Guide: Income from House Property and Taxes

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Hiral Vakil

Income from House Property
Income Source
Section 80C
Section 80EE

Index

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What is House Property?

Any income generated from the House Property is Income from House Property. Income from House Property shall be taxable only under the following conditions:

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Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
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What is a Self Occupied House Property?

A Self Occupied House Property is the one which you use as your own residence. This property may also be used by your children, spouse and/or parents. Even if your House Property is vacant, it will be considered as your Self Occupied property.

For the purpose of Income Tax, if more than one Self Occupied property is owned by a person, than only one of them will be taken as Self Occupied. The remaining House Property will be considered as Let Out. So the property will be taken as rented property even if it is not given on rent. Of course, you have the option to select which property you want to take as Self Occupied.

From AY 2020-21 you can show 2 properties self-occupied house property.

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For example, Ayush owns a primary residence on which he has taken a home loan. He has paid INR 1,20,000 interest for the most recent financial year. Let’s look at taxable income from self-occupied house property in Ayush’s situation

Net Annual Value = Gross Annual Value – Interest on Home Loan

What is a Let Out House Property?

For the purpose of Income Tax, if a House Property is on rent for the whole year or a part of the year than it is considered as Let Out House Property.

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For example, Ayush has rented out a property, with an annual rent of INR 1,80,000. Ayush has paid INR 15,000 in municipal taxes and has also taken out a home loan, and paid INR 1,20,000 interest for the most recent financial year. Let’s look at taxable income from let out house property in Ayush’s situation

Net Annual Value (NAV) = Gross Annual Value – Municipal Taxes

Taxable Income = NAV – (NAV * Standard Deduction) – Interest

Computation of Income from Deemed Let Out House Property
As per the income tax act, if you own more than one property, then the second and subsequent properties are considered as deemed let out.
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Computation of Income from Deemed Let Out House Property
As per the income tax act, if you own more than one property, then the second and subsequent properties are considered as deemed let out.
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Home Loan Benefits

Tax benefits for Home Loan are available as under:

Deduction for Home Loan Interest (Section-24)

Current Regime

What if the loan is taken for reconstruction/ renewal/ repairs?

In case the loan is taken for the repairs or reconstruction of the property, then the deduction for interest will be allowed up to a maximum of INR 30,000.

What if the loan is taken before the construction of the property is completed? Can I still claim the deduction?

Yes, you can, but only after the construction is completed. The period from taking loan until the completion of construction is called pre-construction period. So interest paid during this period can be claimed as a deduction in five equal instalments starting from the year in which the construction of the property is completed.

New regime

No claim of home loan Interest on Self Occupied House Property: Individuals who have taken a home loan on their self-occupied property and are paying interest on it, can not claim that interest deduction under Section 24(b).

For example, Ayush used to claim INR 90,000 as a deduction under 24(b) for interest on the home loan. Now if he goes for the new income tax regime he will not get this deduction of INR 90,000.

A claim of home loan Interest on Rental House Property: Under the new income tax regime, individuals can claim interest on home loans for let out property only up to the amount of their rental income.

For example, Ayush is getting a rental income of INR 80,000 from his let-out property. Therefore, his claim on interest on the home loan cannot exceed his rental income that is INR 80,000.

Deduction for principal repayment (Section-80C):

Current regime

New regime

Deductions for principal repayment under section 80C are not available for taxpayers following the new income tax regime.

Section 80C: Deductions for Tax Saving Investments
Section 80C allows individuals and HUFs to claim deductions for certain investments and expenses which are specifically mentioned under the Income Tax Act.
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Deduction for first-time Homebuyers

Section 80EE

Current Regime

Certain important points to remember while claiming a deduction for Home Loan:

I receive HRA from my employer, can I also claim a deduction for my Home Loan?

Yes, you can. You can avail of the benefits of HRA and deduction for Home Loan simultaneously.

