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how-to-compute-income-from-house-property

 

How to compute Income from House Property?

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Introduction-
All types of property are taxed under the head “Income from House Property” whether it is a home, shop or office etc. Income from House property will be taxed in the hand of the owner of the said property. Under Income Tax Act properties are of three types as below-
  1. Self Occupied property- It means the property is used by owner for his own residence etc. The Gross Annual Value of said property is taken as Nil under head “Income from House Property”
  2. Let out Property- It means the property is let out during the financial year. The rental income will be taxed under the head “Income from House Property”.
  3. Inherited Property- If you have received inherited property from your father, it will be considered your property and income from said property is taxable in your hand.

If any person has two properties in his name then only one will be consider as self occupied or another will be consider as let out.

Statutory Deduction under Income from House Property-
Statutory deduction is allowed @ 30% of Net Annual Value (Gross Annual Value- Municipal Taxes if paid) on account of Repair & Maintenance. This deduction is allowed to every person who has rental income from any property.

Deduction on account of Interest on Housing Loan under section 24-
If an assessee has taken a loan for Purchase, Construction, Repair or Renovation of any property. The assessee can claim deduction of amount of interest whether paid or not, up to the ceiling prescribed as under on said property during the financial year. An assessee can claim repayment of principal under section 80C. Deduction for Interest on Home Loan (whether property is self occupied or not self occupied under section 24 will serve as one more cherry on the cake.

For self occupied property- The maximum deduction allowed under section 24 is subject to Rs. 2, 00,000
If the property is not acquired/constructed or completed within 5 years from the end of the financial year in which the loan has been taken, the interest allowed in this case reduced to Rs. 30,000 in spite of Rs. 2,00,000.

For not self occupied property- There is no maximum limit has been prescribed under the law to claim deduction. The assessee can claim whole amount of interest as deduction during the year.
In the above case there is no limit of amount of interest as deduction during the financial year if the said property is acquired/constructed or completed after 5 years from the end of the financial year in which the loan has been taken. It will remain same.

Example -1
Mr. X has two residential properties at Chandigarh. Out of which one is used for self residence or another is let out at a rent of Rs. 25,000 per month. They have paid municipal taxes for last two years i.e. 2016-17 & 2017-18 of Rs. 1,800/- for self occupied property and Rs. 2,000/- against let out property during the current period. How to compute taxable income under the head “Income from House Property”?

Answer-
Particulars Self-Occupied Property Let-Out Property
Gross Annual Value 0 3,00,000
Less: Municipal Taxes paid 1,800 2,000
Net Annual Value 0 2,98,000
Less:Statutory Deduction @ 30% of NAV 0 89,400
Taxable Income under the head "Income from House Property" 0 2,08,600

Example-2
Take the above example, if the Interest for the year 2017-18 on self occupied property is Rs. 3,20,000 and Rs. 4,50,000 on let out property. What will be the taxable income under the head “Income from House Property”?

Answer-
Particulars Self-Occupied Property Let-Out Property
As computed above 0 2,08,600
Less: Deduction of Interest on Housing Loan 2,00,000 4,50,000
Loss under "Income from House Property" -2,00,000 -2,41,400
*Deduction is available to the extent of Rs. 2,00,000 under self occupied property.
**There is no limit of deduction of interest under let out property.

Set of Losses under “Income from House Property” From financial year 2017-18 on wards loss of maximum of Rs. 2,00,000 is allowed to be set off with Income from other heads. The amount which is not set off shall be carried forward to next eight years adjusted under the same head. Earlier there was no restriction.

Example-3
Take the above figures, if Mr. X has salary income of Rs. 5,00,000 and Income from other sources Rs. 3,00,000. What will be the taxable income for the year 2017-18?

Answer-
Particulars Amount (Rs.)
Income from Salary 5,00,000
Income from Other Sources 3,00,000
Income from House Property -2,00,000*
Gross Total Income 6,00,000
Less: Deduction under Section 80C 1,50,000
Total Taxable Income 4,50,000
*Total losses for the year financial year 2017-18, under the head of “Income from House Property is Rs. -4,41,400, However, from financial year 2017-18, such set off of losses has been restricted to Rs 2 lakh from income of other heads in a financial year and balance amount is carry forward to next eight assessment years and adjusted under the same head.

Pre-construction Interest
Deduction on pre-construction interest is allowed when you have taken a loan for purchase or construction of a house property. However, if the loan is taken for repairs or reconstruction then deduction is not allowed. The deduction for this interest is allowed in 5 equal installments starting from the year in which the house is purchased or the construction is completed. Though pre-construction interest is allowed to be claimed as tax deducted in 5 equal yearly installments, which can be claimed beginning the year in which the construction of property is completed, the total amount that can be claimed in a year is subject to a threshold of Rs 2,00,000 in case of a self-occupied house property.

Tax Benefits on Home Loans for Joint Owners The joint owners, who are also co-borrowers of a self-occupied house property, can claim a deduction on interest on the home loan up to Rs 2 lakhs each. And deduction on principal repayments, including a deduction for stamp duty and registration charges under Section 80C within the overall limit of Rs. 1.5 lakhs for each of the joint owners. Therefore, to claim the tax benefits on the property:
  1. You must be a co-owner in the property.
  2. You must be a co-borrower for the loan.

Section 80EE- Additional Deduction for Interest on Home Loan (First time purchase)-This is good option that can be availed by first time buyers.
  • This deduction would be allowed only if the value of the property purchased is less than Rs.50 lakhs and the value of loan taken is less than Rs. 35 lakhs.
  • The loan should be sanctioned between 1st April 2016 and 31st March 2017.
  • The benefit of this deduction would be available till the time the repayment of the loan continues.
  • Deduction for interest paid is allowed to Rs. 50,000/- per annum.

Under Section 80C- Principal Repayment on Housing Loan- This deduction is available for principal repayment of housing loan up to Rs. 1,50,000 covered under section 80C of Income Tax Act. There is no exception whether property is self occupied or not self occupied. Tax benefit under section 80C will be reversed if the said property is sold out within 5 years from the end of financial year in which you received its possession.

Deduction allowable as per detail below:-
Particulars Principal Repayment (covered under section 80C) First Time Purchase (under section 80EE) Interest on Home Loan (under section 24)
Self Occupied Property 1,50,000 50,000 2,00,000
Not Self occupied Property 1,50,000 50,000 No Limit
A. Gross Annual Value means the highest value among the below-
  1. Actual Rent received/receivable means rent received by owner
  2. Fair Market Value means rental value of the similar other property having same features and calculated by comparing it
  3. Municipal Valuation means the value as per municipal authorities
B. In Case where Rent Control Act is applicable, highest value among the below-
  1. Actual Rent Received means the rent received by owner.
  2. Standard Rent means the rent prescribed by Rent Control Act.



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