Section 24 of Income Tax Act : Deduction on House Property

Section 24 of the Income Tax Act deals with interest that an individual pays on home or property loans. The government recognizes that housing is one of the most important needs therefore, they have come up with several key benefits under section 24(B) of the Income Tax Act, 1961 to grant relief by way of various tax breaks to reduce your tax outgo. The deductions available are interest on loan and standard deduction.

Income from House Property

There are three possible scenarios wherein income from house property can occur:

  • Income by way of rent on a let out property
  • The annual value of the property which is considered “deemed to be let out” for income tax purposes (When we own more than one property);
  • The annual value of the property which is self-occupied;

Income from House Property shall be taxable only under the following conditions:

  • The assessee must be the owner of the property.
  • The property should be 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.

Section 24 of Income Tax Act – Deductions under House Property

There are 2 types of tax deductions under Section 24 of the Income Tax Act to reduce your tax outgo if you have income from house property:

Standard Deduction

  • Standard Deduction is 30% applicable on the Net Annual Value of the property.
  • This 30% deduction is allowed even when your actual expenditure on the property is higher or lower.
  • Therefore, this deduction is irrespective of the actual expenditure you may have incurred on insurance, repairs, electricity, water supply, etc.
  • For a self-occupied house property, since the Annual Value is Nil, the standard deduction is also zero on such a property.

Interest on Home Loan

If the taxpayer has borrowed a housing loan to purchase or to construct a house property, then EMI consists of 2 parts namely Interest & principal. Deduction of interest part can be claimed from the income of house property whereas deduction of the principal amount in case of residential house property can be claimed under Section 80C.

If the owner or his family are self-occupying the house property, they can claim up to INR 2 lakh on the interest of their home loan. The same treatment applies when the house is vacant. However, if you have rented out the property, the entire interest on the home loan is allowed as a deduction. However, there are certain criteria mentioned below that you must meet else the deduction on interest will be limited to INR 30,000:-

  • The home loan must be for the purchase and construction of a property;
  • The loan must be taken on or after 1st April 1999;
  • The purchase or construction must be completed within 5 years from the end of the financial year in which the loan was taken
  • There is an interest certificate available for the interest payable on the loan
ITR for Multiple House Properties
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Pre Construction Interest

The interest paid on a housing loan when the house property is under construction is known as “Pre-construction Interest”. There is also a benefit of pre-construction interest that arises when you take a home loan for purchasing or construction.

Key points to remember before claiming this interest:-

  1. This cannot be claimed for a loan taken for repairs or reconstruction of the house;
  2. The amount of pre-construction, as well as interest on a housing loan that can be claimed for a particular year, cannot exceed Rs 2 lakhs in any case.
  3. The deduction of such pre-construction interest is allowed in 5 equal installments starting from the year when construction completes.

For example: If the construction of a house gets completed on 15th October 2019 (FY 2019-20), then we are eligible to claim deduction accruing to 1/5th of the interest paid till 31st March 2019 while filing our tax returns for the FY 2019-20.

How to determine Income from House Property?

Let’s understand the calculations with the help of an example:

Ansh is repaying a home loan. The total amount paid in a particular year amounts to INR 6 lakhs of which INR 2.5 lakhs is the interest component. The person has also incurred a pre-construction interest of INR 2 lakhs. He is earning INR 80000 annually from a let out property and also pays municipal taxes of INR 5000 for the property. Let us now calculate the Income from House Property under both the scenarios:-

  1. He has a self-occupied property, or
  2. The property is rented out
Type of Property Self Occupied Let Out
Gross annual Value (Rent paid- 7000*12) NIL 80,000
Less: Municipal Taxes or Taxes paid to local authorities NA 5,000
Net Annual Value(NAV) Nil 75,000
Less: Standard Deduction(30% of NAV) NA 22,500
Less: Interest on Housing Loan 2,50,000 2,50,000
Less: Pre-construction interest (1/5th of 2 Lakhs) 40,000 40,000
House Property Income (2,90,000) (2,37,500)
Overall loss restricted to (200,000)** (2,37,500)*

*Maximum loss set-off allowed in a financial year is limited to Rs 2 lakh. The remaining loss from a can be carried forward to future years 8 years in total. However, in these 8 years, it can only be set off from house property income.

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

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FAQ

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

Rental income in the hands of the owner is charged to tax under the head “Income from house property”. Such income is taxable under the head “Income from other sources” or profits and gains from business or profession, as the case may be.​

Can interest paid on loans taken from friends and relatives be claimed as a deduction while calculating house property income?

Yes, if the loan is taken for purchase, construction, repair, renewal, or reconstruction of the house. However, if the loan is taken for personal or other purposes then the interest on such loan cannot be claimed as a deduction.​

How does section 24 work?

Section 24 of the income tax act calculates the tax exemptions on the basis of property income, on the following basis:
– If a person rents his or her property, then the rent will be considered as part of his earned income.
– Secondly, if a person owns more than one house, then the net value asset of the house is considered as part of the income. However, the house one is living in is not counted under this.
– If a person owns only a single house, then the net value asset of the house is considered Nil.

Property Tax – Definition, Types and Calculations

In India, Property tax is levied by the Municipal authorities on the real estate. This tax is based on the area, construction, size and value of the property etc. This article will help you understand various aspects related to Property Tax in India.

What is a Property Tax?

The term Property with regards to taxation refers to all tangible real estate owned by an individual and consists of a house, office building and premises rented to third parties. Property tax is an amount that is annually paid by the land/property owner to the local government or the municipal corporation. The amount that is collected in the form of this tax is used for maintenance and upkeep of public properties like roads, sewage system, parks, government buildings etc.

What are the Types of Property?

Properties in India are broadly classifies into 4 main categories:

Land: This is the most common kind of property owned by the citizens of our country. It is to be noted that land here means the core land without any construction or improvement.

