Understanding Income from House Property: A Comprehensive Guide (FY 2024-25 / AY 2025-26)
Bhavika Rajput- 2 days ago
- 25 min read
Income from house property is a significant part of income tax in India for homeowners and landlords. This guide, updated for Financial Year 2024-25 (Assessment Year 2025-26), clearly explains what income from house property means. It details how to calculate this income, what deductions are available, and the latest tax rules. Many people find figuring out rental income tax and the rules for income tax India a bit of a puzzle. Taxbuddy possesses considerable expertise in tax advisory and simplifies these complexities for you, making filing your income tax return straightforward. This guide will help you understand everything about income from a house property as per the Income Tax Act 1961.
Table of content
What is 'Income from House Property' under the Income Tax Act?
The term 'Income from House Property' refers to the income earned from a property that an individual, the assessee, owns. Section 22 of the Income Tax Act, 1961, defines how this income is taxed. For income to be considered under this category, a few conditions must be met.
First, the assessee must be the owner of the property.
Second, the property must consist of buildings or lands appurtenant thereto. "Lands appurtenant thereto" means land connected to the building, like a garden or a yard.
Third, the owner should not use the property for their own business or profession. If the owner uses the property for their business, the income (or loss) is usually calculated under "Profits and Gains of Business or Profession."
It's important to understand that income from vacant land, without any building, is typically taxed under 'Income from Other Sources', not under income from house property. Knowing this definition of house property income helps in correctly classifying income and paying the right applicable tax slabs. You can find more details in the Income Tax Act, 1961.
Types of House Property for Tax Purposes
The Income Tax Act classifies house property into different types for calculating tax. These types of house property are mainly Self-Occupied Property (SOP), Let-Out Property (LOP), and Deemed Let-Out Property (DLOP). Understanding these distinctions is vital for correct tax computation.
A Self-Occupied Property (SOP) is a property that the owner or their family uses for their own residence. The self-occupied property tax treatment is special; its Gross Annual Value (GAV) is considered Nil. An important rule, effective from Financial Year 2019-20, allows an individual to claim up to two properties as SOP. This means if you own two houses and live in one and the other is vacant, or your family uses both, both can be treated as SOP.
A Let-Out Property (LOP) is a property that is rented out to a tenant for a part of the year or the whole year. The let-out property tax rules require the actual rent received or receivable to be considered for calculating income.
A Deemed Let-Out Property (DLOP) comes into play if an owner possesses more than two self-occupied properties. In such a scenario, only two properties can be claimed as SOP. Any additional property, even if not actually rented out, is treated as a DLOP for tax purposes. The deemed let out property income is then calculated based on its expected rental value. It’s like the tax department says, "You could be earning rent from this extra house, so we'll tax you on that potential."
Here's a simple comparison:
Feature | Self-Occupied Property (SOP) (Up to 2) | Let-Out Property (LOP) | Deemed Let-Out Property (DLOP) |
Primary Use | Owner's residence | Rented to tenants | Treated as rented if more than 2 SOPs |
GAV | Nil | Actual rent or Expected Rent (whichever higher) | Expected Rent |
No. of Properties | Up to two | Any number | Properties beyond two SOPs |
For more details on SOP, you can read about self-occupied house property.
How to Calculate Income from House Property: A Step-by-Step Guide
To calculate income from house property, one must follow a clear, systematic framework. This house property calculation formula ensures all components are correctly accounted for. Here are the basic steps to calculate house property income:
Determine Gross Annual Value (GAV): This is the first and most crucial step. The GAV is the value a property is expected to fetch if let out, or the actual rent received.
Deduct Municipal Taxes: From the GAV, subtract the municipal taxes (like property tax) that the owner paid during the financial year. This gives the Net Annual Value (NAV).
Claim Deductions under Section 24: The Income Tax Act allows certain deductions from the NAV under Section 24. These mainly include a Standard Deduction and the Interest on Home Loan.
Arrive at Taxable Income from House Property: After subtracting the Section 24 deductions from the NAV, the resulting figure is the taxable income (or loss) from house property.
This structured approach simplifies the calculation. You can also use our income tax calculator for assistance. (Implement HowTo Schema here)
Step 1: Determining Gross Annual Value (GAV)
Determining Gross Annual Value (GAV) is the foundational step in calculating income from house property. The GAV calculation method differs based on the type of property.
For a Let-Out Property (LOP), the GAV is the higher of the Expected Rent (ER) or the Actual Rent Received or Receivable during the year.
