Income from house property is one of the five heads of income as per the Income Tax Act, 1961 in India. It refers to the income earned by an individual from a house property that they own. The term ‘house property’ includes any building or land attached to the building, such as a shop, office, factory, or any other commercial establishment.
Calculation of Income from House Property:
The calculation of income from house property is based on the annual value of the property, which is determined after considering the actual rent received or the potential rent that could have been received. The actual rent received or receivable is the amount of rent that the owner of the property has received or is likely to receive during the financial year.
In case the property is let out for the entire financial year, the actual rent received or receivable is considered as the annual value. If the property is let out for only part of the financial year, the annual value is calculated as the actual rent received or receivable multiplied by the number of months for which the property was let out, divided by the total number of months in the financial year.
In case the property is not let out, the annual value is determined as the potential rent that the property is likely to fetch if it is let out. The potential rent is calculated as the higher of the fair rent or the municipal value of the property. The fair rent is the rent that a similar property in the same or similar locality would fetch, while municipal value is the value assigned to the property by the municipal authorities for the purpose of levying property tax.
Deductions Allowed:
The Income Tax Act allows certain deductions from the income from house property. These include:
- Standard deduction: A standard deduction of 30% of the net annual value is allowed as a deduction towards repairs, maintenance, and collection charges.
- Municipal taxes: Any municipal taxes paid during the financial year on the property are allowed as a deduction.
- Interest on home loan: If the property has been financed with a home loan, the interest paid on the loan is allowed as a deduction from the income from the house property. This deduction is available even if the property is self-occupied.
- Property tax: Any property tax paid during the financial year on the property is allowed as a deduction.
Taxation of Income from House Property:
The income from house property is added to the individual’s total income and taxed at the applicable income tax slab rate. If the property is self-occupied, a deduction of up to Rs. 2 lakh is allowed towards the interest paid on the home loan.
Types of Properties Considered:
Under the Income Tax Act, any building or land attached to the building, such as a shop, office, factory, or any other commercial establishment, is considered a house property. The law also includes a vacant plot of land, which is held as stock-in-trade by a builder or developer, under the definition of house property.
However, certain types of properties are not considered as house property, such as:
- Property used for business or profession: If the property is used for business or profession, the income earned from such property is taxable under the head “Profits and Gains of Business or Profession” and not under “Income from House Property”.
- Property used for own residence: If the property is used for own residence and is not let out, then the annual value of such property is considered as zero.
- Property held as stock-in-trade: If the property is held as stock-in-trade and is not let out, then the income earned from such property is taxable under the head “Profits and Gains of Business or Profession”.
Self-Occupied Property:
If an individual owns a house property that is used for his/her own residence, then the annual value of such a property is considered as zero. However, if the individual has taken a home loan to purchase or construct the property, then the interest paid on such a loan is allowed as a deduction from the income from the house property, subject to a maximum limit of Rs. 2 lahks per year.
If the individual has more than one self-occupied property, then only one property can be treated as self-occupied, and the other property/ies are treated as deemed let-out properties for the purpose of calculating income from house property.
Deemed Let-Out Property:
If an individual owns more than one house property and all properties are not used for their own residence, then all the properties except one are treated as deemed let-out properties. The annual value of such deemed-let-out properties is calculated as the potential rent that the property is likely to fetch if it is let out.
In case the actual rent received or receivable is higher than the potential rent, then the actual rent received or receivable is considered as the annual value. If the actual rent received or receivable is lower than the potential rent, then the potential rent is considered as the annual value.
Final Thoughts:
Income from house property is an important source of income for many individuals. It is important to keep track of the rent received or receivable, as well as any expenses incurred towards the maintenance of the property, in order to calculate the correct taxable income. One should also keep in mind the deductions allowed, such as the standard deduction, municipal taxes, interest on a home loan, and property tax, to minimize tax liability. Finally, it is always advisable to consult a tax expert for any queries or clarifications regarding income from house property.
Conclusion:
Income from house property is an important source of income for many individuals. It is important to understand the calculation of the annual value and the deductions allowed to maximize the tax benefits. One should also ensure timely payment of municipal taxes and property taxes to avail of the deductions available.
Read more useful content:
- section 145 of income tax act
- section 10e of income tax act
- section 9 of the income tax act
- section 94b of income tax act
- section 206aa of income tax act
Frequently Asked Questions (FAQs)
Q:1 What is income from house property?
A: Income from house property refers to the rental income earned by an individual from a property that he/she owns.
Q:2 What properties are considered as house property?
A: Any building or land attached to the building, such as a shop, office, factory, or any other commercial establishment, is considered a house property.
Q:3 What is annual value?
A: Annual value is the estimated rent that a property is expected to fetch if it is let out.
Q:4 How is income from house property calculated?
A: The income from house property is calculated by subtracting the deductions allowed, such as municipal taxes, the standard deduction, and interest on the home loan, from the annual value of the property.
Q:5 What are the deductions allowed from income from house property?
A: The deductions allowed from income from house property are the standard deduction, municipal taxes, interest on the home loan, and property tax.
Q:6 How is income from house property taxed?
A: Income from house property is added to the individual’s total income and taxed at the applicable income tax slab rate.
Q:7 What is self-occupied property?
A: Self-occupied property is a house property that is used for the individual’s own residence and is not let out.
Q:8 Can I claim a deduction for the principal repayment of my home loan?
A: No, the principal repayment of a home loan cannot be claimed as a deduction from income from house property.
Q:9 What if I have more than one house property?
A: If an individual owns more than one house property, then all properties except one are treated as deemed let-out properties. The annual value of such deemed let-out properties is calculated as the potential rent that the property is likely to fetch if it is let out.
Q:10 Do I need to pay tax on notional rent if my property is not let out?
A: Yes, if the property is not let out, the potential rent is considered as the annual value, and the individual needs to pay tax on the notional rent.
