Introduction

House Property Income of the assessee is addressed as Income from house property. Also, amount of money that is received by the landlord from tenant(s) for using the property is called rental income. Here, property refers to any building including house, office building, warehouse etc. And any land attached to the building like compound, garage, car parking space etc.Different types of house property (like rental or self occupied property) are taxed differently.

For individuals, the safest option is to consider rent as an income received from house property. Classification of income has a significant impact on your tax while filing ITR. Classifications as follows:

  • Income from house property;
  • Income from other sources; or
  • Even classified as ‘business income’ if the owner’s primary business is letting out property.

Computation of house property income

Format

house property income

Example

Let us assume that, you have a property and monthly rental is Rs. 20,000. Municipal taxes paid is Rs.10,000 per year and Rs. 50,000 as a interest on borrowed capital. Calculate income from house property?

house property income

Income from Self Occupied Property (SOP)

  • The annual value can be considered ‘nil’, if the owner is residing in the property(Self-occupied property or SOP) and does not any financial benefit from the same property.
  • It will also be ‘nil’, if the owner of the property has to move out of the city and the property is in another city. Owner neither can subtract the municipal taxes not deduct any standard deduction. But, can still deduct the interest paid on the loan availed to a certain limit.

Example

Mr. Rahul, bought a house in Bangalore and moved to pune in a rented house because of job. The annual income value on Rahul’s Bangalore property is ‘nil’. Still Rahul will get a tax deduction for interest paid on borrowed capital.

  • If a person owns more than one property, it is suggested that designate one property as SOP and pay tax on the other. It is advisable to choose the property wisely, where owner has to pay minimum municipal tax or can claim for high tax deductions on the SOP. SOP can be changed every year.

Reasons of Loss from house property

Solely, there are two main reasons behind the loss:

  • Self Occupied Property: In SOP, Gross Annual Income (GVA) will be ‘nil’. But, from GAV municipal taxes and interest on loan will be subtracted. Ultimately, this would result in a loss.
  • Other type of property: Gross Annual Income is not ‘nil’ as that of SOP but if the deductions claimed is more than the GVA, this would again result in loss.

Steps taken to cover these losses

  • Setting off Loss under House Property: The loss from house property is allowed to set off against any other income in same year. Other income includes salary, business or profession, capital gains and other sources. After computing the net income by setting off the loss is taxable under income tax slabs.
  • Carry forward of loss: If the loss is not adjusted in the same year, such losses will be carried forward to next year and only allows to set off against the same income head i.e., Income from House Property. It is allowed to be carrying forward the loss for maximum 8 years in ITR.

Note

  • A new sub-section (3A) is inserted to section 71 which has now put a restriction, earlier it was not restricted. This restriction is of Rs. 2lakhs i.e. loss from House Property of only Rs. 2lakhs p.a. allowed to be set off with incomes under different heads.
  • Taxpayer cannot keep carrying forward the loss from House Property for years as per their own wish. Taxpayer is required to adjust the loss in that year itself; in which income is under house property head. If the taxpayer does not set off the loss against the income, such losses will not be allowed to be set-off at a future date.

Tax Saving on house property income

  • Joint Home Loan: If a person jointly owns a property with someone then they should apply for a joint home This will make then eligible for tax deductions on interest up to Rs. 1, 50,000 each towards repayment of principal u/s 80C. Therefore, as a family you are able to make a larger tax benefit against the interest paid on the home loan and interest is more than Rs 2,00,000 per year.

Note: Benefit on tax (u/s 80C) is claimed, only if the construction of the property is complete. Benefits cannot be availed for an under construction property.

  • Second home: If you already have one self-occupied property (SOP) registered on your name, and then you should register the second property on the name of spouse/relatives to avoid excess taxation.
  • Ownership of more than one property (u/s 24): For SOP, if the property is acquired/constructed after 1st April, 1999 (within 3 years) then owner is allowed to claim deduction of interest up to Rs. 1.5lakhs u/s 24.Loans taken to re-construct the house (prior to April, 1999), the limit is only Rs. 30,000. SOP can be changed every year.
  • Empty houses: Your empty house will be taxed on the fair rental value, so it is advisable to let empty properties out or rent them. This will generate income no loss because of taxation on empty house.

Different cases under house property income

CASE 1

You work in a city; you are living in a rented accommodation and you bought a house in your home town

For example, Kabir works in Gurugram, but his wife and children lives in Sonepat. He recently bought a house in Sonepat on a loan while he continues to live on rent.

Kabir can claim both:

  • HRA for rent he pays for the house in Gurugram.
  • Deduction on interest up to Rs. 2Lakhs on the home loan.

This shows that HRA and deduction on home loan both can be claimed if the employer provides you with a HRA component as part of house property income and repaying your home loan.

CASE 2

 If assessee has more than one house for self-occupation [Sec.23 (4)]

If there is more than one residential house, then owner may treat any one of the house(s) as self occupied. The other house(s) will be deemed to be let out, and the annual value of such house(s) will be determined u/s Section 23(1) (a). The owner should choose the option where taxable income is least. Such option may change from year-to-year.

House Property Income

CASE 3

If assessee has a house property which consists of two or more residential units in it and units are self occupied

If owner has a house property that consists of two or more residential units in it and all units are self occupied, then the annual value of the entire house property will be taken as ‘nil’. It will be considered as ‘nil’ because there is only one house property (it has more than one residential unit).

Conclusion

House Property Income is an important concept which is not understood by everyone. If your property is a source of income, what better can be expected.Taxpayer’s are not able to take the tax benefit tax. taxpayers have a misconception that losses can be set off continuously for 8 years but it comes with it’s own advantage and disadvantages.

For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing income tax return. You can also use the option of Business Return, Bulk Return or Revised Return Filing