Expected Rent (ER) itself is defined as the higher of the Municipal Value (MV) or the Fair Rent (FR) of the property. However, this ER cannot exceed the Standard Rent (SR) if the property is covered under a Rent Control Act. So, ER = Higher of (MV or FR), but limited to SR.
Municipal Value (MV): This is the value determined by the local municipal authorities for levying municipal taxes.
Fair Rent (FR): This is the rent that a similar property in the same or a similar locality can fetch.
Standard Rent (SR): If a property is subject to a Rent Control Act, the SR is the maximum rent that the owner can legally charge.
Actual Rent Received/Receivable: This is the actual amount of rent the owner gets or is entitled to get from the tenant. When calculating GAV for LOP, one must also consider adjustments for vacancy allowance (if the property remained vacant for a part of the year) and unrealised rent. Unrealised rent (rent that the owner could not recover from the tenant) can be deducted from the actual rent if certain conditions under Rule 4 of the Income Tax Rules are met. These conditions include that the tenancy is bona fide, the defaulting tenant has vacated or steps have been taken to compel the tenant to vacate, the defaulting tenant is not occupying any other property of the assessee, and the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless.
For a Self-Occupied Property (SOP), the good news is that the GAV is taken as Nil. This benefit applies for up to two properties an individual owns and uses for their own residence. Therefore, the GAV of self-occupied property is straightforwardly zero for these two properties.
For a Deemed Let-Out Property (DLOP) (i.e., if an owner has more than two SOPs, the third and subsequent properties are treated as DLOP), the GAV is the Expected Rent. The GAV for deemed let out property is calculated similarly to how Expected Rent is determined for an LOP (higher of MV or FR, restricted to SR).
Here's a hypothetical example for GAV calculation of an LOP: Municipal Value (MV): Rs 1,20,000 p.a. Fair Rent (FR): Rs 1,50,000 p.a. Standard Rent (SR): Rs 1,40,000 p.a. Actual Rent Received: Rs 1,60,000 p.a. (assuming no vacancy or unrealised rent)
Higher of MV or FR = Higher of Rs 1,20,000 or Rs 1,50,000 = Rs 1,50,000.
Expected Rent (ER) = Lower of (Result from Step 1) or SR = Lower of Rs 1,50,000 or Rs 1,40,000 = Rs 1,40,000.
GAV = Higher of ER or Actual Rent Received = Higher of Rs 1,40,000 or Rs 1,60,000 = Rs 1,60,000.
Understanding the nuances of expected rent calculation is key to accurate GAV determination.
Step 2: Calculating Net Annual Value (NAV)
The Net Annual Value (NAV) calculation is the next step after determining the Gross Annual Value (GAV). The NAV formula is quite simple: NAV is derived by subtracting the Municipal Taxes paid by the owner from the GAV. So, NAV = GAV - Municipal Taxes Paid by Owner.
Municipal Taxes, which include property tax, sewerage tax, etc., levied by any local authority in respect of the house property, are deductible from the GAV. A critical point for claiming municipal
tax deduction house property is that these taxes must have been actually paid by the owner during the financial year. If the tenant bears the municipal taxes, the owner cannot claim this deduction.
Another important aspect is that the deduction for municipal taxes is available on a 'payment basis'. This means the owner can claim the deduction in the year the taxes are actually paid, irrespective of the year to which these taxes pertain. For instance, if an owner pays outstanding municipal taxes for a previous year in the current financial year, they can claim that amount as a deduction in the current year. This applies even if the GAV is for a let-out property or a deemed let-out property. For Self-Occupied Properties (up to two), since the GAV is Nil, the concept of deducting municipal taxes to arrive at NAV doesn't effectively apply as NAV will also be Nil.
Step 3: Claiming Deductions under Section 24
Claiming deductions under section 24 of the Income Tax Act is a vital part of computing the final taxable income from house property. This section 24 income tax act allows specific deductions from the Net Annual Value (NAV) that you've just calculated. These house property deductions help significantly in reducing the overall tax liability arising from your property. This section is crucial for reducing your taxable income from house property.
A. Standard Deduction (Section 24(a))
The standard deduction house property is a straightforward deduction allowed under Section 24(a) of the Income Tax Act. This section 24a provides for a flat 30% standard deduction on the Net Annual Value (NAV) for Let-Out Property (LOP) and Deemed Let-Out Property (DLOP).