Improvements made to the land: This is the second kind of category which includes improvements made to the land such as constructing a building or godown.

Personal property: This includes movable properties such as cars, buses, cranes or trucks.

Intangible property: Intangible property comprises the ownership of assets such as patents, trademarks, and royalty.

How is Property Tax Calculated?

Property tax in India is calculated keeping in mind various factors. The method used to calculate this may vary from one municipal corporation to another but the overall computation will remain the same.

Firstly, an assessment of the property is carried out by determining the area it is in, different amenities provided, the status of occupancy, type of property (residential, commercial or land), year and type of construction (multi-storied/ single floor/ pukka or kutcha structure, etc.), floor space index and carpeted square area of the property.

After determining all these parameters, the government body uses one of the following methods to determine the property tax:

Annual Rental Value System or Rateable Value System (RVS)

Tax under this method is calculated on the yearly rental value of the property. This value must not necessarily be the actual rent collect from the property. The valuation of the rent is decided by the municipal authorities keeping in mind factors such as size, condition of the premises, location, amenities etc. Hyderabad and Chennai are two big cities whose municipal corporations follow this method.

Capital Value System (CVS)

Under the Capital Value System tax is calculated as a percentage of the market value of the property. The market value of the property is determined by the government and is based location of the property. This market value is published and revised yearly. Mumbai’s municipal corporation follows this method.

Unit Area Value System (UAS)

As per this method, tax is calculated on the per-unit price of the built-up area of the property. This per-unit price is based on the property’s location, land price and usage. This value is then multiplied with the built-up area to calculate the final tax value. Municipal authorities such as Kolkata, Delhi, Bengaluru, Patna and Hyderabad use this method.

How to pay Property Tax Online?

  1. Go to the official website of Municipal Corporation

    Visit the official website of the concerned municipal corporation

  2. Select Online Service and go to ‘Pay Property Tax’

    Choose the option ‘Pay Property Tax’ and move to the payments option.

  3. Fill out the right form

    Fill out the right property tax form, i.e. form 4 or 5, based on property type and the respective category.

  4. Enter the correct assessment year

    While filling the form, choose the correct assessment year, i.e. the year for which the tax is to be calculated and paid.

  5. Enter the Property Identification Number

    Now, enter the property identification number, property documents and other required information such as the owner name.

  6. Choose the mode of payment

    After entering all the relevant information, choose the mode of payment.

  7. Print the challan for refrence

    After successful payment, a challan is generated on the screen. Take the print out of the generated challan for future references.

How to Calculate Income from House Property?

Following points must be kept in mind while calculating Income from house property:

  • While calculating Income from House Property, the net annual value of the residential property should be considered. This net annual value is calculated by subtracting municipal taxes from the gross annual value of the house.
  • If the house is lying vacant for any time in a financial year, one has to consider the rent that is received for the time the house was occupied and not for 12 months.
  • Furthermore, if in case the house is lying vacant and yet the owner is paying property tax, then he/she can offset this loss against income from others during the same fiscal. If an individual is unable to offset the loss in the same year, they can also carry forward this loss for up to 8 years.

Income Tax Deductions on Income from House Property

One can avail a tax deduction on the income from house property under sections 24 and 80C.

Section 24 is called ‘ Deduction from Income from House Property ‘ and under the following scenarios the amount earned will be considered as income from house property:

  • The rent amount that you receive on renting the house is considered as your income
  • If one owns more than one house, the net annual value of unoccupied house property is considered as your income
  • If an individual owns only one house and occupies it himself, then the income from house property will be considered as Nil

The two types of deductions that are available under section 24 of the Income Tax Act:

Standard Deduction:

Under standard deduction, the sum equivalent to 30% of the net annual value does not fall under the tax limit.

Interest on Loan

  • If the loan is taken for purchase, construction or renovation of a house then the interest amount that is to be repaid is exempted from taxation.
  • Additionally, if this loan is taken for a self-occupied house property then one can claim an exemption up to INR 2,00,000
  • If the loan is taken for the purpose of purchasing or construction a property even before actually purchasing or finishing the constructions. One can claim a deduction on the interest paid before the construction or purchase is completed. This can be done in 5 equal instalments, from the year in which the house is bought or the construction is completed.
  • If this loan is taken for the purpose of renovation or reconstruction of a house then one cannot claim exemption till the renovation/reconstruction is complete.

Deductions Under Section 80C

As per section 80C, individuals can claim a deduction of up to INR 1.5 lakhs on stamp duty and registration charges while purchasing a new house. Individuals can also claim a deduction for any other expense incurred during the process of transfer of property. 

FAQs

I am a tenant, am I suppose to pay Property Tax?

No, in India, the house owner is liable to pay the tax on the property.

How many times a year does one have to pay Property Tax?

Property Tax is annually paid by the owner of the property to the municipal authorities.

How to file ITR for Rental Income?

If you own a house or earn rental income, it should be reported as Income from House Property in the Income Tax Return (ITR). The taxpayer must calculate the income and pay tax on rental income at slab rates. The taxpayer should report the following types of income under the head ‘Income from House Property‘:

  • Rent Income from house property
  • Vacant house property
  • Housing loan on a property
  • Jointly owned house property

Calculation of Rental Income

  Particulars Self Occupied Property Let Out Property
  Gross Annual Value (GAV) NIL xxxx
Less: Municipal Tax Paid NIL (xxxx)
  Net Annual Value (NAV) NIL xxxx
Less: Standard Deduction u/s 24 @ 30% of NAV max
2,00,000
No Limit
Less: Interest on Borrowed Capital u/s 24 (without any ceiling limit) xxxx (xxxx)
  • The standard deduction u/s 24 of 30% of NAV is allowed irrespective of actual expenditure incurred on insurance, repairs, water supply, etc.
  • The taxpayer can claim a maximum loss of INR 2,00,000 under the head Income from House Property during a financial year.
  • Pre-Construction Interest i.e. the interest paid in the pre-construction period will be allowed as a deduction in five successive financial years starting from the year in which construction was complete.

