INCOME FROM HOUSE PROPERTY (SECTION 24 A)

 

One of the most popular queries from individuals is about how is the rental income they are receiving from property taxable.

In this section, PersonalFN will set out in simple terms and with easy to understand examples, exactly how any income received from a house property (i.e. rent) is taxed, and under what conditions.

 

Lets start at the beginning.

 

Frequently Asked Questions
(Click on the question to go to the answer)

 

1. I receive rental income from a house property, is it taxable?


2. Is rental income received from a vacant plot of land also taxable?


3. I have let out a property and am receiving rent.
   How do I calculate how much of this rent is taxable?


4. How do I calculate the ‘annual value’ of my property?


5. How do I calculate rent actually received / receivable?(See Illustrations)


6. What is the difference between classifying my property as Let Out, Self Occupied or Deemed to be Let Out?


7. I receive rent from a house on which I have a home loan – this is the only house I own. I am living in a rented apartment. How do I calculate my tax on house property income?


8. What are the deductions available to save tax on this income?


9. What is Standard Deduction?


10. How can I use home loan interest to save tax?


11. Are there some properties where income received is not taxable?


12. How can I save tax if there is Joint Ownership on the property?


13. I am buying a second house. How can I save tax on it?


14. How can I save tax by taking a Joint Home Loan?


15. Are there other tax planning tips on income from house property?

 

1. I receive rental income from a house property, is it taxable?
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   Yes. The rental income received from a property is referred to as the annual value. So the annual value (i.e. rental income) of property is taxable as ‘Income from House Property’ if the following conditions are satisfied:
    
   • You own a property that consists of buildings or lands appurtenant (attached) (like a garage); and
   • The property should not be used by you for the purpose of any business or profession, the profits of which are taxable.


2. Is rental income received from a vacant plot of land also taxable?
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   No, for the purpose of the ‘Income from House Property’ section, there are definitions that are applicable, as follows:
   “Building” is defined as any building (whether occupied or intended for self-occupation), office building, go-down, storehouse, warehouse, factory, halls, shops, stalls, platforms, cinema halls, auditorium etc. Income arising out of the building or a part of the building is covered under this section.
   
   “Lands” is defined as land adjoining to or forming a part of the building. It would depend on the nature of the land, whether it is appurtenant to the residential building, factory building, hotel building, club house, theatre etc. and will include courtyards, compound, garages, car parking spaces, cattle shed, stable, drying grounds, playgrounds and gymkhana.
   
   Income from buildings and lands appurtenant are taxable under Income from House Property.
   
   So, this will include income from a building (that part of it which is owned by you e.g. the flat that you own), and the income from the land appurtenant. If you own a vacant plot and are receiving income from it, it is not included under ‘Income from House Property’, it is included under ‘Income from Other Sources’.


3. I have let out a property and am receiving rent.
   How do I calculate how much of this rent is taxable?
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   It is very easy. You need to follow 3 very small steps.
   First: Determine your property’s gross annual value (see Qs. 4)
   Second: Deduct municipal taxes paid
   Third: Make deductions available under Section 24b i.e. interest on borrowed capital i.e. a home loan, if any.
   The net figure is your taxable income from house property.


4. How do I calculate the ‘annual value’ of my property?
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   Take the following steps:
    
   1. Find out reasonable expected rent of the property (municipal rent or fair rent, whichever is higher)
   2. Consider rent actually received / receivable (see Qs 5.)
   3. Take whichever is higher from a. and b.
   4. Calculate loss due to vacancy
   
   Step c. minus step d. is the gross annual value of your property.
   Deduct municipal taxes to arrive at the net annual value of your property.
    
5. How do I calculate rent actually received / receivable?
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   It is simply:
   Rent of the past year for which the property was available for letting out
   Less: unrealized rent (e.g. from a defaulting tenant)
   Equals: Rent actually received / receivable
   
   Illustration 1:
   HOW TO CALCULATE GROSS ANNUAL VALUE
   
   Mr. X owns a property at Mumbai. Municipal Value is Rs. 1,80,000. Fair rent is Rs. 2,15,000. He has given it on rent in the past financial year for 10 months. Actual rent received is Rs. 30,000 per month. The house is vacant for 2 months in the past financial year.
    

   Municipal Value	Rs.	180,000
   Fair Rent	Rs.	215,000
   Annual Rent (for 10 months)	Rs.	300,000
   Gross Annual Value is calculated as below:
   Step 1: Reasonable expected rent (MV or FR - whichever is higher)	Rs.	215,000
   Step 2: Annual Rent (for 12 months = Rs. 30,000 x 12)	Rs.	360,000
   Step 3: Higher of Step 1 and Step 2	Rs.	360,000
   Step 4: Less Loss Due To Vacancy (Rs. 30,000 x 2)	Rs.	60,000
   Gross Annual Value (Step 3 - Step 4)	Rs.	300,000

   
   Illustration 2:
   HOW TO CALCULATE NET ANNUAL VALUE
   
   The same Mr. X’s municipal taxes are Rs. 10,000 annually.
    

   Gross Annual Value		300,000
   Municipal Taxes	Rs.	10,000
   Net Annual Value (GAV less municipal taxes)	Rs.	290,000

   
   Illustration 3:
   HOW TO CALCULATE NET TAXABLE INCOME FROM HOUSE PROPERTY
   
   Also, Mr. X has taken a home loan to buy this property. The loan amount is Rs. 15 lakhs. The interest component paid in the last financial year is Rs. 1,50,000. Now we calculate how much is Mr. X’s taxable rental income he has received from his property.
    