This deduction is given to cover various expenses like repairs, painting, insurance, etc., related to the property. The best part is that you get this 30% deduction irrespective of the actual amount you spent on these things. So, even if your actual repair expenses were lower, or even nil, you can still claim the full 30% of NAV as a deduction. Conversely, if your expenses were higher, you cannot claim more than this 30%. It's a statutory deduction.
It's important to note that this standard deduction is not available if the NAV is Nil or negative. For Self-Occupied Properties (up to two), since their GAV (and consequently NAV) is Nil, the standard deduction under Section 24(a) is not applicable.
B. Interest on Borrowed Capital (Home Loan) (Section 24(b))
The deduction for interest on home loan deduction section 24b is a significant tax benefit for property owners who have taken a loan for their house. This home loan interest tax benefit under Section 24(b) allows deduction for interest paid or payable on borrowed capital used for the purpose of purchase, construction, repair, renewal, or reconstruction of the property.
The amount of deduction available depends on whether the property is a Let-Out Property (LOP)/Deemed Let-Out Property (DLOP) or a Self-Occupied Property (SOP).
For Let-Out or Deemed Let-Out Property: The actual interest paid or payable on the loan is allowed as a deduction. There is no upper limit for this deduction. So, whatever genuine interest amount you've incurred for the year on the loan for such a property, you can claim it.
For Self-Occupied Property (up to two properties): The deduction for interest is subject to certain limits.
A maximum of Rs. 2 lakh can be claimed if the loan was taken on or after April 1, 1999, for the purchase or construction of the house, AND the purchase or construction is completed within 5 years from the end of the financial year in which the loan was taken.
The deduction is limited to a maximum of Rs. 30,000 if:
The loan was taken before April 1, 1999 (for purchase, construction, repair, renewal, or reconstruction). OR
The loan was taken on or after April 1, 1999, but for the purpose of repair, renewal, or reconstruction of the house. OR
The loan was taken on or after April 1, 1999, for purchase or construction, but the construction/acquisition is not completed within 5 years from the end of the FY in which the loan was taken.
Pre-construction Interest: Many wonder about the pre-construction interest deduction. Interest paid on the loan during the period prior to the financial year in which the construction of the property is completed (or property is acquired) is called pre-construction interest. This accumulated pre-construction interest is allowed as a deduction in five equal annual installments, starting from the year in which the construction is completed or the property is acquired. This is applicable for both LOP/DLOP and SOP (within the overall SOP limits).
It's good to know that not just the interest component, but also processing fees and prepayment charges on the home loan can often be claimed as part of the interest deduction, if the lender categorizes them as such. The loan for this purpose can be taken from banks, Non-Banking Financial Companies (NBFCs), or even from friends or relatives, provided the loan is genuine and properly documented with interest being regularly paid. Always keep your loan statements and interest certificates handy as proof. For a comprehensive guide on home loan tax benefits, it's useful to explore further.
Here’s a summary table for Section 24(b) interest limits:
Property Type | Purpose of Loan | Loan Taken Date | Completion within 5 Yrs (for Purchase/Construction) | Maximum Interest Deduction (p.a.) |
LOP / DLOP | Purchase, Construction, Repair, Renewal, Reconstruction | Any | Not Applicable | Actual Interest (No Limit) |
SOP (Up to 2) | Purchase / Construction | On or after 01-Apr-1999 | Yes | Rs. 2,00,000 |
SOP (Up to 2) | Purchase / Construction | On or after 01-Apr-1999 | No | Rs. 30,000 |
SOP (Up to 2) | Repair / Renewal / Reconstruction | On or after 01-Apr-1999 | Not Applicable | Rs. 30,000 |
SOP (Up to 2) | Purchase, Construction, Repair, Renewal, Reconstruction | Before 01-Apr-1999 | Not Applicable | Rs. 30,000 |
This limit for interest on housing loan sop is very important for taxpayers.
Other Important Deductions & Considerations
Beyond Section 24, there are other deductions that can impact your tax outgo related to house property.
Deduction for Principal Repayment (Section 80C)
The section 80c deduction for home loan principal offers a way to reduce your taxable income further. Under Section 80C of the Income Tax Act, you can claim a deduction for the principal amount repaid on your housing loan. This tax benefit on principal repayment is part of the overall limit of Rs. 1.5 lakh available under Section 80C, which also includes other investments like PPF, EPF, life insurance premiums, etc.
This deduction also covers payments made for stamp duty deduction 80c and registration charges at the time of purchasing the house, but these can be claimed only in the year these expenses are actually paid. There are certain conditions to avail this benefit, such as the property should not be sold within 5 years from the end of the financial year in which you took possession. If you sell it before 5 years, the deduction claimed earlier will be reversed and taxed in the year of sale.
