December 30, 2022
Shreeja Ray

Income from House Property and Taxes

The Income Tax Act of 1961 governs how houses are taxed in India. Everyone hopes to one day own a home, dreams of doing so, and saves money in order to do so. Owning real estate, however, does come with obligations. One of them is yearly property tax payments on a home. One of the significant heads of income under the Income Tax Act is income from real estate. The exemptions and deductions that are available to them for paying back the interest and principle of the loan taken out to buy the house property, whether it is rented out or used for personal purposes, have piqued the taxpayers' interest in particular.

Fundamentals of House Property Tax

A house property can be your residence, a place of business, a store, a structure, or any land that is connected to the building, like a parking lot. The Income Tax Act does not distinguish between a residential property and a commercial property. In the income tax return, all sorts of properties are taxed under the heading "income from residential property." An individual who has the legal right to exercise ownership rights in his or her own name and not on behalf of another person is considered the owner for income tax purposes.

How to Determine Your House Property Income

How to calculate your revenue from a dwelling property is as follows:

1. Calculate the property's Gross Annual Value (GAV). A self-occupied home has no gross annual value. It is the rent that is gathered for a house that is rented out.

2. Lower Property Tax: When paid, property tax can be deducted from a property's GAV.

3. Calculate the Net Annual Value (NAV) using the formula: Net Annual Value = Gross Annual value - Property Tax

4. Reduce 30% of NAV toward standard deduction: Section 24 of the Income Tax Act permits a deduction of 30% of NAV. Beyond the 30% maximum, no additional costs, such as painting and repairs, may be deducted from taxes.

5. Cut back on mortgage interest: Interest paid on housing loans taken out during the year is also deductible under Section 24.

6. Determine Your Income from House Property: Your income from house property is the resultant value. This is taxed at the applicable slab rate for you.

7. Loss from house property: When you own a self-occupied home, using the home loan interest deduction will result in a loss from house property because the home's GAV is zero.

Home Loan Interest Tax Deduction: Section 24

If the owner or his family resides in the property, the homeowner may deduct up to Rs 2 lakh from the interest on his or her home loan. When the house is empty, the same rules apply. The entire amount of the house loan interest is deductible if you have rented out the property.

If any of the following circumstances apply, your interest deduction is only allowed up to Rs. 30,000 rather than Rs. 2 lakhs:

A. Condition I

If the loan is obtained on or after April 1, 1999, and the construction or acquisition is not finished within five years,

B. Condition II

The loan was obtained prior to April 1, 1999.

C. Third Condition

The loan is obtained on or after 1 April 1999 with the intention of renovating or updating the residential property.

Obtaining a Home Loan Deduction

1. Your ownership stake in the property will determine the amount of the deduction you are eligible to make.

2. Additionally, the mortgage must be in your name. Co-borrowers may also deduct these expenses.

3. Only the fiscal year in which the construction is finished may be used to deduct house loans.

4. Give your employer a copy of the certificate for the home loan interest so that he can change the tax withholding at source. This document includes details on your ownership stake, borrower information, and the interest and principal breakdown of your EMI payments.

5. If not, you might need to do the tax calculation yourself and collect any refunds at the time of submitting your taxes. If there is a tax owed, it's also likely that you will have to deposit the fees on your own.

6. You are not required to present these documents to anyone, not even the IT Department, if you are self-employed or a freelancer. They will be necessary to determine your quarterly advance tax liability. For your own records and to respond to any questions the IT Department may have, you must save them carefully.


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