Complete Guide on Income from House Property
House Property & Taxes
House is one of the most essential properties that everyone seeks in one’s life. However, big or small, every person wishes to have own home where they can live with peace, love and prosperity with their loved ones. A place that they can call their own and place that gives them maximum happiness and comfort. But, unless one buys one house, rarely one the liabilities associated with it. Houses come with their own taxes and duties that the owner must bear on a yearly basis. With growing number of taxes in almost every consumable item, it has become natural for house owners to look for reliefs in house property taxes, the burden of which is too heavy. Here we will discuss how to save tax on home loan interest and how to claim ownership of your home in your income tax returns.
The Fundamentals of House Property
In India, every building or structure of brick and mortar along with the land attached to such buildings used for residential, official or commercial purpose comes under house property. The income tax department of India does not see these properties as separate, whether you use it for living purpose or for office or for shop. There is no difference between residential and commercial property. All such properties are taxed under ‘income from house property’ in the income tax return files. The owner of these property are the legal owners according to income tax department and not anybody or anyone can exercise the rights of becoming the owner. Also, nobody can take act one behalf of the owner of the property while filing for income tax on house property.
However, when a house property is used for commercial or business purpose or carrying out official freelancing work, the tax is deducted under the head of ‘income from business and profession’. Furthermore, whatever expensed are incurred for repair and maintenance are legalized as business spending.
What are the types of House Property According to the Income Tax Department of India?
-
House Property that is Self-Occupied
This is a property that is occupied by the owner and its family (parents, spouse, children) for residential purpose. It does not matter whether the owner himself/herself lives there or not. Even if his/her family lives in that property it is counted as self-occupied unless there is any legal dispute between them. This is solely for residential purpose.
Also, a house that is kept vacant is also considered self-occupied by the income tax department, if not given on rent by the owner.
If a person owns more than one self-occupied house property, then only one property is considered as self-occupied and rest are treated as let out. Now, the taxpayer as every right to make choice which one he wants to be treated as self-occupied.
-
House Property that is Let Out or Rented Out
Any house property that is rented out partially or entirely for a year or part of a year is treated as a let out or rented out house property by the income tax department.
-
House Property that is Inherited
A property that is inherited from parents or grandparents or guardians, etc. is an inherited house property. It can be self-occupied or even let out, whatever be the circumstance based on that.
Calculating Income from House Property
Below examples will help you understand how one can compute their income from a house property:
| Income of house property | Figures in Rs. |
| Total annual rental income value | 15,000 x 12 = 1.8 lakh |
| Less: Municipal taxes for the financial year | – 10,000 |
| Net annual value (NAV) | 1.7 lakh |
| Less: Deductions under Section 24 | |
| Standard deduction (30% of NAV) | 1.7 lakh – 51,000 = 1.19 lakh |
| Interest on borrowed capital (if any) | 1 lakh |
| Income from house property | 19,000 |
The above calculation is very simple and shows what aspects one need to consider while calculating income from house property. It is based on the rent out property. Even if you have not rented out your property, you can make calculation follow the market cost of your house if given on rent. It is ideal to give your vacant property on rent if not self-occupied. Anyhow you will have to pay wealth tax on the property which are left vacant unless they are rented out.
Tax Deduction on Home Loans
Are You Eligible to Claim Deduction on Home Loan?
How Are Joint Owners Benefitted on Home Loans?
If you are a joint owner and also a co-borrower of a self-occupied home property, then you too can claim deduction up to Rs. 2 lakhs each on home loan interests. Principal repayment deduction includes a registration charges under Section 80C within the limit of 1,5 lakhs and stamp duty for each of the joint owners. Whatever ownership share you have in the property joint owners can claim just in the same ratio for the deductions too.
However, you may not be qualified for the tax benefits if you are not an owner in the property even if you have jointly taken the loan for the property. For example, if property is owned by parents and both parents and children take loan for the property, which is repaid by their child. But if the property is not owned by the child, he/she will not be able to take tax benefits from it even though the child repays the loan. So, here the child who has though jointly taken loan for the property but is not mentioned as co-owner in the certificate then the child will not be qualified for the home loan tax benefits.