   Net Annual Value (GAV less municipal taxes)	Rs.	291,000
   Less Deductions under Section 24
   Standard Deduction (30% of Net Annual Value)	Rs.	87,300.0
   Interest on Borrowed Capital	Rs.	150,000
   Taxable Rental Income from Property	Rs.	53,700.0



6. What is the difference between classifying my property as Let Out, Self Occupied or Deemed to be Let Out?
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   For the purpose of taxability of Income from House Property, House property is classified as:
    
   1. Let Out – House Property actually given out on rent
   2. Self Occupied – House Property self occupied by owner – you actually live in this house
   3. Deemed to be Let Out – In case of owning more than one house property, one property is treated as Self Occupied, and the other is automatically classified as Deemed to be Let Out property.


7. I receive rent from a house on which I have a home loan – this is the only house I own. I am living in a rented apartment. How do I calculate my tax on house property income?
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   Your income from house property is simply the rental income you receive from the house on which you have the home loan as calculated above. This house has been given on rent and is thus classified as Let Out Property.
   
   Treatment of income from Let Out Property, Deemed to be Let Out Property and Self Occupied Property are summarized below for easy reference:
    

   Particulars		Let Out	Self Occupied	Deemed to be Let Out
   Annual Rent received (Gross Annual Value)	a	xxxx	NIL	xxxx (*)
   Less:
   Municipal tax paid, if any	b	xx	NIL	Xx
   Net Annual Value	C = a - b	xxx	NIL	Xxx
   Less:
   Standard Deduction @ 30% (2)	D = 30% of C	Xx	NIL	Xx
   Interest on Home Loan (3)	e	Actual	1,50,000	Actual
   Income chargeable to tax	F = c - d - e

   Note: (*) In case of Deemed to be Let Out property, standard rent as per local municipal laws is considered as annual rent received.


8. What are the deductions available to save tax on this income?
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   There are 2 deductions available:
    
   1. Standard Deduction
   2. Deduction of interest on a home loan


9. What is Standard Deduction?
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   Standard Deduction of 30% is given to compensate annual repair and maintenance expenses incurred on House Property.
   For example: Suppose you have rented out a property and the net annual value was Rs. 12 lakhs in the previous Financial Year. You can deduct 30% i.e. Rs. 3.60 lakhs for the purpose of repair and maintenance, regardless of the actual amount spent by you on repair and maintenance. Your taxable income would thus be Rs. 8.40 lakhs in the previous financial year.


10. How can I use home loan interest to save tax?
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    In case of Let out and Deemed to be Let Out properties, you can deduct the actual interest paid by you on a loan taken for the purpose of buying, repairing, constructing, renewing or reconstructing the house property in question, to save your tax.
    
    For a Self Occupied House Property, deduction on account of interest on Home Loan (loan taken only for acquisition or construction of the property) is restricted to Rs. 1,50,000.


11. Are there some properties where income received is not taxable?
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    Yes, the list of these types of properties is:
     
    1. Income from any farmhouse forming part of agricultural income;
    2. Annual value of any one palace in the occupation of an ex-ruler;
    3. Property Income of a local authority;
    4. Property income of any registered trade union;
    5. Property income of a member of a Scheduled Tribe;
    6. Property income of a statutory corporation or an institution or association financed by the Government for promoting the interests of the members either of the Scheduled Castes or Scheduled tribes or both;
    7. Property income of a corporation, established by the Central Govt. or any State Govt. for promoting the interests of members of a minority group;
    8. Property income of a cooperative society, formed for promoting the interests of the members either of the Scheduled Castes or Scheduled tribes or both;
    9. Property Income, derived from the letting of go-downs or warehouses for storage, processing or facilitating the marketing of commodities by an authority constituted under any law for the marketing of commodities;
    10. Property income of an institution for the development of Khadi and village Industries;'
    11. Property Income of any political party.
    12. Income from house property held for any charitable purposes;
    
    
    TAX PLANNING TIPS
     
12. How can I save tax if there is Joint Ownership on the property?
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    In case of joint ownership, the income from house property can be split between both the co-owners which can reduce the overall tax outgo.


13. I am buying a second house. How can I save tax on it?
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    If you buy your first house in a single name, the other house can be purchased in the name of your spouse – thus, both of you would have just one house, and won’t have to pay income tax on an income that you don’t even earn. In other words, you will avoid paying taxes on a Deemed to be Let Out property.


14. How can I save tax by taking a Joint Home Loan?
    (Back to top)
    
    If you are Joint Owner and also apply for joint home loan, you are eligible for higher deduction on account of interest on home loan as compared to single home loan. In case of joint home loan, both the co-borrowers can take maximum deduction of Rs. 1,50,000 each.


15. Are there other tax planning tips on income from house property?
    (Back to top)
    
    Yes
    1. If you have more than one property, then only one house of your choice is treated as self occupied and all others are considered Deemed to be Let Out (if not Let Out). You should carefully choose which house to be treated as self occupied, in order to minimize your tax liability
    2. Interest payable on a home loan is only deductible if tax is deducted at source, so take care to ensure that your TDS is paid

Add Comments

Comments
drpcbarua@gmail.com Jan 18, 2012 Excellent information.Thanks
chetandb@gmail.com May 08, 2016 I own a property in one city, which is currently self occupied and in another city, which is let out. I am taking tax benefits on both properties home loan interest. Now I am renting out the property which is self occupied and moving on rent near to my office (in the same city). In this case, can I still take tax benefits on both my properties and HRA for rented property also? I am going to show rent also from my rented out property (which was self occupied).
bodhivish@gmail.com Oct 10, 2012 What is the standard rent ? Who decide the same ? What is the procedure to know this value ?
bodhivish@gmail.com Oct 10, 2012 Why the Municiple value  and Standard Rent is required to know the Annual Let Out Value ? What is the distinguish between ?

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