Co-ownership of House Property

  • Co-owned Self-Occupied House Property
    The annual value (NAV) of the property for each co-owner will be NIL and each co-owner can claim the deduction of up to INR 2,00,000 for housing loan interest.
  • Co-owned Let-Out House Property
    The income will be calculated as per normal provisions of House Property and it will then be apportioned among each co-owner. Each co-owner can claim the deduction for housing loan interest.

Tax Benefits on Rental Income

Taxpayers having a rental income can claim the following deductions and benefits in the Income Tax Return (ITR).

  • Repayment of Loan – deduction of principal amount under Sec 80C
  • Interest on Home Loan – deduction under Sec 24 of House Property subject to the prescribed limit discussed above
  • Sec 80EE – Additional deduction of INR 50,000 for Interest on Home Loan for first time home buyers subject to prescribed conditions
  • Sec 80EEA – Additional deduction of INR 1,50,000 for Interest on Home Loan for first time home buyers subject to prescribed conditions

TDS on Rent Income

If you have income from rent, the tenant would deduct TDS in the following situations:

  • Section 194I – TDS on rent of land or building deducted at 10% if the rent amount exceeds INR 1,80,000 per annum.
  • Section 194IB – TDS on rent of land or building deducted by individual or HUF (not liable to tax audit). TDS is deducted at 5% if the rent amount exceeds INR 50,000 per month.

The taxpayer i.e. landlord would receive Form 16A from the tenant once the tenant files the TDS Return every quarter. The taxpayer can view TDS Credits in Form 26AS on the income tax website and claim the TDS Credit in the Income Tax Return.

ITR Form for Rental Income

The taxpayer should file the ITR Form based on the amount of total income, type of house property income and income under other heads. Here is a summary of ITR Form that a taxpayer can file in case of rent income.

ITR Form Total Income HP Income
ITR 1 or ITR 4 Upto INR 50 lacs One House Property
ITR 2 or ITR 3 More than INR 50 lacs Multiple House Property

Set-Off & Carry Forward House Property Loss

House Property Loss can be set off against any other income in the current financial year. The remaining loss can be carried forward for 8 years and set off only against house property income in future years.

As per the Income Tax Act, a taxpayer who files Belated ITR u/s 139(4) cannot carry forward loss to future years. However, the taxpayer can carry forward house property loss even if he/she files a Belated Return.

FAQs

What is the difference between Sec 194I & Sec 194IB for TDS on Rental Income?

As per Section 194I, individuals or HUF (not liable to tax audit in the previous financial year) are not required to deduct TDS on payment of rent even if the rent exceeds INR 1,80,000 per annum. Under Budget 2019, individuals or HUF (not liable to tax audit in the previous financial year) must deduct and deposit TDS at 5% if the rent exceeds INR 50,000 per month.

What is the difference between Section 80EE & Section 80EEA?

A taxpayer can claim a deduction of either u/s 80EE or 80EEA. The government had introduced the deduction u/s 80EE for first time home buyers. The taxpayer can claim Sec 80EE deduction of up to INR 50,000 for interest on loan sanctioned between 1.4.16 and 31.3.17.
Later, this benefit was extended by introducing Sec 80EEA. A taxpayer can claim Sec 80EEA deduction of up to INR 1,50,000 for interest on a loan sanctioned between 01.04.19 and 31.03.21.

Do I have to pay tax in India on income from house property situated outside India?

If you hold status of a resident, income from property situated outside India is taxable whether such income is brought into India or not.
If you hold status of a non-resident or RBNOR (resident but not ordinarily resident), income from property situated outside India is taxable only if such income is received in India.

Co-Owner and Deemed Owner of Property

It is very common in India to own a house property jointly with a spouse or children. This increases the chances to receive a higher loan amount. As per Section 27 of the IT Act in some cases, the legal owner is not considered as the real owner of the property. In fact, someone else is considered as the deemed owner of the property. Therefore, the income tax implications are different in both cases.

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Deemed Owner

Income from house property is taxable in the hands of its owner. In some cases, the legal owner is not considered as the real owner of the property. In such cases deemed owner is treated as an owner. He/She is liable to pay tax on income earned from such house property. Following are the cases where the person is deemed to be the owner of the property even if they are not the legal owners of the property:-

  • Transfer to Spouse
    • An individual transferring their property to their spouse otherwise than for adequate consideration. In this case, the transferor is also a deemed owner of the house property. But this excludes cases where a property is transferred to a spouse in connection with an agreement to live apart
  • Transfer to Minor Child
    • An individual transfers any house property to their minor child for inadequate consideration. In this case, the transferor shall be deemed to be the owner of that house property transferred. However, this shall not cover cases where a property is transferred to a minor married daughter
  • Holder of an Impartible Estate
    • Impartible Estate is a property that cannot be legally divided. Therefore, the holder of an impartible estate shall be deemed to be an individual owner of all the properties in the estate.
  • Member of a co-operative society, company, or other association of persons
    • A member of a co-operative society, company, or other association of persons to whom a building or part thereof is allotted under a House Building Scheme of a society/company/association, shall be deemed to be the owner of that building or part thereof allotted to him although the co-operative society/company/association is the legal owner of that building.
  • Possession of a Property
    • As per the Income Tax Act “A person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of nature referred to in Section 53A of the Transfer of Property Act, 1882 shall be deemed to be the owner of that building or part thereof.”
  • Rights in a Property
    • A person who acquires any right in or with respect to any building or part thereof, as is referred to in section 269UA(f). This person shall be deemed to be the owner of that building or part thereof.
    • However, it excludes any rights by way of a lease from month to month or for a period not exceeding one year

Co-Owner

When a house property is jointly owned by one or more persons then each joint owner is known as co-owner. As per the Income Tax Act “If house property is owned by co-owners and their share in house property is definite and ascertainable than the income of such house property will be assessed in the hands of each co-owner separately”. While computing Income from House Property, the annual value of the property will be taken in proportion to their share in the property.