Note: Deduction under Section 80C is generally not available if you opt for the New Tax Regime. (It is crucial to verify the current status for FY 2024-25 as rules can change). You can learn more about Section 80C deductions to understand its full scope. Conditions for claiming principal repayment under 80C:
Loan taken for purchase or construction of a new house property.
Property should not be sold within 5 years of possession.
Deduction is within the overall Rs. 1.5 lakh limit of Section 80C.
Additional Interest Deductions (Section 80EE & 80EEA - If Applicable/Still Relevant)
There have been provisions like section 80ee deduction and section 80eea eligibility that offered an additional interest deduction home loan benefit for first-time homebuyers. These sections were introduced to provide extra relief over and above the Section 24(b) deduction for interest on home loans, specifically for affordable housing.
Section 80EE was applicable for loans sanctioned between April 1, 2016, and March 31, 2017, offering an additional deduction of up to Rs. 50,000. Section 80EEA was introduced for loans taken between April 1, 2019, and March 31, 2022 (for affordable housing by individuals not eligible under Section 80EE), with a deduction limit of up to Rs. 1,50,000.
It is very important to check the applicability of these sections for your specific loan sanction period. These sections typically have conditions related to the loan amount, property value, and the individual being a first-time homebuyer. Also, these deductions (80EE, 80EEA) are generally not available if you opt for the New Tax Regime. As these sections were for specific periods, they might be phased out for new loans sanctioned after their respective cutoff dates.
Calculation Examples: Income from House Property
To make the income from house property calculation example clear, let's look at a few scenarios. These examples are for illustration. Your actuals may vary.
Example 1: Self-Occupied Property (SOP) with a home loan Mr. Arjun owns one house, which he uses for his residence.
Loan taken on: July 1, 2020 (after April 1, 1999)
Purpose of loan: Construction of house
Construction completed: March 15, 2022 (within 5 years)
Municipal taxes paid by Mr. Arjun: Rs. 10,000
Interest paid on home loan during FY 2024-25: Rs. 2,20,000
Particulars | Amount (Rs.) |
Gross Annual Value (GAV) (SOP is Nil) | Nil |
Less: Municipal Taxes Paid | Nil |
Net Annual Value (NAV) | Nil |
Less: Deductions under Section 24 |
|
a) Standard Deduction (30% of Nil NAV) | Nil |
b) Interest on Home Loan (Max Rs. 2,00,000 for SOP) | (2,00,000) |
Income (Loss) from House Property | (2,00,000) |
Mr. Arjun will have a loss from house property of Rs. 2,00,000, which he can set off against other income.
Example 2: Let-Out Property (LOP) Ms. Priya lets out her property.
Municipal Value (MV): Rs. 90,000 p.a.
Fair Rent (FR): Rs. 1,00,000 p.a.
Standard Rent (SR): Rs. 95,000 p.a.
Actual Rent Received: Rs. 8,000 per month (Rs. 96,000 p.a.)
Property vacant for: 1 month (Rent for 1 month = Rs. 8,000)
Unrealised Rent (conditions of Rule 4 met): Rs. 0
Municipal Taxes paid by Ms. Priya: Rs. 8,000
Interest paid on housing loan for this property: Rs. 30,000
Calculation of GAV:
Reasonable Expected Rent (RER) = Higher of MV (Rs. 90,000) or FR (Rs. 1,00,000), but restricted to SR (Rs. 95,000) => Higher of (90k, 100k) is 100k. Restricted to 95k => RER = Rs. 95,000.
Actual Rent Received/Receivable for the let-out period = Rs. 8,000 * 11 months = Rs. 88,000.
GAV is usually higher of RER or Actual Rent. However, if actual rent is lower due to vacancy, then actual rent received is GAV. Here, Rs. 88,000 (Actual Rent) is lower than RER (Rs. 95,000) due to vacancy. So, GAV = Rs. 88,000.
Particulars | Amount (Rs.) |
Gross Annual Value (GAV) | 88,000 |
Less: Municipal Taxes Paid | (8,000) |
Net Annual Value (NAV) | 80,000 |
Less: Deductions under Section 24 |
|
a) Standard Deduction (30% of Rs. 80,000 NAV) | (24,000) |
b) Interest on Home Loan | (30,000) |
Income from House Property | 26,000 |
Example 3: More than two properties (illustrating DLOP) Mr. Kumar owns three houses, all for self-occupation.
