Income from House Property
There are many questions which goes around our mind, when it comes to house property, as to what constitutes income from house property , how is it taxed, what are the benefits available to the owner of a house property and many more…
Let us decipher each and every question.
Income received from property that consists of buildings with or without land attached to it constitutes income from house property. The holder of the property can be the legal owner or an implied owner (e.g. a person who gifts the house property to his/her spouse). This does bring in further clarity that income from sub letting house property is not charged under income from house property as the property is not owned by the owner. This also means that rent from vacant land is not taxed as income from house property as a building is not attached to the land.
In context of ownership, it is pertinent to note that the title deed shall be sufficient or in case of implied ownership the right to receive income would trigger ownership. There is no need for a sale document to prove the ownership.
Now after answering the question what is income from house property, we shall move forward on how to calculate the same.
Typically actual rent received, subject to allowable deductions as per tax laws, is the amount of income from house property chargeable to tax.
It is pertinent to note that even if you do not receive rent and however hold house property, you would be taxed on a notional basis. The owner of the house property is not required to pay taxes on the property used for self occupation; however, the said benefit can be availed only for one house property.
Now comes the interesting aspect, yes – Deductions
A standard deduction of 30 percent is allowable on the income earned from house property. In addition to this in event if loan has been taken for the property, either for purchase, construction, repairs or renovation, further deduction is available in the form of interest repayment.
Let us logically consider the deduction available for the principal portion and the interest portion of the loan taken for house property.
The principal portion can be allowed subject to a maximum deduction of Rs. 1.5 lakhs (Yes, it is allowable under Section 80C of the Act, a very common and favourite section to every tax payer).
The deduction of interest portion has a certain sub classification to it. If the property is owned for self occupation, the maximum allowable deduction is Rs. 2 lakhs. If the property is let out, there is no maximum limit to claim the deduction. Interest paid during the period before construction gets complete, is also allowed as deduction in 5 installments.
Now what happens when you own a house property and work at another place?
You can claim House Rent Allowance provided you do pay rent for the place away from home. Now if you do have a loan for that house, you can additionally claim interest to the extent of Rs. 2 lakhs.
ALV – Annual Let-able Value
MV – Market Value
FR – Fair Rent
SR – Standard Rent