FAQ

What rights do co-owners of property have?

Co-owners have equal rights to possession of the property, the right to use and the right to dispose of his share of the property.

What is meant by the annual value of the property?

Annual Value is the estimated rent that you could get if the property was rented out. However, it is based on the following factors that are key to consider while calculating the annual value:
– Actual Rent received or receivable
– Municipal Value
– Fair rent
– Standard rent
– Expected rent.
Gross annual value = Higher of actual rent received or Expected Rent*
Expected Rent* = Higher of Municipal Value or Market rental value (in line with the Standard Rent as per Rent Control Act)

I have transferred my flat to my wife as a gift. She receives monthly rental from this flat. How will this income be taxable?

Since the flat has been given to your wife as a gift for nil consideration, you will be considered as the “deemed owner” of the house. Therefore the rent income from the flat will be clubbed in your hands and the same shall be taxed as house property income.

Compliance Portal: Tax liability for House Property

If you have paid tax incorrectly on your house property you might receive a query to correct it. Hence, taxpayers who receive an SMS or any communication via call or email from ITD are likely to face some verification issues in their ITRs. Taxpayers can receive the SMS for three instances:

  • Not filed ITR: ITR is not filed for the given assessment year and has a potential tax liability.
  • Mismatch in Details: Even if the details provided by taxpayers and Information received to the ITD don’t match for that particular assessment year.
  • Reporting of Significant Transactions: The Income Tax department has details of significant transactions during a financial year which is considered abnormal or out of line with the profile of the taxpayer.

The basis of calculating Income from house property u/s 23(1) of the Income Tax Act is through calculating the annual value. For instance, the annual value of house property is the determination of rent received or the amount of rent which property can potentially earn if let out, whichever is higher.

Taxpayers who have received any such verification issue needs to submit a response on those issues raised. Additionally, the response has to be submitted online by logging into the compliance portal.

Verification issue in the computation of tax liability on House Property

Code Description Response
A1 Total receipts as per taxpayer pertaining to the above information Amount
A2 Less: Amount relating to another year/PAN  PAN year-wise list
A3 Less: Amount covered in other information Amount
A4 Less: Exemption/Deduction/Expenditure/ Set off of Loss Exemption/Deduction wise list
A5 Income/Gains/Loss (A1-A2-A3-A4) Computed

A1- Total receipts as per the taxpayer pertaining to the above information.

The gross value of the property can be let out. However, if the taxpayer has not received any rental payment they can show the amount as 0. But, suitable remarks are to be submitted under the remarks section.

A2- Amount relating to another year/PAN.

If part of the income/receipts relates to someone else’s PAN or is considered for some other year then the List of details of such income is to be mentioned as per the table below:

A3- Amount repeatedly covered:

 If any amount is mistakenly covered twice then it should be mentioned under the Remarks section of the previous table. Hence, this will nullify the repeated Income/Gains/Loss covered.

A4- Exemption/Deduction/Expenditure/Set off of loss:

This section has to certainly include a list of all the available allowances which are exempt. The taxpayer needs to then select the correct category from the drop-down list as under:

  • Amount of rent which cannot be realized u/s 23.
  • Tax paid to local authorities u/s 23
  • Deduction under section 24(a) @30%
  • Interest payable on borrowed capital u/s 24(b)
  • Set off of Loss
  • Others

The details are to be submitted as per the table mentioned below:

A5- Income/Gain/Loss:

This section includes the self-computation of income from house property chargeable to tax A5=(A1-(A2+A3+A4)). If your income computation exceeds the minimum of 2.5 lakh then you should file your ITR.

FAQs

Is it necessary to login to Compliance Portal? What happens if I don’t log in?

Yes, it is certainly advisable to log in to the compliance portal. However, if a taxpayer doesn’t log in he/she will not be able to respond to the issues raised.

What is an additional query request?

Upon examining the online response submitted by the taxpayer, ITD can raise an additional query request to seek further clarification from the taxpayer. Therefore, the taxpayer needs to respond to the additional query request as well.

How will the taxpayer come to know about pending e-verification?

If there are any e-Verification issues then it will be pushed to the compliance portal for e-verification. For instance, Email and SMS will be sent to the taxpayer informing about the issue raised. Then the taxpayers then need to respond to those issues raised.

Budget 2020 : Highlights

The Finance Minister, Nirmala Sitharaman had presented the budget 2020 on the 1st of February 2020. The record-breaking 2 hours and the 30-minute speech by the Finance Minister had many major announcements. The major highlights of the budget 2020 that have been covered under this article are as follows:

New Tax Regime v/s Current Tax Regime

Income Tax Slab Rates

According to the Finance Minister, the taxpayers now have the option to either continue with the current tax regime or join the new tax regime in the upcoming Assessment Year. The major difference between both of these tax regimes is the exemptions and deductions. The given below tables shows the slab rates under both the tax regimes:

Income Range Current Income Tax Rates New Income Tax Rates
Up to INR 2,50,000 NIL NIL
INR 2,50,001 to INR 5,00,000 5% 5%
INR 5,00,001 to INR 7,50,000 20% 10%
INR 7,50,001 to INR 10,00,000 20% 15%
INR 10,00,001 to INR 12,50,000 30% 20%
INR 12,50,001 to INR 15,00,000 30% 25%
Above INR 15,00,000 30% 30%

The Finance Minister announced that under the new tax regime, the basic tax exemption limit will remain the same for all assessees including the senior citizens. Therefore, in case you opt for the new regime, there will be no higher tax exemption for the senior and super senior citizens.

