Income from Let out House Property

By Hiral Vakil on August 20, 2018

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
1) If Property is Self Occupied then interest deduction shall be limited to Rs. 2,00,000. 
2) 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