The Income Tax Act has divided the income received by an individual in various heads for simplification of tax computation. One of these heads is “Income from House property”. The income earned by the ownership of a property is said to be Income from House property. If a taxpayer owns a house property and rents it, the rent received from that property is taxable.
Your house, building, office, or shop can be termed as house property. All the properties are taxable be it commercial or residential. If the property is used for residential purpose it is taxed under income from house property. On the other hand if the property is used for business or profession then it is considered as income from business or profession.
The income from house property is added to your gross total income only when it fulfills three basic conditions:
- You are the owner of that property.
- Property consist of any buildings and/or land, Building can be residential house, factory building, shops, offices etc.
- The property is used for any purpose except used by owner for the purpose of running your business or profession.
| Self-Occupied House Property | This is the type of property that is self-owned and used for own residential purposes. This may be occupied by the owner’s family or relative or self. A property that is unoccupied is considered as a self-occupied property for the purpose of income tax. Before the Financial Year 2019-20 if taxpayer owns more than one house property, only one is considered as self-occupied property and rest are assumed to be let out. From 2019-20 onwards two properties are considered as self-occupied properties. |
| Let Out House Property | Any house property that is rented for complete or part of the year is considered as a let out property for income tax purposes. |
- Determining Gross Annual Value (GAV) of the property:
The gross annual value of a self-occupied property is nil, while for a let out property the gross annual value is the rent collected for the same house property.
Reduction of Municipal Taxes (property tax):
When the property tax is paid it is allowed to be deducted from the gross annual value of the property.
Determination of Net Annual Value (NAV):
When the property tax is deducted from the Gross Annual Value it gives the Net Annual Value.
Reduction of standard Deduction @30% of Net Annual Value:
30% of the Net annual Value is allowed to be deducted as a rebate from the NAV under Income Tax Act. Beyond 30% no other expenses such as repair, reconstruction or painting can be claimed as a tax relief under the Act.
Reduction of home loan interest:
The interest paid during the financial year on the house loan availed is to be deducted under section 24 of the Income Tax Act.
Final Determination of Income from House property:
The final value that arrives is your income from house property. This is taxable at the slab rate applicable on your income.
Loss from house property:
If an individual owns a self-occupied property purchased on loan, claiming a deduction on home loan interest will result in loss as the Gross Annual Value of the house property will be nil. This loss can be adjusted in income from other heads.