Changes in Deductions and Exemptions

According to the announcement made in the budget 2020, there have been major removals of tax exemptions and deductions. This has made compliance tax less tedious. Here is the list of what deductions have stayed and what deductions have been removed:

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Changes under Income from House Property

Changes in Deductions on Home Loan interest- Section 24(b)

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).

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.

The setting off losses from house property

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.

Deduction for first-time Homebuyers

Deduction u/s 80EE & Section 80EEA gives relief on interest paid on home loans for first time home buyers. This deduction is no longer available for taxpayers following the new income tax regime.

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Other Important Highlights of the Budget 2020

Dividend Distribution Tax (DDT)

Dividend Distribution Tax (DDT) has been abolished for the companies. However, the dividend is now taxable for the shareholders at the rate of 15%.

Corporate Tax

Tax on co-operative societies has been reduced from 25% to 22% without exemptions. Additionally, manufacturing startups will have to pay a 15% tax if they have registered after 1 October 2019, as long as they commence operations by 31 March 2023.

Foreign Portfolio Investment (FPI)

Foreign Portfolio Investment (FPI) is an investment by non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc. Post budget 2020, the limit in corporate bonds has been raised from 9% to 15%.

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Residential Status

Residential status conditions have been amended in Budget 2020. 180 days in the previous financial year has been reduced to 120 days.

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FAQs

How to calculate self-occupied house property income?

​A Self Occupied House Property is the one that 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 the 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 are the conditions to claim deduction u/s 80EEA?

Deduction u/s 80EEA is available subject to given below conditions:

1. The stamp duty value of residential houses shall be up to Rs. 45 lakh.
2. The deduction can be claimed only by individual taxpayers.
3. The loan is taken from a financial institution.
4. The loan has been sanctioned between 01-04-2019 to 31-03-2020.
5. Assessee is not claiming any deduction under section 80EE.
6. The assessee owns no residential house property on the date of sanction of loan.

Is TDS deducted on dividend paid to a non-resident shareholder?

Yes. Domestic Company distributing dividends to a shareholder not resident in India should deduct TDS at the prescribed rates as per Section 195 of the Income Tax Act. In the case of a resident shareholder, TDS should be deducted at the rate of Sec 194 or Sec 194K.

What are the general documents needed to file ITR?

Following are the documents required to file ITR:

1. Aadhaar
2. PAN
3. Bank account details
4. TDS Certificate (Form 16, 16A, 26AS)
5. Tax payment challan (Self-assessed or Advance tax)
6. Original notice (In case of refiling the ITR)

Section 80EEA: Deduction on Home Loan Interest

Finance Minister Nirmala Sitharaman laid a vision of “Affordable Housing” in Budget 2019. This announcement brought a lot of changes in Income from House Property. One of them being the introduction of section 80EEA in budget 2019, that allows a deduction on home loan interest which will provide an additional home loan tax benefit for the year 2019-20 A lot of emphasis was laid on it in Budget 2020 as well. Under section 80EEA deductions can be claimed on Loans sanctioned on and after FY 19-20.

It was announced in the Budget 2021 that the deduction under section 80EEA is to be extended to loans taken up to 31st March 2022
Tip
It was announced in the Budget 2021 that the deduction under section 80EEA is to be extended to loans taken up to 31st March 2022

Who can Claim Deduction Under Section 80EEA?

The deduction u/s 80EEA is only available to individuals. Additionally, it is important to meet the criteria listed below in order to claim deduction under this section:

  • The stamp duty value of residential houses shall be up to INR 45 lakh.
  • Only individual taxpayers can claim this deduction and not HUFs.
  • The loan is taken from a financial institution.
  • The loan has been sanctioned between 01-04-2019 to 31-03-2020.
  • Assessee is not claiming any deduction under section 80EE.
  • The assessee owns no residential house property on the date of sanction of loan.

The exemption limit of this deduction is INR 1,50,000. Deduction under Section 24 can also be claimed along with 80EEA which can give taxpayers a total benefit up to INR 3,50,000.

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Difference between Section 80EEA and Section 24

Sr. No. Parameter Under Section 80EEA Under Section 24
1. Possession Possession of the property is not required in order to claim deductions u/s 80EEA Possession of the property is required in order to claim deductions u/s 24
2. Deduction Limit INR 1,50,000 INR 2,00,000
4. Source of Loan Deduction can be claimed only if the loan is taken from banks and financial institutions Deduction can be claimed even if the loan is taken from friends and family
5. Value of the Property Stamp duty value of the house should not be more than INR 45 Lakh There is no such specification
6. Category of Buyers This deduction is available only to first time home buyers This deduction is available to all types of home buyers
7. Loan Period Deductions are available only if the loan is taken between April 1, 2019, and March 31, 2020 Deductions are available only if the loan is taken after April 1, 1999
Income Tax Calculator
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How is the Deduction Calculated Under Section 80EEA?

The total deduction that is available under section 80EEA is INR 1,50,000 or the payable interest amount which ever is lower.

To understand the situation better let’s take two different examples:

Scenario 1:

Mr Murthy in the FY 2019-20 took a home loan for a house whose stamp duty value is INR 40 Lakh and the interest payment that Mr Murthy made for the year was INR 4,00,000. Is Mr Murthy eligible to claim deductions under section 80EEA?

Yes, in this case, Mr Murthy claim deductions under section 80EEA of INR 1,50,000 as the stamp value of the house is less than INR 45 Lakh. Additionally, he can also claim INR 2,00,00 as deductions under section 24, so the total deduction that Mr Murthy can claim under both section 80EEA and 24 is INR 3,50,000

Scenario 2:

Mr and Mrs Mehta jointly purchased a house worth INR 45 Lakhs in FY 19-20 and Mr Mehta individually also took a home loan whose annual interest payment is INR 3,00,000. Can Mr and Mrs Mehta both claim deductions under section 80EEA?

