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Income From House Property And Taxes
The Income Tax Act has separated the income received by an individual under various heads for simplification of tax computation. One of these is “Income from House property”. The income obtained by the ownership of a property is said to be Income from House property. If a taxpayer owns a house property and lets it out, the rent procured from that property is taxable.
Your home, building, office, or shop can be called house property. All the properties are taxable whether they come under commercial or residential. When the property is utilized for residential purposes, it is taxed under income from house property. Whereas, if the property is occupied for business or profession, then it is regarded as income from business or profession.
About Income From House Property and Taxes
- What Is House Property Tax?
- What Are The Types Of House Properties?
- What Are The Steps For Computation Of Income From House Property?
- How To Cut Down On Tax On Income From House Property?
- What are the tax deductions on home loans?
- What Is The Tax Deduction For First-Time Homeowners: Section 80EE?
- What Is The Tax Deduction for First-Time Homeowners Under Section 80EEA?
- FAQs
What Is House Property Tax?
A house property could be your home, office, shop, a building, or some land attached to the building like a parking lot. Income from house property encompasses all the income earned by the assessee from a property. The building and all the land to the building are part of the house property. The computation of tax varies for different types of house properties.
What Are The Types Of House Properties?
1. Self-Occupied House Property
A self-occupied house property is a property used for residing. The taxpayer’s family, parents, spouse, or children may occupy the residential property. For the purpose of income tax, an unoccupied house property is considered as self-occupied. Before the financial year 2019 to 2020, if the taxpayer owns more than one self-occupied property, then only one is considered and handled as a self-occupied property. The remaining are accounted as let out or rented. The choice of which property to choose as self-occupied rests with the taxpayer. From the financial year 2019 to 2020, 2 houses could be considered as self-occupied while the remaining as rented out or let out for income tax purposes.
2. Let Out House PropertyA house property that has been rented out or let out for the whole or part of the year is called let out house property
3. Inherited PropertyInherited properties are those that are handed down from parents and grandparents. They can either be used as self-occupied or rented out.
What Are The Steps For Computation Of Income From House Property?
The income from house property is given as follows:
| Gross Annual Value | YYYY |
| Less: Municipal Taxes | (YYYY) |
| Net Annual Value | YYYY |
| Less: Deductions under Section 24 | |
| 1) Standard deduction@30% | YYYY |
| 2) Interest paid on borrowed loan | YYYY |
| Income From House Property | YYYY |
The calculation of income from house property involves a series of steps. They are enumerated and explained in detail as follows:
Step 1: find the gross annual value of the property: The gross annual value of a self-occupied property is nil, whereas, for a let-out property, it is the rent receivedStep 2: Reduce the municipal taxes from the gross annual value of the property: You can deduct the property tax paid from the gross annual value of the property.Step 3: Compute the net annual value: When the property tax is deducted from the gross annual value, you will get the net annual valueStep 4: Deduct the standard deduction @30% of net annual value: 30% of the Net annual Value can be deducted as a reduction from the net annual value under Income Tax Act. The deductions have to be within 30%, and exceeding that, no other expenses such as repair, reconstruction, or painting can be claimed as a tax relief under the Act.Step 5: Deduct the home loan interest: The interest paid on the home loan availed during the financial year is deducted under section 24 of the Income Tax Act.Step 6: Finally calculate the income from house property: The final value that is arrived at is the income from house property. This is taxable at the rate given in the tax slab for your income range.Step 7: Loss From House Property: If you own a self-occupied property bought through loan, the consequences of claiming a deduction on home loan interest will be a loss as there will be no gross annual value for the house property. This loss can be compensated by gaining income from other heads.The gross annual value of rented property is the rental value of the property. In such a scenario, the rental value should be more than or equal to the realistic rent of the property that is decided by the municipality.
How To Cut Down On Tax On Income From House Property?
If you plan carefully, you will be able to save a considerable amount from taxation. Some of the following things can allow you to save a considerable amount from taxation.
Applying For A Joint Home Loan
If you are a joint owner of a property with someone and also apply for a joint home loan with your partner, you will both qualify for tax deductions on interest up to an amount of Rs. 1,50,000 separately.
Planning A Second Home?
If you already have one self-occupied property registered to your name and desire to avoid paying taxes for a second home, then you can register the second property in the name of your spouse/relatives to avoid excess taxation.
Joint Ownership Taxation On Income From House Property
Joint ownership taxation on income from house property can be divided amongst co-owners and hence decrease the load.
Ownership Of More Than One Property
If you own multiple properties, only one of these can be classified under self occupied property and registered as the same. It is essential to evaluate the tax liability on all your properties. Then, choose the one with the highest tax liability and let out the remaining. You can also alter the self occupied property every year.
Empty houses that you own will still be taxed according to the fair rental value. So, it is wise to rent all vacant houses that you own to prevent loss due to taxation and gain on income.
What are the tax deductions on home loans?
Some of the sections in the Income-tax act that provides a deduction on home loans are as follows:
- Deduction of tax on home loan interest under section 24
- Deduction of tax on principal repayment under section 80C
- Deduction of tax for first-time homeowners under Section 80EE
What Is The Tax Deduction For First-Time Homeowners: Section 80EE?
Section 80EE , a recent addition to the income tax act, provides homeowners with only one house property on the date of sanction of loan. It provides a tax benefit of Rs. 50,000 on that houseWhat Is The Tax Deduction for First-Time Homeowners Under Section 80EEA?
A new section 80 EEA was added to extend the tax benefits of interest deduction for housing loans taken for affordable housing during the period 1 April 2019 to 31 March 2020. The taxpayer must not be entitled for deduction under section 80 EEA.
FAQs
1. How much income from house property is taxed?
The deductions applicable for income from house property can be considered as the following according to Section 24.
- 30% of net annual value as deduction under Section 24 (a)
- Interest on the capital borrowed for the purpose of buying, construction, fixing up, renewal, or reconstruction of the property as a deduction under Section 24(b).
2. What conditions must be fulfilled for income to be categorized as income under house property?
- The house property must consist of any building or land.
- The taxpayer should own the property
- The house property must not be utilized for the purpose of business or profession done by the taxpayer.
3. Can you classify income from house property as business income?
Yes, there are multiple rules under court and income tax in this regard. If you are in the business of renting out a property, then the rental income obtained even from the residential property will be considered as business income.
4. Can you adjust house property loss from salary?
Loss from house property can be adjusted against income under any head. Business losses apart from speculative business can be adjusted against any head of income with the exception of income from salary.
5. Does income from house property cover commercial property?
Income from house property is usually taxable under the head “Income from house property” in the hands of the owner. This is applicable both to residential as well as commercial property.