We all have one common dream that is owning a house, and we work hard to achieve the dream as soon as possible. But, owning a house means dealing with numerous taxpayer responsibilities. If you want to learn how to save money on home loan interest, this guide will be helpful for you.
House property can include your home, office, shop, building, or a piece of land attached to the building like a garage or parking lot. The Income Tax department does not differentiate between residential and commercial properties. All these mentioned properties are taxed under the Income from House Property. The owner of the house property should be the legal owner of the property and not on behalf of anyone.
Self-occupied properties are for residential purposes. However, the property can be occupied by the taxpayers’ family members – parents, children, or spouse. Also, the Income Tax Department considers a vacant house property as self-occupied property and all the reasonable tax charges applicable on the property.
The income tax department considered a house property as let house property when the property is on rent for a year.
Inherited property is the property handed down by parents or grandparents. It can either be self-occupied or let out property based on its usage.
Step1. Find the Gross Annual Value (GAV) of the property – For the self-occupied house annual gross value is zero. And for the let-out property, it is collected on the house property.
Step 2. Reduce Property Tax – The property tax deduction is allowed from GAV of property.
Step 3.Net Annual Value – Gross Annual Value – Property Tax.
Step 4. Reduce 30% NAV towards standard deduction – As per Section 24 of the Income Tax Act, 30% deduction is allowed on the NAV. Beyond the 30% cap, no other expenses such as paintings, repairs, or other goods can be claimed under tax relief.
Homeowners can claim up to Rs. 2lakh deduction on their home loan interest, if the owner or any relative residing in the house property. The same terms and conditions are applied to the vacant house. If you rent the house property, the home loan interest is allowed as a deduction. However, deduction on interest is limited up to Rs.30,000 if it satisfies all the conditions.
Tax benefits on a joint home loan can be enjoyed by all the joint owners. Before availing of any kind of house property benefits, one should have ownership of the house property. You might have taken the loan jointly, but you don’t have ownership of the property – you can’t apply for the home loan tax benefits. Sometimes, when a parent and child together take a home loan, which is paid off by an only child. In such conditions, if the child is not a co-owner he/she is not entitled to enjoy the tax benefits on the home loan.
Homeowners who are paying back their home loan regularly and getting HRA in the salary can apply both the house property-related tax benefits to reduce the taxable income on home loans. When you are living in a different city on rent and you have bought your family home in another city, as a house owner you can claim: HRA exemption on rent payment, deduction on home loan interest, and principal repayment.
The extra losses are restricted up to Rs.2 lakhs under form FY 2017-18. This doesn’t affect taxpayers to have a self-occupied property. It has an effect on the taxpayers with the let-out property. Under Section 24, there is no standard amount that can be deducted on the home loan; but the interest rate can be set off only up to expenses of Rs.2 lakh.
Here is an example to help you understand the impact of the amendment:
|Particulars||AY 2017-18||AY 2018-19|
|Income from other sources (Interest income)||4,00,000||4,00,000|
|Income from house property (*)||(4,40,000)||(2,00,000)|
|Gross Total Income||9,60,000||12,00,000|
|Tax on the above||77,000||1,12,500|
|Additional tax outgo excluding cess in AY 2018-19 on account of the amendment||35,500|
|Particulars||AY 2017-18||AY 2018-19|
|(-) Interest on housing loan restricted to||2,00,000||2,00,000|
|Loss from House Property(A)||(2,00,000)||(2,00,000)|
|Net income from House Property after all deductions (B)||60,000||60,000|
|Less : Standard Deduction||1,50,000||1,50,000|
|Less : Interest on loan||6,50,000||6,50,000|
|Loss from House Property (C)||(3,00,000)||(3,00,000)the|
|Total income from house property (A+B+C)||(4,40,000)||Restricted to (2,00,000). Balance loss of Rs 2.4 lakhs can be carried forward for the next 8 DAYs|
f you are using your property for residence throughout the year and it’s not let out or used for any other purpose, it is considered a self-occupied house property. The gross annual value of this property is zero. There is no income from your house property.
Note: 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 your income from other heads.
The Ground Floor will not be taxed under “income from house property” head. It shall be taxed under Business Profession head. The first floor will be treated as a self-occupied house property. Income from house property will be zero in this case.
Calculate the gross annual value of the property by finding out its reasonable rent and actual rent collected. If Actual Rent is lower than Reasonable Rent, only because the house was vacant and not for any other reason, take actual rent collected as Gross Annual Value.
No. This is because rental income received by the owner of property alone is taxed as “Income from House Property”. Rental income in the hands of anyone other than the owner shall be taxed under “Other sources”. Therefore, income from subletting will be chargeable under “Other Sources”.