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    Income from House Property and Taxes

    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.

    • Basics of House Property Tax
    • How to Calculate Income From House Property
    • Tax Deduction on Home Loans
    • Claiming Deduction on Home Loan
    • Tax Benefits on Home Loans for Joint Owners
    • HRA and Deduction on Home Loan
    • Significant Budget Amendment in 2017 – Impact explained with an example
    • Frequently Asked Questions

    Basics of House Property Tax

    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.

    a- Self-occupied House Property

    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.

    b – Let Out House Property

    The income tax department considered a house property as let house property when the property is on rent for a year.

    c – Inherited Property

    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.

    2. How To Calculate Income From House Property?

    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.

    3. Tax Deduction on Home Loans

    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.

    4. Tax Benefits on Home Loans for Joint Owners

    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.

    5. HRA and Deduction on 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.

    6. Significant Budget Amendment in 2017 – Impact explained with an example

    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
    Salary income 10,00,000 10,00,000
    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
    Deductions 2,00,000 2,00,000
    Taxable income 7,60,000 10,00,000
    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

    Workings for Income from House Property

    Particulars AY 2017-18 AY 2018-19
    Property A
    Annual Value Nil Nil
    (-) Interest on housing loan restricted to 2,00,000 2,00,000
    Loss from House Property(A) (2,00,000) (2,00,000)
    Property B
    Net income from House Property after all deductions (B) 60,000 60,000
    Property C
    Annual Value 5,00,000 5,00,000
    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

    Claiming Deduction on Home Loan

    • Claim amount deduction based on the ownership you have on the property. The home loan must be in your name.
    • You can claim the home loan in the financial year when the construction is completed.
    • Submit the home loan interest certificate to your employer. They can adjust the EMI deduction accordingly.
    • A self-employed or freelancer doesn’t have to submit those documents even to the IT department.
    • For self-employed, they calculate the advance liability for every quarter.
    • Either you can seek professional help or calculate the taxes and claim deduction on your own.

    Frequently Asked Questions

    What is your ‘income from house property’ when you/your family live(s)in it?

    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.

    I own a house of two floors and run my business out of the Ground Floor. I live on the 1st Floor. How much will I pay in taxes?

    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.

    A house has been self-occupied for six months and rented out for six months. What is its income?

    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.

    Income received as rent from subletting of house property will be taxed under “Income from House Property”?

    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”.