INDEX
- Understanding Income from House Property
Types of Properties under the Income Tax Act
When is Income from House Property Taxable?
Deductions on Income from House Property
How to Calculate Income from House Property?
Income from House Property
Understanding Income from House Property
Income from house property refers to the revenue generated from owning and renting out a property. This income includes the rent received from the property, after deducting certain expenses and allowances. The taxation rules for this income are governed by Sections 22 to 27 of the Income Tax Act, 1961.
Types of Properties under the Income Tax Act
There are four main categories of properties under the Income Tax Act that impact how income from house property is taxed:
Self-Occupied Property
A property used by you or your family members (spouse, children, or parents) as a residence is considered self-occupied. Even if the house is unoccupied, it remains classified as self-occupied for tax purposes.
Tax Rule: From FY 2019-20 onwards, a taxpayer can claim up to two houses as self-occupied. If more than two properties are owned, the additional properties will be treated as “let-out” for tax purposes.Let-out Property
A “let-out” property refers to property that is rented out, either fully or partially, during the year. This category also includes properties that are deemed rented out, even if they remain vacant.
Tax Rule: Properties inherited from family members (e.g., parents or grandparents) can be classified as self-occupied or let-out, depending on the situation.Deemed Let-Out Property
These properties are not physically rented out but are considered rented by tax authorities. Typically, this applies to properties where the owner does not reside, such as when they live in another city due to work or business.
Tax Rule: A hypothetical rental income is considered taxable, and the owner can claim deductions for municipal taxes and home loan interest.Under Construction Property
Properties that are under construction or not yet ready for use are also considered for tax purposes. During the construction phase, no rental income is taxable.
Tax Rule: Once the property is completed, it will be taxed based on whether it is self-occupied or let-out.
When is Income from House Property Taxable?
Income from house property becomes taxable under the following conditions:
- The property generates income through rent or lease.
- The annual value of the property is more than zero.
- The lease amount is received from leasing the property for 12 years or more.
- As per Section 27, deemed owners (those who transferred their rights but still retain control over the property) are also liable to pay tax.
Deductions on Income from House Property
Under Section 24 of the Income Tax Act, the following deductions are available on income from house property:
- Standard Deduction: A flat 30% deduction on the net annual value (NAV) of the property, applicable for all rental properties.
- Interest on Home Loan:
- Deduction up to ₹2,00,000 for self-occupied properties.
- There is no specific limit for let-out properties.
- The deduction applies only if the property is acquired, constructed, or renovated within five years of the loan.
- Municipal Taxes: Taxes paid to the municipal corporation can be deducted from the gross annual value to calculate the net annual value (NAV).
- Pre-Construction Interest: Interest paid on a home loan before construction is deductible, up to ₹2,00,000.
- First-Time Home Buyer Deduction: Under Section 80EE, first-time homebuyers can claim an additional deduction of ₹50,000 on home loan interest, provided the property value is less than ₹45 lakhs and the loan amount is less than ₹35 lakhs.
How to Calculate Income from House Property
Here’s a step-by-step guide on how to calculate income from house property:
| Step | Calculation Component | Formula |
|---|---|---|
| 1 | Gross Annual Value (GAV) | For let-out property, it is the rent received. For self-occupied property, GAV = 0. |
| 2 | Municipal Tax Deduction | Deduct the annual municipal taxes paid from GAV. |
| 3 | Net Annual Value (NAV) | NAV = GAV – Municipal Tax Deduction |
| 4 | Standard Deduction | 30% of NAV (for all rental properties). |
| 5 | Interest on Home Loan | Deduct interest paid on home loan (up to ₹2,00,000 for self-occupied property). |
| 6 | Final Income from House Property | Income = NAV – Standard Deduction – Interest on Home Loan. |
Example:
Mr. A’s income from house property for FY 2023-24 and FY 2024-25, considering one self-occupied property, one rented property, and one vacant property. Each property has municipal taxes of ₹16,000 paid and interest of ₹1,00,000 for the let-out property. This analysis is done under both the old tax regime and the new tax regime.
