for the purpose of business or profession then it is taxed under the ‘income from business and profession’ head. Expenses on its repair and maintenance are allowed as business expenditure.

a. Self-Occupied House Property

Self-occupied house property is used for one’s own residential purposes. This may be occupied by the taxpayer’s family – parents and/or spouse and children. Vacant house property is considered as self-occupied for the purpose of Income Tax.

Prior to FY 2019-20, if more than one self-occupied house property is owned by the taxpayer, only one is considered and treated as a self-occupied property and the remaining are assumed to be let out. The choice of which property to choose as self-occupied is up to the taxpayer.

For the FY 2019-20 and onwards, the benefit of considering the houses as self-occupied has been extended to 2 houses. Now, a homeowner can claim his 2 properties as self-occupied and remaining house as let out for Income tax purposes.

b. Let out House Property

A house property which is rented for the whole or a part of the year is considered a let out house property for income tax purposes

c. Inherited Property

An inherited property i.e. one bequeathed from parents, grandparents etc. again, can either be a self-occupied one or a let out one based on its usage as discussed above.

Basis of Charge:

Income from house property shall be taxable under this head if following conditions are satisfied:

a) The house property should consist of any building or land appurtenant thereto

b) The taxpayer should be the owner of the property

c) The house property should not be used for the purpose of business or profession carried on by the taxpayer.

2. Steps to Calculate Income from House Property

Here is how you compute your income from a house property:

a. Determine Gross Annual Value (GAV) of the property: The gross annual value of a self-occupied house is zero. For a let out property, it is the rent collected for a house on rent.

b. Reduce Municipal Taxes: Municipal taxes, when paid, is allowed as a deduction from GAV of property.

c. Determine Net Annual Value (NAV): Net Annual Value = Gross Annual Value – Municipal Taxes

d. Reduce 30% of NAV towards standard deduction: 30% on NAV is allowed as a deduction from the NAV u/s 24 of the Income Tax Act.

e. Reduce home loan interest: Deduction u/s 24 is also available for interest paid during the year on housing loan availed.

f. Determine Income from house property: The resulting value is your income from house property. This is taxed at the slab rate applicable to you.

g. Loss from house property: When you own a self-occupied house, since its GAV is Nil, claiming the deduction on home loan interest will result in a loss from house property. This loss can be adjusted against income from other heads.

Note: When a property is let out, its gross annual value is the rental value of the property. The rental value must be higher than or equal to the reasonable rent of the property determined by the municipality.

3. Deductions:

Municipal Taxes

Municipal taxes including service taxes levied by any local authority in respect of house property is allowed as deduction, if:

a) Taxes are borne by the owner and

b) Taxes are actually paid by him during the year.

Standard Deduction [Section 24(a)]

30% of net annual value of the house property is allowed as deduction if property is let-out during the previous year.

Interest on Borrowed Capital

a) In respect of let-out property, actual interest incurred on capital borrowed for the purpose of acquisition, construction, repairing shall be allowed as deduction

b) In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of acquisition or construction of house property shall be allowed as deduction up to Rs. 2 lakhs. The deduction shall be allowed if capital borrowed on or after 01-04-1999 and construction of house property is completed within 5 years.

c) In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of reconstruction, repairs or renewals of a house property shall be allowed as deduction up to Rs. 30,000.

* Any interest pertaining to the period prior to the year of acquisition/ construction of the house property shall be allowed as deduction in five equal installments, beginning with the year in which the property was acquired/ constructed.

* Deduction for interest on borrowed capital shall be limited to Rs. 30,000 in following circumstances:

a) If capital is borrowed before 01-04-1999 for the purpose of purchase or construction of a house property;

b) If capital is borrowed on or after 01-04-1999 for the purpose of re-construction, repairs or renewals of a house property;

c) If capital is borrowed on or after 01-04-1999 but construction of house property is not completed within five years from end of the previous year in which capital was borrowed.

Deduction for interest on housing loan

Deduction of up to Rs 50,000 shall be allowed to an Individual for interest payable on loan taken for the purpose of acquisition of a house property subject to following conditions:

 a)  Loan has been sanctioned by Financial institution during the financial year 2016-17

 b)  The amount of loan sanctioned does not exceed Rs 35,00,000

 c)  The value of residential property does not exceed Rs 50,00,000

 d)  The assessee does not own any residential house property on the date of sanction of loan

 e)  Where deduction has been allowed under this section, no deduction shall be allowed in respect of such interest under any other provision.

4. Treatment of unrealized rent and arrears of rent

Deduction for unrealized rent:

Unrealized rent is that portion of rental income which the owner could not realize from the tenant. Unrealized rent is allowed to be deducted from actual rent received or receivable only if the following conditions are satisfied:

a) The tenancy is bonafide

b) The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;

c) The defaulting tenant is not in occupation of any other property of the assessee

d) The taxpayer has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.

Arrears of rent or recovery of unrealized rent:

Amount received in respect of arrears of rent or any subsequent recovery of unrealized rent shall be deemed to be the income of taxpayer under the head "Income from house property" in the year in which such rent is realized or received (whether or not the assesse is the owner of that property in that year).

Further, 30% of such rent shall be allowed as deduction.

5. Co-owner and Deemed Owner

Property owned by co-owners:

If house property is owned by co-owners and their share in house property is definite and ascertainable than the income of such house property will be assessed in the hands of each co-owner separately. For the purpose of computing income from house property, the annual value of the property will be taken in proportion to their share in the property. In such a case, each co-owner shall be entitled to claim benefit of self-occupied house property in respect of their share in the property (subject to prescribed conditions).

Deemed owner:

Income from house property is taxable in the hands of its owner. However, in the following cases, legal owner is not considered as the real owner of the property and someone else is considered as the deemed owner of the property to pay tax on income earned from such house property:

1. An individual, who transfers otherwise than for adequate consideration any house property to his or her spouse;

2. The holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate;

3. A member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme shall be deemed to be the owner of that building or part thereof;

4. A person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882 shall be deemed to be the owner of that building or part thereof;

5. A person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in section 269UA (f), shall be deemed to be the owner of that building or part thereof.

6. Restriction on set off of loss from House Property

If the net result of computation of income under the head "House Property" is loss then such loss can be set-off against any other income up to Rs. 2 Lakh in any assessment year.

However, the loss which couldn't be set off can be carried forward for set-off in subsequent years. It can be carried forward for 8 Assessment years for set-off.