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Income from House Property: Know How to Save Tax?

IndianMoney.com Research Team | Posted On Thursday, November 21,2019, 03:17 PM

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Income from House Property: Know How to Save Tax?

 

 

The income you get from house property as rental income or its transfer is popularly called ‘Income from house property’. The property could be a house, office, building or a warehouse. The ‘Income from house property’ is a classification under the five heads of income which is considered for calculating your gross total during the year.

The 5 Main Income Tax Heads are:

  • Income from salary
  • Income from House Property
  • Income from Profits and Gains of Business and Profession
  • Income from Capital Gains
  • Income from Other Sources

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See Also: All You Must Know About Tax Planning

Income from House Property: Know How to Save Tax?

If your income must be taxed under Income from House Property, the following 3 conditions must first be met.

  • The house property has to a building, land or an apartment.
  • You (Assessee) must be the owner of the property.
  • The property must not be used for professional purposes or any business.

Your property can also be inherited, let-out or self-occupied. You must calculate the income chargeable to tax in a specified way for self-occupied and let-out properties. Self-occupied properties are used for residential purposes and could be occupied by your family members. A vacant house is considered as self-occupied for income tax purposes. There could be exceptions if you are not able to occupy the property due to employment reasons. You can consider two houses to be self-occupied, while any other house is treated as let-out.

See Also: What are the steps involved in tax planning?

Steps to Calculate Income from Self-Occupied Property

  • Calculate gross annual value or GAV of the property or the house. The Gross Annual Value of a self-occupied property is zero.
  • Municipal taxes that are paid during the year are then deducted to arrive at the Net Annual Value or NAV of the property.
  • You are allowed a couple more deductions under Section 24. The standard deduction of 30% of the Net Asset Value is allowed under Section 24(a) and the deduction on interest paid for a home loan is allowed under Section 24(b).
  • After making use of the Section 24 deductions, tax is charged on the resultant income.

The Gross Annual Value or GAV of a self-occupied property is zero. No matter what, you always arrive at 0 or a negative figure in case of a loss (This is for a home loan). This can be adjusted against other heads of income.

See Also: Last Minute Tax Planning: What You Should Do?

Steps to Calculate Income from Let-Out Property

If you have given house property on rent to a tenant even for a few months, this is let-out property and it’s calculated accordingly.

  • You must first calculate the annual rental income received.
  • You then deduct the Municipal taxes paid to arrive at the Net Annual Value or NAV.
  • From this Net Asset Value, you deduct the Standard Deduction @30% of the NAV and also the home loan interest to calculate the final value of the let-out house property.

Let’s have an example to calculate income from house property. You have given your property on rent at Rs 20,000 a month. You have paid Rs 10,000 in municipal taxes for the given year. You have Rs 60,000 as interest on borrowed capital. (This is home loan interest).

Income from House Property

Amount (Rs)

Total annual rental income value

20,000 * 12 = 2,40,000

Less: Municipal Taxes

10,000

Net Annual Value or NAV

2,30,000

Deductions under Section 24

 

NAV - 30% of NAV

 2,30,000 - 30% of 2,30,000 = 1,61,000

Interest on borrowed capital

60,000

Income from house property

101,000

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