Computing Income from House Property
March 01 , 2013

If you own a house you are liable to pay income tax to the government for the income you earn out it. Every year you are supposed to declare income from house under the head 'Income from House Property' in ITR forms and pay tax dues irrespective of whether you earn income from it or not. Sounds irrational? According to Income Tax rules you can have just one self occupied house. If you own more the others are considered to be let out. Read to learn how tax is calculated on income from house.

Income of house property

Income tax from house is calculated after making certain deductions on what is term 'annual value' of your house. Annual value is the rental income of your house. In case of a self occupied property the annual value is nil, of course. Properties that are let out have rental income and so have an annual lettable value. These are dealt with in detail in the following sections.

Computing income from self occupied house property

Self occupied house property is the house you are occupying. If you own more than one property you can designate any one of them as self occupied for computing income tax. Obviously, there should not be any rental income from such a self occupied property even if you are not actually staying in it.

1. Annual lettable value of self occupied house

As mentioned above self occupied property has zero lettable value and therefore has nil income.

2. Income tax deduction on income from self occupied house

If there is any loan being repaid for a self occupied house the interest portion up to Rs 1.5 lakhs can be claimed for deduction under section 24. Now since the annual lettable value is nil the income from self occupied house on which home loan is being paid will always be negative.

3. Loss from self occupied house

In other words there will be a loss of income from a self occupied house property if you are repaying home loan against it. This loss can be set off against income from other house property.

If loss from self occupied house cannot be set off from income from other house properties it can be set off against income from other heads like salary or business. If the loss is still not wiped off it can be carried forward and set off against income from house property in 8 subsequent years.

Calculating income from let out property

If you own more than one house all houses except the one you designate will be deemed to be let out.

1. Income from house on rent

In all general cases the actual annual rental income is the annual lettable value of your second house. But if the rental income is much lower than the actual rent it can earn then the notional income has be calculated.

Notional income from house property

Notional value of house is calculated as per Standard Rent under the Rent Control Act. If this Act is not applicable in the location, fair market value is to be taken as notional income from house.

If the house is actually let out for part of the year but you have received less rent because the house was vacant for a part of the year the actual rent received is the annual lettable value of the house.

From the rental income calculated as above you can deduct municipal property taxes, if you (and not the tenants) have actually paid it. What is left after this is the Annual Value of your house.

2. Income tax deduction on house rent income

Things get interesting in computing income from house property on rent because of extra deductions it enjoys. You get 1 or maximum 3 deductions on the annual value of house property that is let out.

i) 30% flat deduction

Straight 30% of the notional annual value or rental income can be deducted in case of let out house properties. This is provided for in section 24a of the Income Tax Act.

ii) Municipal taxes

If you have paid local property taxes you can claim deduction on this amount, provided you and not the tenants have paid it.

iii) Home loan interest

If you are paying interest for your borrowing for the house you can deduct the amount payable in the year from notional income or rental value of your house under section 24b.

3. Loss from let out house property

If the interest you are paying on home loan is very high it is possible that your income from house property is negative. Loss from a house property can be set off against income from another house property. If it cannot be, the loss can be set off against income from salary or business. If some loss still remains it can be carried forward to subsequent years (8 years) and be set off against income from house property.

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