Calculating Income from House Property for Income Tax
February 12 , 2013

Real estate is considered is considered an asset and regardless of whether or not you are making money out of your house (through rental income) you are liable to pay income tax to the government. This income is added with your income from other heads like salary, interest, etc to make your gross total income in the ITR forms.

Annual value of house property

In Income Tax parlance income from a house is termed as 'annual value'. This annual value depends on the rent that the house can earn in a year. If you are residing in your house there is no rental income, obviously, and so the annual value is nil.

Deductions on income from house property

The Income Tax department has allowed these standard deductions on the annual value or income from house:

1. Municipal taxes; provided the house has been let out on rent and as owner you are paying the taxes in the same year (and not your tenants)

2. Flat 30% of the annual value towards expenditure incurred on the house

3. Interest portion of home loan EMI paid in that year

Calculating annual value if owning 1 house

Income from house is nil if you are residing in it and have not given it out on rent. Even a part of the house should not have been rented out during the year. However if you own just one house but are not residing in it because you are employed in a different place, income from this house would still be nil if you have not rented it out.

Calculating annual value if owning 2 or multiple houses

If you own more than 1 house then you can nominate any one house as self-occupied (regardless of whether that is where you actually reside or not) for computing income tax. Income from this house is nil. The other house/s will have an annual value. Annual value of house is calculated from the rent that would have been received on it, regardless of whether it is let out or not.

If you are earning rent the actual rent will be taken as annual value. If the actual rent is lower than what your house can earn a notional value will have to be considered. This will be a standard value based on Rent Control Act.

If the other house/s are not rented then you have to mentioned income from it/them as notional annual value based on standard value as mentioned above.

Calculating loss from house property

If you are paying home loan EMIs on your house, income from the house would be its annual value minus home loan installments paid in that year. At times this can be net loss from your house property.

House let out on rent

The entire interest component of home loan paid in that year can be deducted from annual value of house if the house has been let out on rent. If you own multiple houses, loss from one house can be set off against income from another house. Else this loss can be set off against income from your other sources like salary, business etc.

If some of the loss from house remains to be set off in a particular assessment year it can be carried forward for eight consequent years and be set off against income from house.

Self occupied house

If you are living in your owned house, income from it is nil. If you are also paying home loan on it income from the house would be negative. However in this case the entire loan amount cannot be deducted. Maximum amount that can be deducted is the actual interest portion of home loan paid in that year or Rs 1,50,000, whichever is higher.

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