Income from Let out House Property

Homeownership is an eternal dream of the Indian middle class. As more and more of us own our primary residence and some even rent out secondary properties, which is Let Out House Property. It is important to under tax implications. House Property Income can be classified into 3 categories as per Income Tax Act:

  1. Self-occupied House / Permanent Residency
  2. Let out House / Rented Property
  3. Deemed Let out House Property/ Vacant House
Earned Income from House Properties?
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How to Calculate Let Out House Property Income?

  • Rental Income:
    • Total Rent received during the financial year by the owner of the property.
  • Municipal Taxes:
    • If you have paid any Municipal Taxes, then you can claim a deduction of the same under Section 23.
  • Standard deduction:
    • As a homeowner, you incur all kinds of expenses from the maintenance & upkeep of your possession. However, one cannot claim these expenses as expenditure against rental income. In order to overcome this hardship, a homeowner can avail a 30% standard deduction on Net Annual Value under Section 23.
  • Home Loan Interest Payment: 
    • You can consider Interest paid as an expenditure while calculating income from house property.
      • Self Occupied Property allows the deduction of up to Rs. 2,00,000
      • Deduction up to rent amount is allowed as a deduction. However, you can not set off a loss of more than Rs. 2,00,000 against other incomes.
  • Home Loan Principal Repayment as Deduction: 
    • As per Section 80C, one can claim principal repayment of up to Rs. 1,50,000 as a deduction.
    • Additional deduction u/s 80EE of Rs. 50,0000 to First Time Home Buyers.
As per the new income tax regime, losses from house property can only be set off against other income from house property. Moreover, losses from income from house property cannot be carried forward in the new income tax regime.
Tip
As per the new income tax regime, losses from house property can only be set off against other income from house property. Moreover, losses from income from house property cannot be carried forward in the new income tax regime.

Benefit of Co-ownership of Property

When two or more people jointly own a property they are called co-owners. If it is co-owned then such income is taxable in the hands of each co-owner as per their respective ownership percentage. This is a great way to save taxes.

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 cannot claim 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.
Income Tax Calculator
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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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FAQs

Which ITR needs to be filed for Rental Income?

Rental Income is considered under the head “Income From House Property”. And ITR 1 needs to be filed if only one house is owned. Otherwise, ITR 2 needs to be filed.

Can I carry forward the loss from House Property Income?

Yes, you can carry forward the loss for 8 years. It can be set off against House Property Income only.

Who is deemed owner?

The deemed owner is the person who is getting rental income but is not the actual owner. Following are the deemed owners:
1. Spouse of a person to whom ownership is transferred without any monetary consideration,
2. Minor Child of a person to whom ownership is transferred without any monetary consideration.

Is rental income from sub-letting chargeable to tax under the head “Income from House Property”?

No. Any income received by a tenant from sub-letting is not taxable under this head. It is taxed under the head “Income from other Sources” or “Profit and Gains from Business or Profession” as the case may be.

Can I claim expenses like property tax or maintenance charges on a self occupied property?

No. You cannot claim expenses on a Self Occupied Property. However, if you have a property loan, you can claim the Interest paid on such loan as an expense under the head Income from House Property in the ITR. You can claim expenses on a Let Out House Property.

Got Questions? Ask Away!

  1. Hey Urja,

    If a House Property is given on rent for the whole year or a part of the year then it is considered as Let Out House Property.

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

    For calculation of let out property, Gross Annual Value (GAV) is the amount of rent received during the year.

    For example:

    Anuj rented property with an annual rent of INR 2,00,000. Anuj paid INR 15,000 for municipal taxes the financial year.

    NAV = 2,00,000 - 15,000

    NAV = 1,85,000

    Here is a guide on Income from House Property to help you understand better.

    Hope this helps