House Property and Taxes

House Property and Taxes

August 18, 2018 0 By mkjjha1981

Portfolio caption

House Property and Taxes

Owning a house one day – everybody dreams of this, saves towards this and hopes to achieve this one day. However, owning a house property is not without responsibilities. Paying house property taxes annually is one of them. If you want to learn how to save tax on home loan interest, this guide is for you. It also talks about how to report home ownership in your income tax return.

  1. Basics of House Property
  2. Steps to Calculate Income From House Property
  3. Computation of Total Income and Income From House Property
  4. Tax Deduction on Home Loans
  5. Claiming Deduction on Home Loan
  6. Tax Benefits on Home Loans for Joint Owners
  7. HRA and Deduction on Home Loan
  8. Case Study
  9. Frequently Asked Questions
  10. Would you like an expert to help you with your IT returns?
  11. Basics of House Property

A house property could be your home, an office, a shop, a building or some land attached to the building like a parking lot. The Income Tax Act does not differentiate between a commercial and a residential property. All types of properties are taxed under the head ‘income from house property’ in the income tax return. An owner for the purpose of income tax is its legal owner, someone who can exercise the rights of the owner in his own right and not on someone else’s behalf.

When a property is used for the purpose of business or profession or for carrying out freelancing work – it is taxed under the ‘income from business and profession’ head. Expenses on its repair and maintenance are allowed as business expenditure.

  1. Self-Occupied House Property

A self-occupied house property is used for one’s own residential purposes. This may be occupied by the taxpayer’s family – parents and/or spouse and children. A vacant house property is considered as self-occupied for the purpose of Income Tax.

If more than one self-occupied house property is owned by the taxpayer, only one is considered and treated as a self-occupied property and the remaining are assumed to be let out. The choice of which property to choose as self-occupied is up to the taxpayer.

  1. Let Out House Property

A house property which is rented for the whole or a part of the year is considered a let out house property for income tax purposes

  1. Inherited Property

When you inherit property from your father, you will be taxed like it is your own property. If you own more than one house property, only one house will be treated as self-occupied house property according to the I-T Department, while others are assumed and taxed as if they are on rent.

  1. Steps to Calculate Income From House Property
  2. Gross Annual Value of the property: The gross annual value of a self-occupied house is zero. It is the rent collected for a house on rent.
  3. Less Property Tax: Property tax, when paid, is allowed as a deduction.
  4. Net Annual Value: Net Annual Value = Gross Annual Value – Property Tax
  5. Less: 30% standard deduction on NAV: A standard 30% deduction on NAV is allowed as a deduction under Section 24 of the Income Tax Act. No other expenses such as painting and repairs can be claimed as tax relief beyond the 30% cap under this section.
  6. Less: Interest on the home loan: Deduction is allowed for Interest on the home loan.
  7. Income from house property: The resulting value is your income from house property. This is taxed at the slab rate applicable to you.
  8. Loss from house property: Since the gross annual value of a self-occupied house is zero, claiming the deduction on home loan interest will result in a loss from house property. This loss can be adjusted against income from other heads.

Note: When a property is let out, its gross annual value is the rental value of the property. The rental value must be higher than or equal to the reasonable rent of the property determined by the municipality.