So, what you need to do to claim tax benefits on your property? You will not only be required to become a co-borrower but also co-owner too in the property for which you wish to claim tax benefits on home loan.
Every co-owner can then claim up to Rs 1.5 lakhs deduction towards repayment of principal under section 80C, which is within the limit of Rs 1.5 lakhs of Section 80C. Thus, you will be eligible to take larger tax benefit on the interest paid on your home loan,
One point that you need to know is you can claim tax benefits on both the principal repayment and deduction on home loan interest only after the construction of the house property is complete, according to the Section 80C.
Know Whether You Are Eligible for both HRA and Deduction on Home Loan?
There are many cases where people have their own house property, yet for some unavoidable reason are forced to live in rented accommodations. Might be due to their proximity to office or proximity of their kids’ schools or some very personal reason. Let’s understand this with an example.
First Case:
You live in a rented accommodation and your own house is vacant.
You own a house property in Delhi, still you live in a rented accommodation in Faridabad for some personal reason. May be your office is too far from your own house property or may be your kids’ school is very far. In such cases you prefer to move into a rented accommodation to save your time, money and energy on travel. You house is lying vacant as once in a while you visit there and spend time too. You are also paying interest on the loan on your house.
What will you be eligible for?
Second Case:
You live in a rented accommodation, and you have also rented out your own house property.
You live in rented house in Pune due to your job purpose. You have also bought a house in Delhi, which you have rented out. As you have no plans to come back to Delhi in the next few years.
What will you be eligible for?
Amendment in 2017 Budget Was Significant
A significant amendment was done in 2017 budget when all set of losses were limited to Rs. 2 lakhs. Before the financial years 2017-18, there was no limit set off under the head house property against other heads of income. Though this amendment will not affect the taxpayers with their self-occupied property but it has affected those taxpayers who rent out their properties. However, there is no restriction on the deduction claim of home loan interest amount under Section 24 for a let out house property, but the losses that might emerge on interest repayment account is restricted only to Rs 2 lakhs.
The below table can help you understand the impact of the amendment done in 2017 Budget:
| Particulars | AY 2017-18 | AY 2018-19 |
| Salary income | 10,00,000 | 10,00,000 |
| Income from other sources (Interest income) | 4,00,000 | 4,00,000 |
| Income from house property (*) | (4,40,000) | (2,00,000) |
| Gross Total Income | 9,60,000 | 12,00,000 |
| Deductions | 2,00,000 | 2,00,000 |
| Taxable income | 7,60,000 | 10,00,000 |
| Tax on the above | 77,000 | 1,12,500 |
| Additional tax outgo excluding cess in AY 2018-19 on account of the amendment | 35,500 |
Workings for Income from House Property
| Particulars | AY 2017-18 | AY 2018-19 |
| Property A | ||
| Annual Value | Nil | Nil |
| (-) Interest on housing loan restricted to | 2,00,000 | 2,00,000 |
| Loss from House Property(A) | (2,00,000) | (2,00,000) |
| Property B | ||
| Net income from House Property after all deductions (B) | 60,000 | 60,000 |
| Property C | ||
| Annual Value | 5,00,000 | 5,00,000 |
| Less : Standard Deduction | 1,50,000 | 1,50,000 |
| Less : Interest on loan | 6,50,000 | 6,50,000 |
| Loss from House Property (C) | (3,00,000) | (3,00,000) |
| Total income from house property (A+B+C) | (4,40,000) | Restricted to (2,00,000). Balance loss of Rs 2.4 lakhs can be carried forward for the next 8 AYs |
The above discussion might help your claim your tax benefits on home loan interests. Just in case you find all the calculations and evaluations very complicated, you prefer to hire a home loan tax benefits professional who can help you understand the basics and also help you in making the procedures easier for you too. Whether you are a fight time buyer or a second time buyer, it is always better to take advice of qualified professionals who are well updated about the amendments and current rules and policies of the Government. It can help you from major set-backs and losses. Home loan tax procedures are very complicated. If you have slightest of confusion, prefer to hire and take advice from better qualified experts.
