Income from Let out House Property

Author
By Hiral Vakil on March 26, 2020

Home ownership is eternal dream of Indian middle class. As more and more of us own our primary residence and some even rent out secondary properties, it is important to under tax implications. House Property Income can be classified into three categories as per income tax act,

  • Self occupied House Property
    If you own a property and reside in the same, then the property is considered self occupied. Further, there is no tax levied on such property. However one can claim any principal repayment as deduction under section 80C and interest payment as deduction under section 24 of income tax act.
    [ Read more about tax consequences of owning primary residence ]
  • Let out House Property
    If you own a property and the property has been rented/leased out, then the property is considered let out property as per Income Tax Act. Further, tax is levied on any rental income received by calculate Net Annual Value. In this article, we will learn more about to method to calculate Net Annual Value
  • Deemed Let out House Property
    If you own more than one property, then the second and subsequent properties are considered deemed let out even if you are not receiving any rent. Further, rent is calculate based on fair market value and tax is levied on the same.
    [ Read more about tax consequences of owning multiple house properties ]

How to calculate let out house property income?

  • Municipal Taxes:
    • If you have paid any Municipal Taxes, then you can claim deduction under Section 23
  • Standard deduction:
    • As a homeowner, you incur all kind of expenses from maintenance & upkeep of the property. However, these expenses can not be claimed as expenditure against rent income. In order to overcome this hardship, homeowner can avail 30% standard deduction on Net Annual Value under Section 23
  • Benefits of Home Loan
    • In case you have a home loan, you can claim these expenses and cut down your tax liability
  • Principal Repayment as Deduction: 
    • As per Section 80C, principal repayment of upto Rs. 1,50,000 can be claimed as deduction
  • Interest Payment: 
    • Any interest paid can be claimed as expenditure while calculating income from house property. However following conditions apply
      • If Property is Self Occupied then interest deduction shall be limited to Rs. 2,00,000
      • If Property is let out or deemed let out there is no limit of Rs. 2,00,000

Addition benefits under Section 80EE

First time home buyers can avail addition deduction of Rs. 50,0000 subject to certain conditions

  • House Value should be less than Rs 50 Lakh
  • Loan sanctioned should be between 1 April 2016 to 31 March 2017.
  • The total value of loan should not exceed Rs 35 Lakh.

This benefit of Rs 50,000 is over and above the interest deduction of Rs 2 lakh.

Benefit of Co-ownership

If a house property 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, let’s see this example:

 

Particulars Self-Occupied Let Out Deemed Let Out
Gross Annual Value (Generally, total rent received) NIL XXX XXX
Less: Municipal Taxes Paid Not Applicable XXX XXX
Net Annual Value NIL XXX XXX

Less: Deduction u/s 24

  • Standard deduction at 30%
  • Interest on housing loan 
Not Applicable – INR 2 Lakhs Limit XXX
No Limit
XXX
No Limit
Income from House Property  (XXX) XXX XXX
       

 

FAQs

1. Is income from house property taxable?

Income from house property is one of the five heads of income under which income arising from a house property is liable to tax under the Income-Tax Act, 1961. As per definition under the Act, a house property consists of any building or land appurtenant thereto, which is owned by a taxpayer.

2. What is let out property?

A house occupied by the owner for residential purposes or commercial purposes is a self occupied property. On the other hand, a property given out on rent is known as a let out property. Any other property, if it is vacant, is considered deemed to be let out.

3. What is meant by deemed owner?

Deemed owner is someone who is getting the rental income of a house but is not legally registered as the actual owner. For instance, If a person transfers his or her house property to his/her spouse (not being a transfer in connection to an agreement to live apart) or to his/her minor child (not being married daughter) without monetary consideration, then the person will be considered as the deemed owner.