Updates and details for Income from House Property: Taxes, Deductions:
Rental income from a property being building or land appurtenant thereto of which the taxpayer is the owner is charged to tax under the head ‘Income from house property’. This is taxed in the hands of the owner of the property. The appurtenant lands may be in the form of a courtyard or compound forming part of the building.
But such land is to be distinguished from an open plot of land, which is not charged under this head but under the head, Income from Other sources or Business Income, as the case may be. Besides, house property includes flats, shops, office space, factory sheds, agricultural land and farm houses.
Before learning how to compute income from house property, it is important to understand the terminology.
- Annual Value: This is the capacity of a property to earn income is its annual value.
- Municipal Value: This is the value of your property as evaluated by municipal authorities on which they charge municipal tax. Municipal authorities have a host of factors that they consider before assigning a municipal value.
- Fair Rental Value: The rent which a similar property with similar features in the same (or similar) area would fetch is the fair rental value.
- Standard Rent: Under the Rent Control Act, a standard rent is fixed and owners cannot receive rent higher than that specified in the Rent Control Act. This Act ensures that owners are paid fair rent, tenants are not exploited and are protected from eviction.
- Actual Rent received/receivable: This is the actual amount received by the owner from the tenant as rent, depending on who pays the water, electricity and other utility bills.
- Gross Annual Value (GAV): This is the highest among:
- Rent received or receivable
- Fair Market Value
- Municipal Valuation
Also Check: Residential Status and Tax Incidence
How to calculate Income from House Property?
The manner of computation of taxable income from house property and deduction allowed from income from house property is given below:
|1. Gross Annual Value (i.e Actual Rent or Expected Rent, whichever is higher)
|2. (Less) Municipal and other taxes paid to Local Authority
|3. Net Annual Value (1-2)
|4. (Less) Deductions allowed under Section 24
A. Statutory Deduction @30% of NAV
B. Interest on Loan
|5. Income chargeable under head House Property (3-4)
*Note: The income chargeable under head House Property would be added to the income computed under the other 5 heads of income tax return and tax would be levied as per the income tax slab rates.
Deduction in case of let-out property
Deduction under section 24(b) for interest accrued on loan taken for the purpose of purchase, construction, repair, renewal or reconstruction of the property is available without any limit.
Municipal taxes including service-taxes levied by any local authority in respect of house property is allowed as deduction, if:
- Taxes are borne by the owner; and
- Taxes are actually paid by him during the year.
Deduction in case of Self occupied property
A self-occupied property means a property owned by the taxpayer which is occupied throughout the year by the owner for the purposes of his own residence and is not actually let out during the whole or any part of the year. Thus, a property not occupied by the owner for his residence cannot be treated as a self occupied property. However, there is one exception to this rule. If the following conditions are satisfied, then the property can be treated as self-occupied and the annual value of a property will be ‘Nil’, even though the property is not occupied by the owner throughout the year for his residence:
- The taxpayer owns the property;
- Such property cannot actually be occupied by him owing to his employment, business or profession carried on at any other place and he has to reside at that other place in a building not owned by him;
- The property mentioned in (a) above (or part thereof) is not actually let out at any time during the year;
- No other benefit is derived from such property.
In case of a self occupied property, the limit for deduction is Rs. 2,00,000 (w.e.f. 01.04.2015. Earlier Rs. 150,000/-) or Rs. 30,000, as the case may be.
If all the following conditions are satisfied, then the limit in respect of interest on borrowed capital will be Rs.2,00,000/- :
- Capital is borrowed on or after 1-4-1999.
- Capital is borrowed for the purpose of acquisition or construction (i.e., not for repair, renewal, reconstruction).
- Acquisition or construction is completed within 3 years from the end of the financial year in which the capital was borrowed.
- The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for acquisition or construction of the property.
If any of the above condition is not satisfied, then the limit will be reduced to Rs. 30,000.
In case of a self occupied property, deduction under Section 24(a) (30% of Net Assett Value) and deduction for municipal taxes is not avilable.
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