Basics of House Property
A house property under the Income Tax Act includes any building or land appurtenant thereto. It can be used for residential, commercial, or business purposes. The Act does not differentiate between residential and commercial properties for tax purposes; all types are taxed under the head ‘Income from House Property’ in the income tax return.
Self-Occupied House Property
A self-occupied house property is one that is used for one’s own residential purposes and not rented out. This can include a house occupied by the taxpayer’s family, including parents, spouse, and children. Even if the property is vacant, it is treated as self-occupied for tax purposes.
Previous vs Current Rules:
- Before FY 2019-20: Taxpayers could claim only one house property as self-occupied, and any additional properties were considered as deemed to be let out.
- From FY 2019-20 onwards: Taxpayers can declare up to two properties as self-occupied, and any additional properties are deemed to be let out.
Tax Treatment:
- Gross Annual Value (GAV): For self-occupied properties, GAV is considered as nil. No rental income is considered.
- Deductions: Deduction on interest paid on home loans up to Rs. 2 lakh per year under Section 24(b) of the Income Tax Act. No deduction is allowed for municipal taxes or standard deduction because GAV is nil.
Let Out House Property
A let out house property is one that is rented out either fully or partially during the year. Rental income received from such properties is taxed under the head ‘Income from House Property’.
Steps to Calculate Income from Let Out Property:
- Gross Annual Value (GAV): The actual rent received or receivable for the property.
- Property Tax: Taxes paid to local authorities can be deducted from the GAV.
- Net Annual Value (NAV): NAV is derived by deducting property tax from the GAV.
- Standard Deduction: 30% of the NAV can be claimed as a standard deduction to cover repairs, maintenance, etc.
- Interest on Home Loan: Deduction is available on interest paid on home loans up to Rs. 2 lakh per year under Section 24(b).
Inherited Property
An inherited property follows the same tax rules based on its usage (self-occupied or let out) as discussed above. The tax treatment depends on how the inheritor uses the property after inheritance.
Loss from House Property
If the allowable deductions (like interest on home loan and standard deduction) exceed the rental income or NAV, it results in a loss from house property. This loss can be adjusted against income from other heads (like salary, business income, etc.) in the same year. Losses not fully adjusted in the current year can be carried forward to set off against house property income for up to 8 subsequent years.
Key Considerations
- Interest on Home Loan: Interest paid on home loans is a significant deduction available under Section 24(b). The limit is Rs. 2 lakh per year for self-occupied or let out properties.
- Municipal Taxes: These are deductible from GAV in both self-occupied and let out properties.
- Standard Deduction: A flat 30% deduction on NAV is allowed for repairs, maintenance, etc., for let out properties.
Understanding these intricacies helps taxpayers optimize their tax liabilities related to income from house property by leveraging available deductions and exemptions under the Income Tax Act.