House Property Income: Taxation & Deduction
Generating income from real estate can help you create long-term wealth. Be it own residential or a commercial property, you as the owner can rent it or utilize it for commercial purposes to earn additional sum of cash. However, with income from house property also comes the responsibility to pay income tax. This post is all about understanding the house property income taxation & deduction, tax liabilities, and different ways to reduce your taxes by using distinctive deductions.
For any property owner, it is essential to understand the financial concept of house property income and taxes governed by Sections 22-27 of the Income Tax Act, 1961. You will also come to know about how Gross Annual Value (GAV) and Net Annual Value (NAV) of your property are calculated.
 What is Income from House Property?
As the name itself signifies, income from house property is the revenue generated in the form of rent or owning a property. The revenue received in the form of rent minus deductions and expenses is fully taxable under the Income Tax Act, of 1961.
Types of House Properties Under the Income Tax Act: Here’s the list of properties mentioned under the Income Tax Act, 1961, on which taxation is applicable.
- Self-occupied property: In this type of property, you will live with your parents, spouse, and kids. Even if the property is vacant, it will be considered applicable under taxation.
- Let-out property: It can be a self-bought or acquired property from your parents or grandparents that you have rented out. This kind of property offers you a monthly rent and will be considered under taxable income from property.
- Under construction property: Though payment from rental is not included, the interest paid while the loan was still being disbursed (before construction was finished) can be deducted in equal installments each year from the completion year. This changes the final amount of taxable income from house property.
- Deemed to be let-out property: It is the type of property that is not rented but still treated as taxable. It applies to properties not occupied by the owner due to employment or any other reason.
Different Deductions on House Property Income
There are various deductions that you can claim to reduce your taxable amount on house property income.
Here’s the list of deductions for your reference:
- Municipal Tax: Municipal tax is the annual amount you pay to the government. This amount of tax is fully deducted from the Gross Annual Value of the property to know the Net Annual Value based on the taxation amount. Most importantly, payment of municipal tax has to be borne by the property owner.
- Standard Deduction: In all house properties, commercial and residential there is a standard deduction of 30% of the Net Annual Value.
- Interest on Home Loan: Property owners have the flexibility to claim a deduction of up to INR 2 Lakh on their home loan interest charges. Even if the owner is not living on the property, deductions can also be claimed.
- Principal Paid on Home Loan: Even Section 80C allows you a deduction flexibility in case you have paid the principal amount of the loan for the house property. There will be additional deductions available on the payment of stamp duty and registration charges.
Exclusions to House Property Income and Taxes
Several exclusions apply to house property income and taxes.
- Under Section 10(1) of the Income Tax Act, any property utilized for agricultural purposes will be considered an exemption from income tax.
- According to Section 11 of the Income Tax, any property used for charitable purposes is fully exemption from tax implications.
- Any self-owned property that is vacant with an annual value of nil is also exempt from tax.
- Any owner’s business operated from the owner’s property will not be considered under tax liability.
- Under Section 10 (24), no tax will be charged if the property is owned by the Trade Union.
- As per Section 10 (20) of the Income Tax Act, 1961, tax exemption is there if the property is held by the Scientific Research Institute, Local Authorities, Political Parties, Educational Institute, Medical Institute, and others.
- Additional properties including forts, palaces, owned by local authorities, Scheduled Tribes, Scheduled Castes, corporate establishment by the government, cooperative societies to benefit SC and ST, and institutions related to Khadi and Village industries are all exempted from tax implications.
Get Started with TaxDunia
To sum up, being aware of income from house property is necessary for good tax planning. If you self-occupy, rent out, or consider your property a let-out, identifying what qualifies for a tax exemption can reduce how much you end up paying. Property owners who remain organized and know the latest tax rules can manage what they owe and maximize their returns on their property. Reach out to professionals and let them handle your taxes.
