Income From House Property

The income tax categories  your income under two categories for the purpose of taxability of house property income. These are :

Self-Occupied House Property:               

This is the type of property that is self owned and used for own residential purposes. This may be occupied by the owner’s family or relative or self. A property that is unoccupied is considered as a self-occupied property for the purpose of income tax. Before the Financial Year 2019-20 if taxpayer owns more than one house property, only one is considered as self-occupied property and rest are assumed to be let out. From 2019-20 onwards two properties are considered as self-occupied properties.

Let Out House Property:

 Any house property that is rented for complete or part of the year is considered as a let out property for income tax purposes.

Calculation of Income From House Property:

Gross Annual Value                                                                        XXX

Less: Municipal Taxes/ Taxes paid to local authorities        (XXX)

Net Annual Value                                                                                       XXX

Less: Deductions under section 24

Standard Deduction @30%                                                         (XXX)

Interest paid on Home Loan                                                       (XXX)

Income from House property                                                    XXX

Explanations:

Gross Annual Value : The gross annual value of a self-occupied property is nil, while for a let out property the gross annual value is the rent collected for the same house property.

Municipal Taxes : Municipal taxes including service-taxes levied by any local authority in respect of house property is allowed as deduction, if:

1. 1. 1. Taxes are borne by the owner; and
      2. Taxes are actually paid by him during the year. 

Standard Deduction @30% : Under the Income Tax Act, 30% of the Net Annual Value can be deducted as a rebate from the NAV. Other expenses, such as repair, reconstruction, or painting, cannot be claimed as a tax deduction over 30% under the Act.

Interest on Borrowed Capital [Section 24(b)] :

1. In respect of let-out property, actual interest incurred on capital borrowed for the purpose of acquisition, construction, repairing, re-construction shall be allowed as deduction.
2. In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of acquisition or construction of house property shall be allowed as deduction up to Rs. 2 lakhs. The deduction shall be allowed if capital is borrowed on or after 01-04-1999 and acquisition or construction of house property is completed within 5 years.
3. In respect of self-occupied residential house property, interest incurred on capital borrowed for the purpose of reconstruction, repairs or renewals of a house property shall be allowed as deduction up to Rs. 30,000.

Further, any interest pertaining to the period prior to the year of acquisition/ construction of the house property shall be allowed as deduction in five equal installments, beginning with the year in which the property was acquired/ constructed.

Deduction for interest on borrowed capital shall be limited to Rs. 30,000 in following circumstances:

1. 1. If capital is borrowed before 01-04-1999 for the purpose of purchase or construction of a house property;
   2. If capital is borrowed on or after 01-04-1999 for the purpose of re-construction, repairs or renewals of a house property;
   3. If capital is borrowed on or after 01-04-1999 but construction of house property is not completed within five years from end of the previous year in which capital was borrowed.

With effect from Assessment Year 2020-21, deduction for interest paid or payable on borrowed capital shall be allowed in respect of two self-occupied house properties. However, the aggregate amount of deduction under this provision shall remain same i.e., Rs. 30,000 or Rs. 2,00,000, as the case may be.

Tax Implications in case of Co-owner :

Property owned by co-owners :
If house property is owned by co-owners and their share in house property is definite and ascertainable than the income of such house property will be assessed in the hands of each co-owner separately. For the purpose of computing income from house property, the annual value of the property will be taken in proportion to their share in the property. In such a case, each co-owner shall be entitled to claim benefit of self-occupied house property in respect of their share in the property (subject to prescribed conditions).

Deduction of interest In Case Of Co-Borrower :
If the home loan is taken on joint names then the deduction is allowed to each co-borrower in proportion to his share in the loan. For taking such deduction it is necessary that such co-borrower must also be co-owner of that property. If the assessee is a co-owner but is repaying the full loan himself, then he can claim the deduction of full interest paid by him.
The limit of deduction in case of Self-occupied property applies individually to each co-borrower. In other words, each co-borrower can claim deduction up to Rs. 2 lakh/Rs. 30,000. No limit is applicable to let out property.

Note : The person who is expected to utilize form ITR 1 SAHAJ for submitting their income tax return should be aware that this form can only be used for income from one house property; if you have more than one house property, this form is not for you.