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Tax Computation on House Property Income

Owning a house is every person’s dream. People work hard in their life and save money by bits and pieces to collect one large amount in order to buy a house. In earlier times owning a house was not that easy as it requires a large sum of money to be paid at once. However, in the present scenarios buying a house has become a lot easier because of the availability of loans from all the government and non-government banks. A person who wants to buy a new house or renovate the existing house can avail Home Loan from Banks and utilize the availed money along with his savings to fulfill his dream. However, owning a house brings in a lot of extra responsibilities such as paying houses property taxes, etc. In this blog, we will discuss in detail the process of computation of tax on House Property Income.

Types of House Property

Self occupied House Property

The property which is used by a person for residential purpose is known as Self Occupied House Property. This property may be occupied by the family of taxpayer including his parents or spouse and kids. A vacant house is also considered as a self-occupied property for the purpose of Income Tax. Before the Financial year 2019-20 if a taxpayer-owned more than one property, then one property was considered as Self-occupied House Property and the other one was considered to be let out property. However, the choice of which property to choose as self-occupied is up to the taxpayer. For the Financial Year 2019-20 and onwards a homeowner can claim his 2 properties as self-occupied and the remaining houses as let out for income tax purposes.

Let Out House Property

The house property which is rented for the whole year or part of the year is known as a let out house property for the purpose of income tax.

Inherited property

Property gained from ancestors can be considered as a self-occupied property or a let-out property. The usage of this property is similar as discussed above.

Steps to Calculate House Property Income

The following are the ways to compute the House property income:

Determine Gross Annual Value: The gross annual value of a self-occupied property is zero and for the let out a property it is the amount of rent collected.

Reduce Property Tax: The property tax that is paid is allowed as a deduction from Gross Annual Value

Net Annual Value: You have to determine the net annual value of the property to calculate the income from the property. Net Annual Value is determined by subtracting the amount of Property tax from the Net Annual Value as discussed above.

Reduce 30% NAV: As per section 24 of the Income Tax Act 30% on NAV is allowed as a deduction from Net Annual Value. Other expenses such as paint and repair work cannot be considered as tax relief beyond the 30% cap under Section 24.

Reduce home loan interest: The deduction made under Section 24 is also available for interest paid on the Home Loan availed.

House Property Income: the resulting value is the income from house property which is taxed at the slab rate applicable to the taxpayer.

In the case of let out properties, the Gross Annual Value is the rent of the property. The rental value of the house must be higher or equal to the rent as determined by the municipality.

Important provisions related to the calculation of House Property Income:

Section 22

House Property Income under this head shall be taxable if the following conditions are fulfilled :

• The house property should have any building or land belonging to the taxpayer.
• The taxpayer should be the owner of the property.
• Taxpayer should not use the House property for business purposes.

Deemed Owner

In the following cases, the legal owner of the property is not considered as the actual owner of the property. Someone else is considered as the deemed owner of the property the tax on the income generated from the rent of such property.

Following are considered as deemed owners:

• An individual who transfers any house property to his or her house spouse living apart with an agreement, or to a minor child not being a married daughter is deemed to be the owner of the house property transferred.
• A member of a co-operative society or a company to whom a part of a building is allotted or leased under house building scheme shall be deemed to be the owner of that part of the building.
• The holder of an estate that is not divisible shall be deemed to be the individual owner of the properties covered in the estate.

Tax Benefits on House Property Income

Apart from deduction of interest on loans utilized for, acquisition, purchase, repair, renewal of a house property following tax benefits are available. Section 80C: Under this section one can avail benefits on the principal amount of the home loan. The maximum amount of tax deduction allowed is Rs 2,00,000. The tax benefit is available on the payment basis irrespective of the year for which the principal payment has been made.

Section 80EE: Under this section tax deduction is made in the loan taken for residential house property. As per this section deduction up to Rs 50,000 is allowed to an individual for the loan taken for acquiring a residential property. This deduction is allowed based on the following conditions:

• Loan should be sanctioned by the bank during Financial Year 2016-17
• Loan amount should not exceed Rs 35 lakhs.
• The value of the residential house should not exceed more than Rs 50 lakhs.
• On the date of sanction of loan, the assessee should not own any residential house property.

This deduction in loans is available from Financial Year 2017-18 and the following subsequent years.

Conclusion

Owning a house has become easier as compared to the earlier time because of the House loans available from the Banks. Nowadays House Loans are easily available through government and nongovernment Banks. The income gained by taxpayers out of the properties constructed with the help of the loan is known as House Property Income. Taxpayers can avail of various tax benefits such as deduction in home loans etc.

Also, Read: TDS on Rental Income: Section 194I of the Income Tax Act, 1961