A house property can be of three types that is self occupied house, let out house property and inherited house property. A house property could be home or office, shop, building or some land attached like parking lot, godowns. For example, Mr.PremKumar has one house that includes an open area and the rent is Rs.50000 per month and the rent for the open area is 15000 that are included in Rs.50000.In this case the entire income is taxable under the head of house property.”Income under house property”, the income under this head is taxed for all types of properties. Income Tax Act does not bring a contrast between commercial and residential properties. The person in whose name the property stands is liable to pay the tax on income from house property. The income from house property is taxable when the following criterion is satisfied:
1. The property must consist of buildings and lands;
2. The person must be the owner of such house property;
3. The property may be used for any purpose, but the property should not be used for any purpose by the owner if the owner uses that property either for residential or business purpose then it is not chargeable for tax.
Deductions are allowed under the section 24.Two types of deductions are allowed while calculating the tax on the income from house property. They are
1. A standard deduction of a sum equal to 30 % of the net annual value is allowed.
2. If the capital is borrowed for the construction or reconstruction of the house property, and the amount of any interest payable on such capital is allowed as deduction. The amount of interest payable yearly should be calculated separately and claimed as a deduction every year. But the amount paid as commission or brokerage of loan will not be allowed as deduction.
Calculation of Income from House Property;
The following are the elements included in the calculation of Income from House Property.
Gross Annual Value:
This refers to the total income received from the property. In case of the self occupied property the GAV is ‘zero’. When a property is let out, its gross annual value is the rental value of the property and that must be higher or equal to the rent determined by the municipality.
The municipal taxes that are paid up on the property can be allowed as deductions.
Net Annual Value:
The net income from the house property during the year is the Net Annual Value of the property.
Standard deduction of 30 %on the Net Annual Value of the property.
Interest on loan:
The interest on the capital borrowed is allowed as deduction under the section 24.
- After the above elements are calculated the income or loss from house property is ascertained.
*Recent addition of section 80EE provides a first time home owners tax benefit up to RS.50000.
Tax Benefits on Home Loan:
Sec 24 of the Income Tax Act states that the amount of interest on housing loan shall be deducted from the income from house property. Here, the loan must be taken for the purpose of either construction or repair or reconstruction of a residential house property.
NAV on different properties:
NAV of let out property is calculated by subtracting municipal taxes paid from rent received.
NAV of deemed let out property is calculated by deducting municipal taxes from reasonable rent.
NAV of self occupied property is NIL.
However, if the owner has not occupied the property himself due to his employment, or any other reason than the amount of tax deduction available under section 24 stays limited to 2lakhs.This tax benefit is reduced to Rs.30000, if the property is not acquired or construction is not completed within 3 years of loan taken. From 2016-17 onwards the limit is increased to 5 years.
Illustration: A person pays property tax of Rs.50000 on the property and he receives the rent from that property is Rs 175000.Calculate the income from house property.
|Gross Annual Value||175000|
|Net Annual Value||125000|
Interest on home loan
|Income from house property||87500|
Meaning of Terms:
Self occupied property:
A property or house in which the owner is residing or the property in which the owner runs his business is called Self Occupied Property.
Let out property:
The property which is rented or let out or in which the owner does not reside nor has business and it for the rental purpose.
The property which is inherited is considered as self occupied (only one) and if the property or house is more than one and not occupied by owner will be treated as let out.