House 1 (SOP): GAV = Nil, Interest on loan = Rs. 1,50,000
House 2 (SOP): GAV = Nil, Interest on loan = Rs. 70,000
House 3 (will be Deemed Let-Out Property - DLOP)
Expected Rent (ER) for House 3: Rs. 60,000 p.a.
Municipal Taxes paid for House 3: Rs. 5,000
Interest on loan for House 3: Rs. 20,000
Calculation for Mr. Kumar:
House 1 (SOP): Loss = (Rs. 1,50,000) (Interest deduction capped at Rs. 2 lakh)
House 2 (SOP): Loss = (Rs. 70,000) (Total interest for SOPs capped at Rs. 2 lakh combined if chosen that way, or individual property limits apply. Assuming separate limits, this is fine. If combined, total interest is Rs 2.2L, so capped at Rs 2L.) For simplicity here, let's assume the total interest for the two chosen SOPs does not exceed the Rs. 2 lakh total if that specific interpretation is used, or that Rs. 2L is per property up to two SOPs. The more common understanding is up to Rs. 2 Lakhs for each of the (up to) two SOPs, subject to conditions.
House 3 (DLOP):
GAV = ER = Rs. 60,000
NAV = GAV - Municipal Taxes = Rs. 60,000 - Rs. 5,000 = Rs. 55,000
Std. Deduction = 30% of Rs. 55,000 = Rs. 16,500
Interest on Loan = Rs. 20,000
Income from House 3 = Rs. 55,000 - Rs. 16,500 - Rs. 20,000 = Rs. 18,500
Total Income from House Property for Mr. Kumar: Loss from H1 (1,50,000) + Loss from H2 (70,000) + Income from H3 18,500 = Loss of Rs. (2,20,000 - 18,500) = Loss of Rs. (2,01,500). This shows how to calculate tax on rental income with example even for notional rent. For personalized tax advice, feel free to get personalized tax advice.
Treatment of Loss from House Property
It's quite possible for the calculation of Loss from House Property to result in a negative figure, which is termed as a loss. This often happens with Self-Occupied Properties where interest on a home loan creates a loss (since GAV is Nil). For Let-Out or Deemed Let-Out Properties, a loss can occur if the deductions (standard deduction and interest on loan) are more than the Net Annual Value (NAV).
Set-off of Loss: The income tax laws allow you to set-off of Loss from house property against income from other heads in the same assessment year. This means if you have a loss from your house property, you can reduce your taxable income from salary, business income (non-speculative), capital gains, or income from other sources by adjusting this loss. However, there's a limit: the maximum house property loss against salary or any other income head that can be set off in a single year is Rs. 2 lakh.
Carry Forward of Loss: If the loss from house property cannot be fully set off in the same assessment year (either because you don't have enough income under other heads, or the loss exceeds Rs. 2 lakh), the unadjusted carry forward house property loss can be moved to subsequent assessment years. This loss can be carried forward for up to 8 assessment years immediately following the assessment year in which the loss was incurred. Importantly, in the subsequent years, this brought-forward loss can ONLY be set off against 'Income from House Property'. You cannot set it off against salary or other income in future years. Accurate calculation and reporting of losses are crucial for future tax benefits, so understanding set-off and carry forward of losses is beneficial.
Income from House Property: New Tax Regime vs. Old Tax Regime
Choosing between the New Tax Regime and the Old Tax Regime has significant implications for how your income from house property is taxed, especially concerning deductions. The treatment of house property deduction new regime vs old regime is a key area of difference. This information is for FY 2024-25 (AY 2025-26).
Old Tax Regime: Under the Old Tax Regime, taxpayers can claim most of the discussed deductions related to house property. This includes:
Standard Deduction under Section 24(a) (30% of NAV for LOP/DLOP).
Interest on Home Loan under Section 24(b) (up to Rs. 2 lakh for SOP, actual for LOP/DLOP, subject to conditions).
Deduction for Principal Repayment under Section 80C (within the Rs. 1.5 lakh limit).
Deductions under Section 80EE/80EEA (if applicable).
New Tax Regime (under Section 115BAC): The New Tax Regime offers lower tax rates but disallows many common deductions and exemptions. For income from house property:
Standard Deduction (Section 24(a)): This is generally allowed for LOP/DLOP even under the New Tax Regime.
Interest on Home Loan (Section 24(b)):
For Let-Out Property (LOP) or Deemed Let-Out Property (DLOP): Interest on borrowed capital is allowed as a deduction.