Income from House Property (Old Tax Regime)
| Particulars | FY 2023-24 | FY 2024-25 |
|---|---|---|
| Self-Occupied Property | ₹0 (No Income) | ₹0 (No Income) |
| Rented Property (Per Property) | ₹2,40,000 (₹20,000 × 12) | ₹2,40,000 (₹20,000 × 12) |
| Less: Municipal Taxes Paid (Per Property) | ₹16,000 | ₹16,000 |
| Net Rent Received (Rented Property) | ₹2,24,000 | ₹2,24,000 |
| Interest on Loan for Let-out Property | ₹1,00,000 | ₹1,00,000 |
| Gross Income from Let-out Property | ₹1,24,000 | ₹1,24,000 |
| Less: Standard Deduction (30%) | ₹37,200 (30% of ₹1,24,000) | ₹37,200 (30% of ₹1,24,000) |
| Net Income from House Property | ₹86,800 | ₹86,800 |
| Vacant Property | ₹0 (No Income) | ₹0 (No Income) |
| Total Income from House Property | ₹86,800 | ₹86,800 |
Explanation (Old Tax Regime):
- Self-Occupied Property: No income is generated from the self-occupied property, and no deductions are allowed.
- Rented Property: Annual rental income of ₹2,40,000 (₹20,000 per month) is generated from the rented property. After deducting municipal taxes of ₹16,000, the net rental income becomes ₹2,24,000. Mr. A also pays ₹1,00,000 in interest for the let-out property, which is deductible. After applying the 30% standard deduction on the remaining income of ₹1,24,000, the taxable income becomes ₹86,800.
- Vacant Property: No rental income and no deductions available.
So, the total income from house property for FY 2023-24 and FY 2024-25 is ₹86,800 under the old tax regime.
Income from House Property (New Tax Regime)
| Particulars | FY 2023-24 | FY 2024-25 |
|---|---|---|
| Self-Occupied Property | ₹0 (No Income) | ₹0 (No Income) |
| Rented Property (Per Property) | ₹2,40,000 (₹20,000 × 12) | ₹2,40,000 (₹20,000 × 12) |
| Less: Municipal Taxes Paid (Per Property) | ₹16,000 | ₹16,000 |
| Net Rent Received (Rented Property) | ₹2,24,000 | ₹2,24,000 |
| Interest on Loan for Let-out Property (Per Property) | ₹1,00,000 | ₹1,00,000 |
| Gross Income from Let-out Property | ₹1,24,000 | ₹1,24,000 |
| Less: Standard Deduction (30%) | ₹37,200 (30% of ₹1,24,000) | ₹37,200 (30% of ₹1,24,000) |
| Net Income from House Property | ₹86,800 | ₹86,800 |
| Vacant Property | ₹0 (No Income) | ₹0 (No Income) |
| Total Income from House Property | ₹86,800 | ₹86,800 |
Explanation (New Tax Regime):
- Self-Occupied Property: Similar to the old tax regime, no income is generated from the self-occupied property, and no deductions are allowed for this property.
- Rented Property: Mr. A receives ₹2,40,000 annually from the rented property (₹20,000 per month). After deducting the municipal taxes of ₹16,000, the net rental income becomes ₹2,24,000. Mr. A also has ₹1,00,000 in interest on loan for the let-out property, which is deductible under the new tax regime. After subtracting the interest, the gross income from the let-out property is ₹1,24,000. The standard 30% deduction is applied to the remaining income (₹1,24,000), resulting in ₹37,200 as a deduction. After this, the taxable income is ₹86,800.
- Vacant Property: No rental income and no deductions available. If Mr A has more than two vacanted properties (3 or more) house property than deemed income from one property will be taxable under house property.
The total income from house property for FY 2023-24 and FY 2024-25 is ₹86,800 under the new tax regime as well.
Thus, Mr. A’s total taxable income from house property remains ₹86,800 for both FY 2023-24 and FY 2024-25, under both the old and new tax regimes.
Conclusion
Income from house property is a significant source of taxable income for many individuals. By understanding how to calculate this income and the various deductions available, you can reduce your tax liability. It’s essential to keep track of your property-related expenses and consult with a tax professional to maximize tax-saving opportunities.