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The incomes which will be taxable under the head ‘Income from house property of the Income-tax Act, 1961 are as follows:
The annual value of a self-occupied property is zero. It can also be negative if interest is paid on the loan. For let out property, the rent received in the financial year is the Gross Annual Value. For a deemed to be let out property, the rent of a similar place is the Gross Annual Value.
If you have taken a home loan for the purchase or reconstruction of a house property, you can claim the deduction on pre-construction interest. The total amount of deduction available for this interest in a financial year is Rs. 2 lakhs. The deduction is allowed in 5 equal instalments starting from the year in which the house was purchased or the construction is complete. This deduction cannot be availed if the home loan is for repairs and reconstruction.
Municipal Taxes are the taxes that are paid to the municipal corporation of the area you are living in. For the Net Annual Value calculation, the amount of municipal tax which is paid by the owner in the financial year is allowed from the Gross Annual Value.
A standard deduction is allowed to all taxpayers at the rate of 30% of the Net Annual Value. For a self-occupied property, the standard deduction is zero. This deduction is allowed even though your expenditure may be higher or lower.
For self-occupied property a deduction of Rs. 2 lakhs is allowed if they reside at the property. For a rented out property, the entire interest on a home loan is allowed as a deduction.
The conditions for allowance of the interest are -
If you do not fulfil these conditions, the deduction amount is restricted to Rs. 30,000.
This section of the Income-tax Act,1961, allows an additional deduction of Rs. 50,000 if the cost of the house is lower than Rs. 50 lakhs and the loan taken is less than Rs. 35 lakhs. The provision was made available from the financial year 2020-21. If a person dies, the loan liabilities are transferred to their heir, but the heir cannot avail of tax exemptions in place of the deceased person. However, if the loan is on a joint basis, then all the parties can claim tax benefits in such cases.
Let us take an example to understand the computation of house property.
The property can either be self-occupied or rented out.
The given conditions are-
The maximum loss is Rs. 2 lakhs the remaining loss can be carried forward to the future financial years maximum of 8 years.
In the above example, the gross annual value of SOP is NIL and the rented out property is (7000*12) = 84,000. The municipal taxes paid for rented out property can be claimed as deductions. The standard deduction for the rented out property is given at the rate of 30%. Interest on housing loans can be availed as a deduction for both situations. The preconstruction period interest is availed as a deduction for both the properties. The loss can be set off and carried forward.
Apart from the purpose of constructing a house, interest paid on the personal loan can also be used for a tax deduction if the purpose is genuinely for business investment or any other purchase of the asset.
If the amount is used for buying any asset other than property, it would be considered capital gain and any interest paid is eligible for a tax deduction. Contrary to property, business investment and purchase of assets do not have any upper cap on the tax deduction. For all the claims you are making, there should be authenticproof furnished in order to get a successful tax refund.
1. What is self-occupied property?
The property which is owned by an individual and is used for residential purposes is called self-occupied property.
2. What is pre-construction interest?
This is allowed when you have taken a loan for the purchase or construction of a property. The deduction is allowed in 5 equal instalments starting from the year in which the house is purchased or the construction is completed.
3. For how many years can the loss be set off under the head ‘Income from House Property?
The maximum years for which the loss can be set off is 8 years.
4. What is the limit on pre-construction interest?
The total amount of interest should not exceed Rs. 2 lakhs in any financial year.
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