India has been witnessing continuous and rapid growth during the recent decades. It is the vision of the country to be a developed nation by the 100th year of Independence. Income from House property is one of the major source of passive income for many people. Rental Income from a property being a building or land attached to it is charged to tax under the head ” Income from House Property”
- What is House Property?
- Types of House Property under Income Tax
- How to Calculate Income From House Property?
- Deduction from House Property Income
- Deduction for first-time Homebuyers
- Income Tax Deductions for Joint Owners
- Setting off losses from house property
- Calculation of Income from House Property
- Documents Required to File ITR for Income from House Property
- I receive HRA from my employer, can I also claim a deduction for my Home Loan?
What is House Property?
House property consists of any building and land attached to it. The term house property includes a wide range of properties, such as apartments, independent houses, shops, offices, godowns, factories, and any other building or land that generates rental income. Further, The house property includes residential houses as well as commercial buildings.
Income from House Property shall be taxable only under the following conditions:
- The assesses must be the owner of the property.
- The property used for any purpose other than for carrying out Business or Profession. If the property is used for own business or profession, then the income from the same shall be taxed under the head ‘Income from Business and Profession’.
- Income from House Property will be taxable under the hands of the legal owner of the property. The owner for this purpose means a person who can exercise the rights of the owner on his own and not on someone else’s behalf.
Types of House Property under Income Tax
For the purpose of taxability, Income Tax categories the house property under 2 types:
Self-Occupied House Property:
A Self-Occupied House Property is the one which is use for own residence purpose. This may also be occupied by the owner’s family or relative or self. A property that is unoccupied is considered as a self-occupied property for the purpose of income tax.
If the taxpayer owns more than one House property, only one is considered as self-occupied and the rest are assumed to be deemed let out. However, from Financial year 20219-2020 onwards two properties can be considered as self occupied. The taxpayer have the option to select which property they wants to take as self-occupied.
Let-Out House Property:
Any house property that is rented for complete or part of the year is considered as a let out property for income tax purposes.
How to Calculate Income From House Property?
Where the property is self-occupied for own residence or unoccupied throughout the previous year, its Annual Value will be Nil, provided no other benefits is derived by the owner from such property.
When the property is let out for the whole or part of the financial year, then the GAV would be the higher of:
a) Expected Rent (ER)
b) Actual rent received or receivable during the year
|Particulars||Self Occupied Property||Let Out Property|
|Gross Annual Value (GAV)||NIL||XXX|
|Less: Municipal Tax Paid||NIL||(XXX)|
|Net Annual Value (NAV)||NIL||XXX|
|Less: Standard Deduction u/s 24 @ 30% of NAV||NA||(XXX)|
|Less: Interest on Borrowed Capital u/s 24||(XXX)||(XXX)|
|House Property Income||XXX||XXX|
In the case of self-occupied property, the deduction for interest on Home Loan have a maximum limit of INR 2,00,000 under section 24. Whereas in the case of a let-out property, the entire amount of interest as a deduction can be claimed.
Deduction from House Property Income
Deduction for Home Loan Interest under Section 24
- Owner of the House Property can claim a deduction of up to INR 2 Lakhs (INR 1,50,000 in case you are e-filing for FY 2013-14) if the property is Self Occupied as explained above.
- In the case of a Let Out House Property, the entire Home Loan interest will be allowed as a deduction.
- The deduction will be restricted to INR 30,000 if any of the following conditions are not satisfied.
- The loan have been taken on or after 1st April 1999.
- The Home Loan have been taken for the purpose of purchase or construction of a new property.
- Acquisition or construction completed within 5 years from the end of the financial year in which the loan was taken.
Moreover, 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. Also if the loan is taken in the pre-construction period interest paid during this period can be claimed as a deduction in five equal installments starting from the year in which the construction of the property is completed.
Deduction for principal repayment under Section 80C
- Deduction for principal repayment of Home Loan is available up to a maximum of INR 1,50,000 subject to the overall limit Section 80C. Satisfy the following conditions to claim this deduction:
- Acquire Home Loan for the purpose of purchase or construction of a new property.
- You must not sell the property within five years of taking possession. If you do so, the deductions for repayment collected will be added back to your income in the year of sale.
- Stamp duty, registration charges, and other expenses directly related to the transfer of the property are also permissible as a deduction under section-80C subject to a maximum limit of INR 1,50,000. The deduction for this payment will be allowed in the year in which they are paid.
Deduction for first time Home buyers under Section 80EE
- The first Home Loan from a bank or housing finance corporation up to INR 25 lakh will be eligible for an additional deduction of interest up to INR 1 lakh.
- Fulfill the following conditions to claim this deduction:
- The loan sanction must have been between 1st April 2013 to 31st March 2014.
- The Home Loan amount does not exceed INR 25 Lakhs
- The value of the House Property does not exceed INR 40 Lakhs.
- The assesses does not own any other residential House Property on the date of sanction of the loan.
- The benefit of the deduction spans over FY 2013-14 and FY 2014-15. If you are unable to utilize the total limit of INR 1,00,000 in FY 2013-14, then you can claim the balance amount as a deduction in FY 2014-15.
- It is not necessary that the residential House Property has to be Self Occupied to claim this deduction.
Deduction for first time Home buyers under Section 80EEA
Under 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.
Deduction under 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.
Chapter VI Deduction:
No deduction under 80C, 80EE and 80EEA is available under new regime.
Income Tax Deductions for Joint Owners
Co-owners and co-borrowers
- In the case of co-owners of self-occupied house property who are also co-borrowers of a home loan, each one of them can claim a deduction on interest on the loan limited to Rs. 2 Lakh each.