No, only Mr Mehta can claim deduction u/s 80EEA as Mrs Mehta is not a co-borrower in the loan. The total deduction that Mr Metha can claim is INR 3,00,000. (INR 2,00,000 u/s 24 and INR 1,00,000 u/s 80EEA)

ITR Form Applicable for Section 80EEA

The taxpayer can claim deductions u/s 80EEA while filing ITR if all the above-mentioned conditions are full-filled. Individuals/HUFs can claim 80EEA in any of the ITR forms, i.e. ITR 1, ITR 2, ITR 3 and ITR 4 depending upon their income sources. The due date for filing ITR is 31st July of the next FY if the tax audit is not applicable.

Supporting Documents

Following are the supporting documents to claim 80EEA:

  • Form 16
  • Home Loan Certificate from the bank
  • Bank Account Statement through which the EMI is paid
  • Home Loan Sanction letter

The taxpayer can claim deduction under this section if he/she has actually made payment of a home loan. You can claim the deduction even if it is not present in your form 16, provided, you have supporting documents with you.

Deduction under section 80EEA is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime
Tip
Deduction under section 80EEA is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime

FAQs

Can I claim interest payment deduction on home loan u/s 80EE & 80EEA simultaneously?

No, taxpayers cannot claim deduction u/s 80EEA if they are claiming section 80EE.

Can I claim deduction u/s 24 & 80EEA simultaneously?

Yes, deduction under both sections can be claimed simultaneously subject to other conditions.

What are the conditions to claim deduction u/s 80EEA?

Deduction u/s 80EEA is available subject to given below conditions :
– The stamp duty value of residential houses shall be up to Rs. 45 lakh.
– The deduction can be claimed only by individual taxpayers.
– The loan is taken from a financial institution.
– The loan has been sanctioned between 01-04-2019 to 31-03-2020.
– Assessee is not claiming any deduction under section 80EE.
– The assessee owns no residential house property on the date of sanction of loan.

What is section 80EE?

Before section 80EEA, taxpayers used to claim 80EE. If the loan is sanctioned during FY 16-17 you get deduction u/s 80EE. Under this, taxpayers can avail income tax benefits of Interest on home loans taken for a residential house. These benefits have a maximum exemption limit of Rs. 50,000 per FY. The exemption can be availed by all types of taxpayers until they repay their loan amount.

Can I claim deductions on principal repayment of home loan under section 80EEA?

No, deductions under section 80EEA can be claimed only for the interest repayment of the home loans.

Can my wife and I both claim deduction under section 80EEA?

Yes, provided that the property is registered under both names and the wife is also a co-borrower in the home loans.

ITR Documents Checklist : House Property Income

House property is any Land or Building or land attached to the building. The land could be a courtyard, parking space, or compound. A taxpayer needs to report income earned from such Property while filing ITR. Hence it is important to keep supporting documents checklist while calculating Income tax. It also includes:

  • Residential houses/Flats
  • Shops
  • Office space
  • Factory sheds
  • Farmhouses
  • Godowns
  • Cinema building
  • Workshop building
  • Hotel building etc.

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You can file ITR-1 if you have earned income from one property. However, you need to file ITR-2 if you own more than one property. You can file ITR online using ITR Utilities or through registered e-Return Intermediary (ERI) like Quicko.

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House Property Income Documents Checklist

PAN

Income Tax Department (ITD) issues Permanent Account Number (PAN). It is an alphanumeric ID of a taxpayer who is liable to pay taxes. PAN enables the department to link all transactions of the “Person” with his “Income”. Hence it is the most essential document while filing ITR.

Aadhaar

Aadhaar (Aadhaar Card) a 12 digit unique identification number issued by the UIDAI (Unique Identification Authority of India). It is mandatory for Resident Individuals to provide details of Aadhaar while filing ITR.

Utility Bill

While filing ITR taxpayers have to disclose the address of all the properties owned by them. Utility Bill contains property addresses and thus serves as a proof of address.

Rent Agreement

Rental Income is taxable income. Therefore, rent agreement between the owner and the tenant for a particular house property serves as proof of income earned during the financial year.

Form 16A 

Form 16A will be provided if TDS is deducted on your rental income. While filing your ITR you can claim this TDS using Form 16A.

Home loan repayment certificate/ Interest Certificate from the bank

This certificate consists of capital amount, repayment amount, the interest charged, and co-ownership details. This serves as proof for claiming a deduction on Interest Repayment and Principal Repayment. And reduces your net taxable house property income.

Municipal Tax Receipts

Municipal tax is paid on properties. Taxes paid on let out properties can bring down your net taxable rental income. Therefore, Municipal Tax receipts are required while calculating the income from house property.

31st July
ITR filing Due Date for taxpayers having House Property Income.
31st July
ITR filing Due Date for taxpayers having House Property Income.

FAQs

How to calculate self-occupied house property income?

A Self Occupied House Property is the one that you use as your own residence. This property can be in use 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).

How do you calculate Income from House Property?

The assessee must be the owner of the properties. Identify the Gross annual value (GAV) of the house property. For self-occupied property, the GAV would be nil while for let out property the GAV will be the total rent received. Deduct municipal taxes paid by you (owner) towards the house property. Now you will realize the Net annual value of the house property. From NAV, deduct standard deduction of 30% and interest paid by you on a house loan. This will give you your Income from house property.
GAV- Municipal tax = NAV
NAV- Standard deduction- interest on borrowed capital= Income from house property.

What happens if I delay filing my ITR?