For Self-Occupied Property (SOP): This is a crucial point. Generally, the deduction for interest on housing loan for a self-occupied property (up to Rs. 2 lakh) is not allowed under the New Tax Regime. However, loss from house property (arising from LOP interest) cannot be set off against other heads of income under new regime. It can only be set-off against other income from house property.
Deductions under Section 80C (Principal Repayment), Section 80EE, Section 80EEA: These deductions are generally not available under the New Tax Regime.
Here's a comparison:
Feature | Old Tax Regime | New Tax Regime (FY 2024-25) |
Standard Deduction (Sec 24(a)) - LOP/DLOP | Allowed | Allowed |
Interest on Home Loan (Sec 24(b)) - LOP/DLOP | Allowed (Actual Interest) | Allowed |
Interest on Home Loan (Sec 24(b)) - SOP | Allowed (Up to Rs. 2 Lakh/Rs. 30,000) | Generally Not Allowed |
Set-off of HP Loss against other income | Allowed (Up to Rs. 2 Lakh) | Not Allowed |
Carry forward of HP Loss | Allowed (8 years, against HP income only) | Allowed (8 years, against HP income only, if loss arises from LOP/DLOP after allowed deductions) |
Principal Repayment (Sec 80C) | Allowed (within 80C limit) | Not Allowed |
Deductions under Sec 80EE/80EEA | Allowed (if applicable) | Not Allowed |
Crucial Note: Rules for the New Tax Regime, especially regarding section 24 in new tax regime, can be complex and subject to change. The information here is for FY 2024-25 (AY 2025-26). It is highly advisable to consult a Taxbuddy expert or refer to official CBDT clarifications. Using a New vs. Old Tax Regime Calculator can help in making an informed decision.
Special Cases and Considerations
Taxation of income from house property can have some specific scenarios.
Co-owned Property
When it comes to tax on co-owned property, the income tax rules are quite clear. If a property is jointly owned by two or more persons, the income (or loss) from such property is calculated for each co-owner separately. This calculation is based on their definite and ascertainable share in the property.
Each co-owner then includes their share of income (or loss) from the house property in their individual income tax return. Similarly, each co-owner can claim deductions under Section 24 (standard deduction and interest on home loan) and Section 80C (for principal repayment, if applicable and conditions met) proportionate to their share in the property and the loan, provided they are also co-borrowers. For example, if two individuals co-own a property equally (50:50) and are co-borrowers for a home loan, each can claim 50% of the interest paid as a deduction under Section 24(b) (subject to individual limits for SOP if it's self-occupied by them). It's important to ensure the property share is clearly defined in ownership documents to facilitate this deduction for co-owners and avoid any ambiguity in joint ownership house property tax.
Unrealised Rent and Arrears of Rent Received
The unrealised rent treatment income tax refers to situations where a landlord could not realise rent from a tenant. Under Rule 4 of the Income Tax Rules, unrealised rent can be deducted from the actual rent received or receivable while calculating the Gross Annual Value (GAV), provided specific conditions are met (like the defaulting tenant has vacated, and steps for recovery have been taken or would be futile).
If this previously deducted unrealised rent is subsequently recovered, or if any arrears of rent received taxable amount (rent pertaining to earlier years but received in the current year) comes in, these amounts are taxable in the year of receipt. As per Section 25A and Section 25B of the Income Tax Act, such recovered unrealised rent or arrears of rent are deemed to be income from house property in the financial year they are received (or realised). A standard deduction of 30% is allowed from this amount, irrespective of actual expenses. So, 70% of the recovered sum becomes taxable under 'Income from House Property'. This is a key aspect of section 25a income tax provisions.
Income from House Property Situated Abroad
The taxability of tax on foreign property income India depends on the residential status of the owner in India.
Resident and Ordinarily Resident (ROR): For an ROR, global income is taxable in India. Therefore, income from a house property situated outside India is taxable in India, just like income from a property in India.
Non-Resident (NR) and Resident but Not Ordinarily Resident (RNOR): For NRs and RNORs, income from a property situated abroad is generally not taxable in India. However, it becomes taxable in India if such rental income is received in India.
It's also important to consider DTAA benefits property income. India has Double Taxation Avoidance Agreements (DTAAs) with many countries. These agreements provide rules to prevent the same income from being taxed in both countries. If the income from property abroad is taxed in the foreign country, the owner might be able to claim tax relief in India as per the DTAA. DTAA provisions can be complex; it is advisable to seek expert advice, perhaps through NRI taxation services.