If you are living in a rental house & your own house is occupied by your spouse, children and/or your parents, you can claim:

You can claim the following if you are living in a rental house and have rented out your house too:

New Regime

Deduction under section 80EE is not available for taxpayers following the new income tax regime.

Section 80EEA

Current Regime

Through u/s 80EEA the Income Tax Department has extended the deductible amount from INR 50,000 to INR 1,50,000 for first time home buyers. Only individuals can claim this deduction until they repay their home loan.

For example, Ayush is buying a home for the first time. He can either claim deduction under 80EE or 80EEA. FM in budget 2020 has laid out a vision of “Affordable housing” with the introduction of section 80EEA which can help people like Ayush to get a higher deduction up to INR 1,50,000 against INR 50,000 as per the current regime.

New Regime

Deduction under section 80EEA is not available for taxpayers following the new income tax regime.

The setting off losses from house property

Current regime

As per the current income tax regime, it is possible to set off losses made from house property against any other income head i.e, business and profession or salary income, etc. Moreover, it is also possible to carry forward losses to another FY.

New Regime

As per the new income tax regime, losses from house property can only be set off against other income from house property. Moreover, it is not possible to carry forward losses from income from house property in the new income tax regime.

For example, Ayush has an annual salary of INR 7,00,000. He had INR 2,00,000 loss from house property. It is possible to set off his loss from house property against his salary income as per the current regime. But in the new regime, his loss cannot be set off against any other head except for Income from house property.

How to determine Income from House Property?

The owner of the property charges the annual value of the property under the head ‘Income from House Property’. The income from property used for the purpose of carrying business or profession is not taxable under the head ‘Income from House Property’. Let’s understand the calculations with the help of an example:

Rahul owns a home in Baroda. Calculate income from House Property under both the scenarios i.e Let-out & Self occupied if

ParticularsLetoutSelf occupied
Gross Annual Value (GAV)4,80,000NIL
Less: Property Taxes paid30,000NIL
Net Annual Value (NAV)4,50,000NIL
Less: 30% Standard deduction on NAV1,35,000NIL
Less: Interest payable on Home Loan2,35,000(2,00,000)*
Income/(loss) from House Property80,000(2,00,000)**

* In case of self-occupied property, the deduction for interest on Home Loan is restricted to the maximum of INR 2,00,000. Whereas in case of let out property, you can claim the entire amount of interest as a deduction.

** This loss can be set off against income from other heads.

Note: Rental income from subletting is not taxed as income from House Property since in that case person receiving the rent income from subletting is not the owner of the property. Subletting income will be charged under the head ‘Income from other sources’.

ITR for Multiple House Properties
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ITR for Multiple House Properties
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Documents Required to File ITR for Income from House Property

The House Property Income Documents Checklist is as follows:

Documents required for Income Tax Return filing in India
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Documents required for Income Tax Return filing in India
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FAQs

How to calculate self-occupied house property income?

​A Self Occupied House Property is the one which you use as your own residence. This property may also be used by your children, spouse and/or parents. Since there is no Income from such House Property, the gross annual value of this property is NIL (zero).
​Since the gross annual value in case of Self Occupied House Property is zero, claiming a deduction for Home Loan interest will result in a Loss from House Property. This loss can be adjusted against income from other heads.

What is Tax Treatment of arrears of Rent?

The amount received on account of arrears of rent (not charged to tax earlier) will be charged to tax after deducting 30% standard deduction. It is charged to tax in the year in which it is received. These arrears will be taxable in the hands of the recipient even if he is no longer the owner of the property.

What is Pre-Construction Period?

​Pre-construction period is the period commencing from the date of borrowing of loan and ends on earlier of the following:
– Date of repayment of the loan
– 31st March immediately prior to the date of completion of the construction/acquisition of the property.
Interest pertaining to pre-construction period is allowed as a deduction in five equal annual instalments, commencing from the year in which the house property is acquired or constructed.

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