- Each of them can also claim the deduction on principal repayments, stamp duty as well as registration charges under Section 80C with the overall limit of Rs.1.5 Lakh. The ratio of the deduction of each benefit will be in the same as the share of ownership in the property.
Co-borrowers but not Co-owners
- If any one individual is a co-borrower of a loan and is not the owner of the property, he or she is not entitled to claim interest on the home loan paid.
- Also, he or she is not entitled to any benefits on principal repayment, stamp duty, etc.
Co-owners but not Co-borrowers
- If one individual is just a co-owner of a loan and is not the co-borrower of the property, he or she is not entitled to claim interest on the home loan paid.
- However, each of them can claim the deduction on stamp duty as well as registration charges under Section 80C with the overall limit of Rs.1.5 Lakh. The ratio of the deduction of each benefit will be the same as the share of ownership in the property.
Setting off losses from house property
As per the Old 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 set off brought forward losses and carry forward losses to another FY.
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 set off brought forward losses and 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.
Calculation of 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 Ajmer. Calculate income from House Property under both the scenarios i.e Let-out & Self occupied if
- Rent received INR 40,000 per month.
- Property taxes paid INR 30,000.
- Interest on Home Loan INR 2,35,000.
|Particulars||Let Out||Self Occupied|
|Gross Annual Value(GAV)||4,80,000||NIL|
|Less: Property Taxes paid||30,000||NIL|
|Net Annual Value (NAV)||4,50,000||NIL|
|Less: Standard Deduction @30%||1,35,000||NIL|
|Less : Interest payable on Home Loan||2,35,000||2,00,000|
|Income/Loss from House Property||80,000||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’.
Documents Required to File ITR for Income from House Property
The House Property Income Documents Checklist is as follows:
- Utility Bill
- Rent Agreement
- Form 16A
- Home loan repayment certificate/ Interest Certificate from the bank
- Municipal Tax Receipts
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:
HRA for the rent you pay to the landlord & Deduction for Home Loan interest up to a maximum of INR 2,00,000.
You can claim the following if you are living in a rental house and have rented out your house too:
HRA for the rent you pay to the landlord & Deduction for Home Loan interest without any limit.
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.
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.
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.
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.
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.
House property for income tax purpose include:
Self-Occupied house property is the property which you use for your own residence. A property can be claimed as self-occupied if it is used by your spouse, children and/or parents.
If a property is given on rent for a year or part of a year, then it is considered as a let out house property.
If a person has more than 1 house property during the financial year, and none of them is given on rent, he/she can claim only one property as self-occupied for Assessment Year 2019–20(FY 2018–19). The other house property will be assumed to be let out for income tax purpose and is called deemed let out. In case of deemed let out rental income is assumed for income tax purpose.
Taxable income from house property will be taxed at slab rate. 
Net Annual Value (NAV) = Gross Annual Value – Municipal Taxes
Taxable Income = NAV – (NAV * Standard Deduction) – Interest
Hope this helps! In case of any query feel free to message us or leave a comment below.
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I have two questions:
Does this mean that I can mark my Self occupied home as let out & let out property as self occupied? Can you please mention the section details of this provision?
If you own more than one Self Occupied property, then only two of them will be taken as Self Occupied. The remaining House Properties will be Deemed Let Out. You have to calculate rent based on fair market value and tax is levied on the same even if you are not earning any rent in actuality.
So yes you have the option to choose which one you want to consider as deemed let out property from self-occupied or vacant house properties you own. However, you cannot mark a self-occupied home as let out & let out property as self-occupied.
Here are answers to your various questions
Here’s a read on Income from House Property and Taxes - Guide - Learn by Quicko for your reference.
Hope this helps.
Yes. You are right.
For the FY 2019-20 and onwards, the benefit of considering the houses as self-occupied has been extended to 2 houses. Now, a homeowner can claim his 2 properties as self-occupied and the remaining house as let out for Income tax purposes.
if someone is retired and want to sell their house and want to buy other house.
do they have to file ITR if they do not have any other income ?
Union Finance Bill 2021 came up with the introduction of a new section 194P. It provides conditions for exempting from filing Income Tax returns to senior citizens aged 75 years and above. New Section 194P is applicable from 1st April 2021 . Here’s a read on Section 194P for your reference.
However, in case of selling & buying any house property, if there are any capital gains, then it can be exempted if you invest in NHAI or REC Bonds. The amount of exemption will be lower of:
age is under 60.
want to sell current house and buy new house in same financial year. so there will be no capital gains. right?
do they have to file ITR? because there is no income arise from this and he is retire so there is no any other source of income.
The Income-tax Act, 1961 provides no exemption to senior citizen or very senior citizen from filing of return of income. However, to provide relief to senior citizens (whose age is 75 years or more) and to reduce the compliance burden on them, the Finance Act, 2021, has inserted a new section 194P.
Capital gain/loss is the difference between the purchase price and the selling price of the asset.
If the ITR has been filed, and capital loss, if any, is reported, it can be carried forward and set off in future years.
If there is a capital gain, then it can be exempted if the gain is invested in NHAI or REC Bonds. If not invested, then it shall be taxable at the applicable tax rate. Here’s a read on Capital Gain Tax on Sale of Property/Land - Learn by Quicko.
I am talking about
" * Section 54F – Exemption on sale of residential house property on investment in another residential house property."
if someone sell residential house and invest in another residential house. do they have to file ITR if there no other income?
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