Firstly, If your income falls under the taxable bracket you have to file your ITR without fail. Secondly, If you missed the deadline to file the ITR you can still file it but you may attract penalties. Moreover, If you don’t pay your taxes on time then if you are claiming any refunds they will get delayed. You will get lesser time to revise your ITR. and Lastly, You will have to pay interest on the taxable amount if you delay filing your ITR.

Who is required to file ITR?

Every taxpayer whose income exceeds the Basic Exemption limit needs to file ITR. If your age is below 60 years and your income is more than rupees 2.5 lakh p.a then you are eligible to file your ITR.

What are the documents required to file ITR?

Following are the basic documents required to file ITR:
-PAN
-Aadhaar
-Form 26AS
-Bank Account Details
-Tax Payment Challan
-Original Return (if filed)

Set Off and Carry Forward of Losses under Income Tax Act

Set-Off Losses under Income Tax means adjusting the loss against the taxable income earned; after that, the amount of loss remaining can be carried forward to future years. Therefore, the carry forward of losses can be set off against future incomes. The Income Tax Act has, however, specified rules to set off and carry forward of losses under each head of income. The taxpayer cannot carry forward losses to future years if the income tax return for the year in which loss is incurred is not filed on the Income Tax Website within the due date as per Sec 139(1). However, loss under the head Income from House Property can be carried forward even if the return is filed after the due date.

Set Off Losses

Intra-Head Set Off

A taxpayer who has incurred losses during any year from a particular income head is allowed to adjust such losses against income from any other source falling under the same income head. Hence, the adjusting of loss from a source under a particular income head against income from any other source under the same income head is called Intra Head adjustment.

Restrictions to keep in mind while making Inter Head Adjustment of Loss

  • Loss from speculative business cannot be set off against any income other than
    income from speculative business. However, non-speculative business loss can be
    set off against income from speculative business.
  • Long-term capital loss cannot be set off against any income other than income
    from long-term capital gain. However, short-term capital loss can be set off
    against long-term or short-term capital gain.
  • No loss can be set off against income from winnings from lotteries, crossword
    puzzles, race including horse race, card game, and any other game of any sort or
    from gambling or betting of any form or nature.
  • Loss from the business of owning and maintaining race horses cannot be set off
    against any income other than income from the business of owning and
    maintaining race horses.
  • Loss from business specified under section 35AD cannot be set off against any
    other income except income from specified business (section 35AD is applicable
    in respect of certain specified businesses like setting up a cold chain facility,
    setting up and operating warehousing facility for storage of agricultural produce,
    developing and building a housing projects, etc.).

Inter-Head Set Off

Inter Head adjustments are made post Intra Head adjustments. If a taxpayer has incurred loss in any year under one head of income and is also having income from another income head, then he/she can adjust the loss from one income head against the other income head. This is called Inter Head adjustment.

Restrictions to be kept in mind while making Inter Head Adjustment of Loss

  • Before making inter-head adjustment, the taxpayer has to first make intra-head
    adjustment.
  • Loss from speculative business cannot be set off against any other income.
    However, non-speculative business loss can be set off against income from
    speculative business.
  • Loss under head “Capital gains” cannot be set off against income under other
    heads of income.
  • No loss can be set off against income from winnings from lotteries, crossword
    puzzles, race including horse race, card game, and any other game of any sort or
    from gambling or betting of any form or nature.
  • Loss from the business of owning and maintaining race horses cannot be set off
    against any other income.
  • Loss from business specified under section 35AD cannot be set off against any
    other income (section 35AD is applicable in respect of certain specified
    businesses like setting up a cold chain facility, setting up and operating
    warehousing facility for storage of agricultural produce, developing and building
    housing projects, etc.)
  • Loss from business and profession cannot be set off against income chargeable to
    tax under the head “Salaries”.
  • With effect from the assessment year 2018-19, loss under the head “house
    property” shall be allowed to be set-off against any other head of income only to
    the extent of Rs. 2,00,000 for any assessment year.
  • However, unabsorbed loss shall be allowed to be carried forward for set-off in
    subsequent years as per the existing provisions of section 71B. (Provisions
    relating to carry forward of loss from house property is discussed later.)

For Example

Non-Speculative Business Loss: INR 5,00,000
Speculative Business Income: INR 1,00,000
House Property Income: INR 2,50,000

Solution

Non-Speculative Business Loss should be set off in the following order:

  1. Speculative Business Income (Intra-head set off) – INR 1,00,000
  2. House Property Income (Inter-head set off) – INR 2,50,000
  3. Carry Forward Loss to future years – INR 1,50,000 (5,00,000 – 1,00,000 – 2,50,000)

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Carry Forward of Loss

Once the taxpayer adjusts losses using intra-head set off and inter-head set off rules, then the taxpayer can carry forward the remaining losses to future years. The carry forward loss can be adjusted against future incomes. Therefore, any Loss under any head of income except House Property Loss cannot be carried forward to future years if the ITR has not been filed within the due date as per Sec 139(1). Below is the table with rules to carry forward loss and set off against future incomes.

For Example

  • FY 2018-19 (AY 2019-20)
    Non-Speculative Business Loss: INR 5,00,000
    Speculative Business Income: INR 1,00,000
    House Property Income: INR 2,50,000
  • FY 2019-20 (AY 2020-21)
    Speculative Business Income: INR 30,000
    Non-Speculative Business Income: INR 1,40,000

Solution

  • FY 2018-19 (AY 2019-20)
    Non-Speculative Business Loss should be set off in the following order:
    1. Speculative Business Income (Intra-head set off) – INR 1,00,000
    2. House Property Income (Inter-head set off) – INR 2,50,000
    3. Carry Forward Loss to future years – INR 1,50,000 (5,00,000-1,00,000-2,50,000)
  • FY 2019-20 (AY 2020-21)
    Non-Speculative Business Loss should be set off in the following order:
    1. Carry Forward Loss – INR 1,50,000
    2. Non-Speculative Business Income – INR 1,40,000
    3. Speculative Business Income – INR 10,000

Carry Forward and Set Off of Business Loss other than Loss from Speculative Business

If loss of any business or profession, apart from that of speculative business cannot be adjusted in the year in which it is incurred, then the adjustment loss can be carried forward for making adjustment in the next year. However, such loss can only be adjusted against income charged to tax under the income from business and profession.