TDS on Rental Income (Section 194-I & 194-IB)
Provisions for TDS on Rent (Tax Deducted at Source) are important for both tenants and landlords to be aware of. The Income Tax Act has specific sections governing this:
Section 194-I: This section mandates TDS by any person (other than an individual or HUF whose books are not required to be audited under tax laws in the preceding financial year) responsible for paying rent, if the aggregate rent paid or likely to be paid during the financial year exceeds Rs. 2,40,000. [This threshold is for rent of any land or building or both]. The TDS rate is typically 10% for rent of land, building (including factory building), or furniture & fittings. The tds on rent section 194i makes the payer responsible.
Section 194-IB: This section applies to individuals or Hindu Undivided Families (HUFs) who are not covered under Section 194-I (i.e., not liable for tax audit). If such an individual or HUF pays rent to a resident landlord exceeding Rs. 50,000 per month (or part of a month), they must deduct TDS at 5%. The tds on rent section 194ib was introduced to cover high rental payments by individuals/HUFs.
The tenant deducting tax is responsible for depositing the TDS with the government and issuing a TDS certificate to the landlord – Form 16A in case of Section 194-I and Form 16C rent in case of Section 194-IB. Landlords should ensure their tenant complies with TDS provisions if applicable, as the TDS amount can be claimed as credit against their total tax liability. Always check the current limit for tds on rent as it can be subject to changes. For assistance, one can consider TDS return filing services.
Here's a comparison:
Feature | Section 194-I | Section 194-IB |
Payer | Any person (except individual/HUF not under audit) | Individuals/HUFs not covered by Sec 194-I |
Rent Threshold | > Rs. 2,40,000 per annum | > Rs. 50,000 per month |
TDS Rate | 10% (for P&M, Land & Bldg, Furniture & Fittings) | 5% |
TDS Certificate | Form 16A | Form 16C |
Exemptions: When Income from House Property is Not Taxed
There are certain specific situations where exempted income from house property means it is not taxed under this head, leading to tax free house property income. These include:
Income from a Farmhouse: Income from a building owned and occupied by a cultivator, situated on or in the immediate vicinity of agricultural land, and used as a dwelling house, storehouse, or outbuilding connected with such agricultural land is exempt under Section 10(1), provided the land is assessed to land revenue or is situated within specified urban limits but is still agricultural.
One Palace of an Ex-Ruler: The annual value of one palace in the occupation of an ex-ruler is exempt from tax.
Property Held for Charitable Purposes: Income from property held under a trust or other legal obligation for religious or charitable purposes is exempt under Section 11, subject to conditions.
Property Used for Own Business/Profession: As mentioned earlier, if the owner uses the property for their own business or profession, the income or notional income is not taxed under 'Income from House Property'. It is dealt with under 'Profits and Gains of Business or Profession'.
Property Income of a Local Authority: Income from house property of a local authority is exempt under Section 10(20).
Property Income of a Registered Trade Union/Political Party: Income from house property of a registered trade union (Section 10(24)) or a political party (Section 13A) may be exempt if conditions are met.
Self-Occupied Property (up to two): While not an "exemption" in the same vein, the GAV of up to two self-occupied properties being taken as Nil effectively means no income is taxed from them (though interest deductions can lead to a loss, which is a benefit).
Frequently Asked Questions (FAQs)
Here are answers to some FAQs income from house property and tax on rental income questions:
Can I claim HRA and home loan benefits simultaneously?
Yes, you can claim both House Rent Allowance (HRA) benefits (if you live in a rented house) and tax benefits on a home loan (for a property you own, which might be in a different city or let out) simultaneously, provided the conditions for both are met. For example, if you own a house in City A (on which you have a loan) but work and live in a rented apartment in City B, you can claim both.
Is rental income from subletting taxed under 'Income from House Property'?
No. Rental income from subletting (where a tenant further rents out the property to a sub-tenant) is taxed under 'Income from Other Sources' or 'Profits and Gains of Business or Profession', not under 'Income from House Property', because the person subletting is not the owner of the property.
What if municipal taxes are paid by the tenant?
If municipal taxes are paid by the tenant, the owner cannot claim a deduction for these taxes from the Gross Annual Value. The deduction is allowed only if the taxes are borne and actually paid by the owner.
Is interest on a loan from friends/relatives deductible?
