Income from House Property
Do you want to understand all about income from house property?
Under the Income Tax Act, household property income refers to income derived from property owned by an individual. It calculates income by deducting municipal taxes and other allowable charges from the gross annual value of the property, which primarily includes rental income, the income from the property departure and absorption, and potential income from unclaimed property. It is a significant portion of an individual’s taxable income.
Understanding Income from House Property
Under the Income Tax Act, income from household assets is an essential component of gross income. This category mainly deals with rent and assessed rent income.
Rental income is income from the sale of a property. The gross annual value is calculated as paid by the owner after city taxes are deducted. The total annual value is the greater of the actual rent received or fair market value.
In other words, deemed rent applies to assets not released during the year. In the case of a self-occupied property, the annual value is calculated as 'nil.' In contrast, in the case of a let property, the deemed rent is calculated as the potential rent that the owner could have earned even if they received no actual rent.
These provisions ensure full and fair tax treatment of household property income.
Types of House Property
1. Owner Property: This refers to the property the owner uses for his residence. It can be in the city where they work or in another town. However, if a person owns more than one property, only one is considered to be owned, and the others are deemed excluded. The annual value of the self-occupied property is valued as 'nil,' which means a premium with no taxes. However, the owner can still claim a deduction for the interest on the home loan against this property.
2. Let-Out Property: This type of property is rented out for the whole or part of the year. Rental income from such property is treated as household property income and is taxable. The amount to be taxed is calculated from the annual value of the mortgage earned after deducting municipal taxes and other concessions (such as 30% of the yearly value of the loan plus interest, which is charged on the capital amount) afterward.
3. Deemed to be let-out property: if a person owns more than one property for their business, only one is considered personally owned, and the others are treated as let-out potential rent (on actual rent or fair market value) for these . property is treated as income, even if the property is not rented Given this calculated rent is taxable.
Remember that these classifications are important because they affect income tax returns significantly. It is always recommended to consult a tax advisor or chartered accountant for personalized advice.
Dividend Distribution Tax
According to the Finance Act, 2020, dividends from domestic companies are taxable in the hands of recipients. These firms are not liable to pay a distribution tax. However, they must deduct TDS at the rate of 10% for dividends over Rs 5000.
Calculating Income from House Property
House property tax calculation involves a few steps and considers various deductions and exemptions. Here's a step-by-step guide:
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The Gross Annual Value (GAV) is zero for a self-occupied property. For a let-out property, it's the rent received. For a property deemed to be let out, it's the reasonable rent of a similar place.
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Deduct the taxes paid during the year from the GAV to get the Net Annual Value (NAV).
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Deduct 30% of the NAV as a standard deduction.Irrespective of the actual expenditure it is allowedon the property.
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Deduct the interest paid on the home loan. For a self-occupied property, the limit is Rs. 2 lakh. The entire home loan interest is allowed as a deduction for a let-out property.
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Determine if your property is self-occupied, let out, or deemed to be let out.
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If applicable, claim additional deductions on home loan interest under Sections 80EE and 80EEA.
The result after these deductions is your income from house property. Remember, each step is crucial in calculating your taxable income and claiming all eligible deductions.
Deductions under Section 24
Section 24 of the Income Tax Act provides deductions on income from house property. It includes two main deductions:
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The first is the standard deduction, 30% of the property's Net Annual Value (NAV). This deduction is allowed irrespective of the actual expenditure on the property.
The second deduction is on the interest paid on a home loan. Homeowners can claim a deduction of up to Rs. 2 lakh per year on their home loan interest if the property is self-occupied. The entire home loan interest is allowed as a deduction if the property is rented out.
Tax Benefits on Home Loans
Owning a home is a dream for many, and home loans can make this dream a reality. But did you know that home loans come with significant tax benefits? Let’s explore! The principal repayment of your home loan is eligible for a deduction under Section 80C of the Income Tax Act up to a maximum limit of Rs. 1.5 lakh per financial year. It can substantially reduce your taxable income. But that’s not all! The interest paid on your home loan also offers tax benefits. With a home loan tax deduction, Under Section 24, you can claim up to Rs. 2 lakh per financial year on the interest paid on your home loan for a self-occupied property. So, not only does a home loan help you acquire your dream home, but it also aids in reducing your tax liability. It’s a win-win situation! So, go ahead, explore these benefits, and make an informed decision.
Special Provisions for First-Time Homeowners
First-time homeowners in India are provided with unique tax benefits under sections 80EE and 80EEA of the Income Tax Act. Section 80EE allows a deduction on interest paid on home loans up to Rs. 50,000 per financial year. It exceeds the Rs. 2 lakh limit under section 24(b). However, the value of the house should not exceed Rs. 50 lakh, and the loan amount should be at most Rs. 35 lacks. Section 80EEA provides an additional deduction of Rs. 1.5 lakh for interest on home loans for affordable housing, provided the stamp duty value of the house does not exceed Rs. 45 lakh.
Frequently asked questions
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What constitutes income from house property?
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Income from house property includes rental or deemed rental income from a property owned by the taxpayer.
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How do I calculate income from my rental property?
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To calculate income from a rental property, subtract municipal taxes paid during the year from the gross annual value (rent received). Then, the standard deduction (30% of yearly net value) and interest on borrowed capital are deducted.
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What deductions are available under Section 24 for house property?
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Under Section 24, deductions available for house property include municipal taxes paid, a standard deduction of 30% of net annual value, and interest on borrowed capital.
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Can I claim tax benefits on a home loan for a property under construction?
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Yes, you can claim tax benefits on a home loan for a property under construction. However, the deduction for the interest paid during the construction period can be claimed in five equal installments starting from the year the building is completed.
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What are the unique tax benefits for first-time homeowners?
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First-time homeowners can claim deductions on home loan principal repayment under Section 80C, interest payment under Section 24(b), and additional deductions on interest payment under Sections 80EE and 80EEA.
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How does owning multiple properties affect my income tax?
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If you own more than two properties, they will all be deemed to be let out, and tax will be levied on the annual value of such properties.
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Are there any tax benefits for repaying the principal amount of a home loan?
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Yes, you can claim tax benefits for repaying the principal amount of a home loan under Section 80C up to a maximum of Rs. 1.5 lakh per financial year.
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How can I claim interest deductions paid on a home loan?
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You can claim interest deductions paid on a home loan under Section 24(b) up to a maximum of Rs. 2 lakh per financial year.
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What is the difference between self-occupied and let-out property for tax purposes?
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A self-occupied property is used for the owner’s residence, while a let-out property is rented. For tax purposes, a self-occupied property has a notional annual value of zero, while a let-out property’s yearly value is its potential rent.
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Can I claim HRA if I own a house property but live in a rented accommodation?
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Yes, you can claim House Rent Allowance (HRA) even if you own a house property but live in a rented accommodation in a different city.