January 27, 2023
Jasmine John

What are the Different Types of House Property?

A house property is an immovable property that you own. It can either be a residential or non-residential one. A residential house property is one that you occupy as your place of residence, while a non-residential one is used for commercial purposes such as carrying on business or a profession such as renting out shops or offices.

Type of House Property

You can own either a 'residential' house property or a 'non-residential' one. Residential property is a house you live in, whereas non-residential property is a house that you use for business purposes, such as running your own shop or office space. It's also known as commercial property because it's used for making money through rental income or sale prices of your home (or both).

Residential House Property

A residential house property is one that you occupy for personal use, as your place of residence. Residential property is not used for business or profession, it is not used for commercial purposes and it does not have any other use except that of being a residence.

As per Hindu Law, there are two main types of real estate: immovable and movable

Non-Residential House Property

A non-residential house property is one that you use for commercial purposes, e.g., carrying on business or profession such as rental income from shops or offices.

Tax on House Property Income

Rental income from a House property is taxed. Even though the taxpayer's house property is not registered in his name, rental income is recognized as his income because he has ownership rights, namely possession of such house property.

Categories of House Property

There are three types of house property, which are as follows:

1. Property that is self-occupied;

2. Property that is let out; and

3. Property that is deemed to be let out.

Self-occupied house property:

 This refers to property utilized by the assessee or his family as their primary dwelling. According to the Income-tax Act, if an assessee possesses more than one self-occupied property, only two of them can be claimed as such. As his self-occupied property, the taxpayer may select any beneficial property. Because the owner lives there, the issue of rent receivable is not raised. As a result, there is no income from self-occupied house property; nevertheless, interest paid on a housing loan can be deducted.

Let out property:

This is the property that has been rented out by an assessee for monetary consideration. The rent earned is considered income from housing property.

Deemed to be let out:

All unoccupied properties are considered to be rented. Also, if the taxpayer is possessing more than one self-occupied house property then any 2 properties can be claimed as self-occupied house property and all other self-occupied house properties will be classified as "Deemed to be let out". The reasonable rent received from such property is considered income from dwelling property. Fair rent can be calculated using rental income from similar residential properties in the same neighborhood.

Housing Loan

If the taxpayer obtained a housing loan to buy or build a house property, he is compelled to pay an interest rate to the bank or other lender. This EMI is divided into two parts: interest and principal.

The interest portion can be deducted from the income of a house property, whereas the principal amount can be deducted under Section 80C in the case of a residential home property.

The amount deducted for housing loan interest is determined by the kind of property. The amount deductible for each kind is as follows:

1. Self-occupied residential property:

Taxpayers can claim a maximum interest of Rs. 2,00,000/- on a home loan acquired to purchase or develop a house during a fiscal year.

2. Let out or deemed to be rented out property: 

There is no upper limit for claiming interest on a mortgage on a let-out property.

Tax Treatment of Pre-Construction Interest

"Pre-construction Interest" refers to the interest paid on housing loans while the house is being built. Pre-construction interest is deductible in five equal installments beginning with the year construction is completed.

Loss From House Property

House property loss is probable under the following two scenarios: -

Self-contained property:

 The GAV of self-occupied property is always NIL. If the taxpayer has borrowed against his self-occupied property for a housing loan, the interest paid on the loan is deducted from his Net Annual Value, resulting in a loss from the house property.

Let out House Property:

If the taxpayer borrowed a home loan against rented property, he must pay interest on the loan. If the sum of the standard deduction plus loan interest exceeds the Net Annual Value of the home property, there will be a loss from leasing out the house property.

Set-Off and Carry Forward of House Property Loss

The loss from house property can only be set off up to Rs. 2 lakhs each year. The balance loss can be carried forward for set off to the next eight fiscal years.

If the taxpayer owns more than one house, the loss from one house can be offset against the revenue from the other houses.

If there is no other income from the house property to offset, then loss from the house property can be offset against any other income (i.e., salary, business income, capital gains, other sources).

If the loss still remains, it might be carried forward to the following year.


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