Yes, interest paid on a loan taken from friends or relatives for the purchase, construction, repair, renewal, or reconstruction of house property is deductible under Section 24(b), provided the loan is genuine, properly documented (e.g., a loan agreement), and interest is actually paid or payable.
What is the maximum loss from house property that can be set off in a year?
The maximum loss from house property that can be set off against income from other heads (like salary, business income, etc.) in the same assessment year is Rs. 2 lakh. Any unabsorbed loss can be carried forward.
How many properties can I claim as self-occupied?
You can claim up to two properties as Self-Occupied Property (SOP) for which the Gross Annual Value will be taken as Nil.
Do I need to pay tax if my property is vacant?
If you own more than two properties and one of them is vacant (and you are not able to claim it as one of your two SOPs), it will be treated as a Deemed Let-Out Property (DLOP). In such a case, you will have to pay tax on its notional rent (Expected Rent). If one of your up to two SOPs is vacant, its GAV is still Nil.
What documents are needed to claim deductions from house property?
Key documents include:
Loan statements and interest certificates from the lender (Form 1098 from US context, similar certificate from Indian lenders).
Municipal tax payment receipts.
Rent agreements (for LOP).
Possession letter/completion certificate (for claiming pre-construction interest and principal repayment).
Proof of ownership.
Bank statements showing loan repayment.
Is GST applicable on rental income?
Generally, GST is not applicable on rental income from a residential house property let out for residential purposes. However, GST is applicable if a residential property is let out for commercial purposes, or if a commercial property is let out, provided the landlord's aggregate turnover exceeds the GST registration threshold.
What happens if I sell the house for which I claimed 80C benefits within 5 years?
If you sell a house property within 5 years from the end of the financial year in which you took possession, and you had claimed deduction for principal repayment under Section 80C, then the deduction previously claimed will be deemed as your income in the year of sale and taxed accordingly.
How is income from a partly let-out and partly self-occupied property treated?
If a property is partly let-out and partly self-occupied, the income is calculated separately for each portion. The GAV, municipal taxes, and deductions are apportioned based on the area or usage. For the self-occupied portion (if it qualifies as one of the two SOPs), GAV is Nil. For the let-out portion, income is calculated as per LOP rules.
Are repairs and maintenance expenses deductible separately if I claim standard deduction?
No. The 30% standard deduction under Section 24(a) for let-out or deemed let-out properties is a flat deduction meant to cover all expenses like repairs, maintenance, insurance, etc. You cannot claim any separate deduction for these actual expenses if you are claiming the standard deduction.
What is deemed ownership in house property?
Deemed ownership, under Section 27 of the Income Tax Act, refers to situations where a person may not be the legal owner but is treated as the owner for tax purposes under 'Income from House Property'. Examples include transfer to a spouse (not in connection with an agreement to live apart) or a minor child (not being a married daughter) without adequate consideration, holder of an impartible estate, etc.
How does the new tax regime affect the calculation of income from house property?
The new tax regime generally disallows the deduction for interest on a home loan for a self-occupied property under Section 24(b) and deductions under Section 80C for principal repayment. However, interest on a loan for a let-out property and the 30% standard deduction for LOP/DLOP are typically still allowed. Loss from house property cannot be set off against other income heads under the new regime.
When is pre-construction interest fully claimed?
Pre-construction interest is claimed in five equal annual installments starting from the financial year in which the construction of the property is completed or the property is acquired. So, it takes 5 years from the year of completion/acquisition to fully claim the accumulated pre-construction interest.
Conclusion: Optimize Your Tax on House Property Income with Taxbuddy
Understanding income from house property is essential for every property owner in India. Accurately calculating this income, meticulously claiming all eligible deductions such as those under Section 24 and Section 80C (where applicable), and making an informed choice between the old and new tax regimes are key to effective tax optimization. Tax laws concerning property can appear labyrinthine.
To save tax on house property income and ensure compliance, leveraging expert assistance can be invaluable. Taxbuddy provides services for accurate tax filing, strategic tax planning, and offers expert tax advice house property. Our team is here to help you navigate these complexities. File your taxes with Taxbuddy and let us help you optimize your taxes with our experts. Last Updated: May 2025
Related Posts
See AllMany salaried employees wonder where they can download Form 16. Form 16 is a crucial TDS (Tax Deducted at Source) certificate for salary...
As per the Income Tax Act, there are 5 heads of income under which a taxpayer's income can be classified: I ncome from Salaries , Income...
Section 142(2A) audit is an important procedural step that the Income Tax Department can initiate to verify the accuracy of a taxpayer’s...
Comments