Taxpayer can only carry forward their loss if they have filed their return before the due date of filing the ITR u/s 139(1). Losses in this case can be carried forward for 8 years. Loss from business specified under section 35AD cannot be set off against any other
income except income from specified business.

Loss from the business of owning and maintaining race horses cannot be set off against
any income other than income from the business of owning and maintaining race horses.
Such loss can be carried forward only for a period of 4 years.

Carry Forward and Set Off of House Property Loss

Taxpayers can carry forward loss incurred under the head income from house property if they are unable to adjust these losses in the current year. Losses from this income head can only be adjusted against income from the same head, or, income from house property. These losses can be carried forward for 8 years.

Carry Forward and Set Off of Capital Loss

Losses from the income head – capital gains can only be adjusted against the income head capital gains. However, long term capital loss can be adjusted only against long term capital gains, yet, short term capital loss can be adjusted against long term capital gains as well as short term capital gains. These losses can be carried forward for 8 years.

Treatment of Loss as per New Tax Regime

With the introduction of Section 115BAC in Budget 2020, there were few changes in the treatment of losses as follows:

  1. House Property Loss: As per the new income tax regime, only current year losses from house property can be set off against income from house property and not against any other Income.

    Moreover, losses from income from house property cannot be carried forward in the new income tax regime.
  2. Setting-Off Business/Profession Loss: In the case of a business income, an individual/ HUF cannot set off the brought forward business loss or unabsorbed depreciation and cannot carry forward these B&P losses and unabsorbed depreciation if they relate to deductions/exemptions withdrawn under clause (i) of sub-section (2) of section 115BAC.

    In simple terms, you can carry forward short-term & long-term capital losses, derivatives trading losses in the new tax regime. Since, only the losses relating to deductions & exemptions withdrawn under clause (i) of sub-section (2) of section 115BAC cannot be set off or carried forward, for eg: House property losses, additional depreciation, etc.

    The image below gives a clear understanding of the treatment of losses in the new and old tax regime.

FAQs

I have incurred losses under equity intraday trading. Can I adjust it against F&O trading income?

Loss from equity intraday trading is a speculative business loss. Speculative loss can be set off against Speculative Profits only. Thus, it cannot be adjusted against F&O trading income. However, you can carry forward the loss for 4 years and adjust it against speculative profits in future.

I have incurred losses of Rs. 10 lacs from F&O trading. I also have an Interest Income of Rs. 2 lacs and Salary Income of Rs. 6 lacs. Can I adjust F&O trading loss with salary income and interest income?

Loss from F&O trading is a non-speculative business loss. Non-Speculative Loss can be set off against any income except Salary Income in the current year. Thus, you can adjust non-speculative loss against interest income (2 lacs) but not salary income. However, you can carry forward the remaining loss (8 lacs) for 8 years and adjust it against business & profession income (speculative and non-speculative) in future.

I have not filed Income Tax Return before the due date of filing the return. Can I file the ITR to carry forward loss to future years?

You cannot carry forward loss to future years if the income tax return for the year in which loss is incurred is not filed within the due date as per Sec 139(1). However, if you have incurred loss under head house property, you can carry forward the loss even if the return is filed after the due date.

How to fill Form 12BB?

All the salaried taxpayers need to fill Form 12BB. It is supposed to be submitted at the beginning of every financial year by the employee to his/ her employer for the correct deduction of TDS. It discloses all their tax-saving investments of that particular financial year.

Steps to Fill Form 12BB

Time needed: 3 minutes.

  1. Download Sample Form 12BB

    You can download the sample Form 12BB from the Income Tax Department website.

  2. Add Personal Details

    Fill Personal Details i.e, Add your Name, Address, and PAN details. Also, mention the current financial year i.e 2020-2021.

  3. Add house rent allowance Details

    If you are incurring any rental expenses for your work then that can be deducted under HRA.

  4. Add LTA Details

    Add details of LTA if any.

  5. Enter Details regarding Interest on Loan for Borrowings

    If you are paying any Interest on EMI of home loans in this particular Financial year it can avail you benefit up to 2,00,000 for self-occupied property and no limit on rented property.

  6. Add Chapter VI-A Deductions

    Add details of tax deductable investments and deductions under 80C, 80CCD (1B), 80D, 80DD, 80E, 80G etc.

Who needs to Fill Form 12BB?

Effective from 1st June 2016, Every salaried taxpayer has to submit Form 12BB. You will also have to submit proofs/evidence to support your investments. It can help you reduce your taxable income and it also helps your employer to deduct correct TDS from your salary. 

Yet in case… If you haven’t filed your Form 12BB your employer might have deducted excess TDS from your salary. But, you can claim your excess TDS while filing your Income Tax returns.

FAQs

What is Form 12BB?

Salaried employees have to provide certain information to their employer in order to avail tax benefits while filing for Income Tax Return. There was no particular standard format before to disclose investments. But, from June 2016, Introduction of standard form 12BB has made lives easier.

What is the purpose of form 12BB?

Form 12BB serves the following two purposes:
1. Helps employer deduct correct TDS of an employee,
2. Helps employee determine his tax liability and make tax savings investments accordingly.

Do I have to submit the Form 12BB to Income tax department?

No, the form is not to be submitted to the Income-tax department. It is to be submitted to the employer.