The annual value of a house property is taxable as income in the hands of the owner of the property.
Following incomes are excluded from the charge of tax under “Income from House Property”:
However, the following incomes are taxable under Income from House Property:
For tax purpose, properties are classified as “Self Occupied Property” & “Let-out Property”.
SELF OCCUPIED PROPERTY: Interest upto a maximum of Rs.30,000/- will be allowed as deduction. However, if the house acquired or constructed with capital borrowed on or after 1.4.1999, interest upto a maximum of Rs.1,50,000/- is allowed as deduction provided construction is completed within 3 years.
Principal amount of loan installment is allowed as deduction from total income to the maximum extent of Rs.1,00,000/- p.a. u/s. 80C.
• The acquisition / construction should be completed within 3 years from the end of F.Y. in which the capital was borrowed.
• Interest on loan during the period of construction is allowed in equal installments over a period of 5 years commencing from year of completion.
► To calculate income from house property, the first thing required is to compute Ratable / Taxable Value of the Property. This is required to assess the reasonable value at which the property could yield if let-out from year to year. The base for this is higher of the following:
► From the ratable value, the municipal taxes actually paid by the owner towards general tax, water, sewerage tax etc., will be deducted. The amount so arrived at is known as “Annual Value of the House Property”.
When the property is in the occupation of the owner and not let-out during any part of the previous year, the annual value will be taken as NIL.
When more than one house is held by the owner and is in the occupation of the owner for his residential purpose, then only one residence value, at the owner’s choice, will be taken as NIL. For other house/s, the tax is computed as though the Property is Let-Out.
When the annual value is taken as NIL, no deduction u/s. 24 is allowed except in respect of interest paid on capital borrowed for acquisition or construction and the same is completed within 3 years from the end of the financial year in which the loan was borrowed subject to a maximum of Rs.1, 50,000/- per annum. The deduction in respect of interest on housing loan during the period of construction is allowed in equal installments over a period of 5 years commencing from the year of completion. However, this will be within the overall limit u/s. 24(b) of the act. There is no limit for the interest on borrowed loan in respect of letting-out property.
If there is a “Loss from House Property”, the same can be set-off against income from any other head in the same Assessment Year. If the loss cannot be set-off against income from any other head in the same Assessment Year, the loss is allowed to be carried forward and set-off in 8 subsequent Assessment Years against Income from House Property only.
Following incomes are excluded from the charge of tax under “Income from House Property”:
| • | Annual Value of the house property used for business purpose – This is subjected to tax under Income from Business. |
| • | Income from rent received from vacant land – This will be treated under “Income from Other Sources”. |
| • | Income from House Property situated nearby agricultural land and used as a Store House, Dwelling House etc., by the cultivators – This will be treated under “Agricultural Income”. |
However, the following incomes are taxable under Income from House Property:
| • | Any arrears of rent, not taxed u/s 23 received in a subsequent year. |
| • | Income earned by letting-out any farm house or agricultural land for any purpose other than agriculture. |
| • | Letting of shops, complexes, commercial buildings. |
| • | When the property is let-out. |
For tax purpose, properties are classified as “Self Occupied Property” & “Let-out Property”.
There are certain Tax benefits for interest on Housing Loan.
SELF OCCUPIED PROPERTY: Interest upto a maximum of Rs.30,000/- will be allowed as deduction. However, if the house acquired or constructed with capital borrowed on or after 1.4.1999, interest upto a maximum of Rs.1,50,000/- is allowed as deduction provided construction is completed within 3 years.
Principal amount of loan installment is allowed as deduction from total income to the maximum extent of Rs.1,00,000/- p.a. u/s. 80C.
• The acquisition / construction should be completed within 3 years from the end of F.Y. in which the capital was borrowed.
• Interest on loan during the period of construction is allowed in equal installments over a period of 5 years commencing from year of completion.
► To calculate income from house property, the first thing required is to compute Ratable / Taxable Value of the Property. This is required to assess the reasonable value at which the property could yield if let-out from year to year. The base for this is higher of the following:
• Municipal Valuation of property
• Actual annual rent received or receivable
• License Fees
► From the ratable value, the municipal taxes actually paid by the owner towards general tax, water, sewerage tax etc., will be deducted. The amount so arrived at is known as “Annual Value of the House Property”.
► Computation of Income from Self-Occupied Property:
When the property is in the occupation of the owner and not let-out during any part of the previous year, the annual value will be taken as NIL.
When more than one house is held by the owner and is in the occupation of the owner for his residential purpose, then only one residence value, at the owner’s choice, will be taken as NIL. For other house/s, the tax is computed as though the Property is Let-Out.
When the annual value is taken as NIL, no deduction u/s. 24 is allowed except in respect of interest paid on capital borrowed for acquisition or construction and the same is completed within 3 years from the end of the financial year in which the loan was borrowed subject to a maximum of Rs.1, 50,000/- per annum. The deduction in respect of interest on housing loan during the period of construction is allowed in equal installments over a period of 5 years commencing from the year of completion. However, this will be within the overall limit u/s. 24(b) of the act. There is no limit for the interest on borrowed loan in respect of letting-out property.
If there is a “Loss from House Property”, the same can be set-off against income from any other head in the same Assessment Year. If the loss cannot be set-off against income from any other head in the same Assessment Year, the loss is allowed to be carried forward and set-off in 8 subsequent Assessment Years against Income from House Property only.
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