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A Guide on House Property Income Tax Savings

Rental income from a property (Building/Flat) of which the taxpayer is owner/Deemed owner is charged to tax under the "Income from house property". If you are a tax payer and had a house/flat that is either rented out or kept vacant you need to know about income from house property for income tax calculation purposes.

1. Income and deductions under Self Occupied Property.


Definition of Self-occupied property

A self-occupied property means a property which is occupied throughout the year by the taxpayer for his residence.

Income

Assessee is eligible to claim any one property as Self-occupied if it is used for own or family's residential purpose. In that case, the Net Annual Value will be nil. Such a benefit can only be claimed for one house property.

Deductions

Assessee will still be entitled to claim Interest on borrowed capital as deduction under section 24. In the case of a self-occupied house deduction on account of interest on borrowed capital is subject to a maximum limit of ₹2,00,000 (if loan is taken on or after 1 April 1999 and construction is completed within 3 years) ₹30,000 (if the loan is taken before 1 April 1999).

Computation

Income chargeable to tax under the head "Income from house property" in case of a self-occupied property is computed in following manner :

ParticularsAmount
Gross annual valueNil
Less:- Municipal taxes paid during the year Nil
Net Annual Value (NAV)Nil
Less:- Deduction under section 24-
Deduction under section 24(a) @ 30% of NAV-
Deduction under section 24(b) on account of interest on borrowed capitalXXXX
Income from house property XXXX

From the above computation it can be observed that “Income from house property” in the case of a self occupied property will be either Nil or negative(loss), and can’t claim municipal tax, standard deduction except interest on borrowed capital.

2. Income and deductions under Let Out Property.


Definition of Let Out Property

A property not occupied by the owner for his residence can be treated as a let out property.

Income

Rent received from a let-out property chargeable to tax under the head “Income from house property”.

Rent received by a tenant from sub-letting cannot be charged to tax under the head “Income from house property”. Such income is taxable under the head “Income from other sources” or profits and gains from business or profession, as the case may be.

Deductions

  1. Standard Deduction

    Standard Deduction is 30% of the Net Annual Value calculated above. This 30% deduction is allowed even when your actual expenditure on the property is higher or lower.

  2. Regular Deduction

    Assessee will still be entitled to claim Interest on borrowed capital as deduction under section 24. In the case of a self-occupied house deduction on account of interest on borrowed capital is subject to a maximum limit of ₹2,00,000.

Computation

Income chargeable to tax under the head “Income from house property” in the case of a let-out property is computed in the following manner:

ParticularsAmount
Gross annual valueXXXX
Less:- Municipal taxes paid during the year XXXX
Net Annual Value (NAV)XXXX
Less:- Deduction under section 24-
Deduction under section 24(a) @ 30% of NAVXXXX
Deduction under section 24(b) on account of interest on borrowed capitalXXXX
Income from house property XXXX

From the above computation it can be observed that “Income from house property” in the case of a let out property will be either positive(income) or negative(loss), and can claim municipal tax, standard deduction and interest on borrowed capital.

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