India has been witnessing continuous and fast increases during recent decades. It is the imagination and prescient of the United States to be a developed state by the 100th year of Independence. Affordable housing for all is one of the critical things in the development process of the country. The government acknowledges this need and consequently, they have provided you with several key advantages to supply relief by tax breaks under section 24 of the Income Tax Act.
Income from House Property
There are some cases wherein Income from a house property can occur:-
- Housing income by rent
- The annual cost of the property which is considered “deemed to be set free” for income tax purposes (This occurs when we very own more than one property)
- The annual cost of the property which is self-occupied
The Gross Annual Value differs in all 3 cases, as shown below:-
| Situation | Gross Annual Value (GAV) |
| Self-Occupied | Nil |
| Property set free for hire | Rent received (Annual Value is less municipal taxes paid, i.E. Annual Value = Gross Annual Value minus municipal taxes paid to nearby government) |
| Deemed to be let out | Reasonable hire of a comparable region/ locality is to be taken into consideration. |
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Deductions Under House Property
The deductions made under house property are given below
- Municipal tax deduction
The annual amount paid to the municipal company of the place is the municipal tax. These taxes are to be deducted from the gross annual fee to get the total value of the house assets. Deduction on municipal tax is granted if it is borne by the house proprietor and paid during that economic year.
- Standard deduction
30% of the annual cost calculated is a standard deduction. This is authorized when your expenditure on the belongings is increased or decreased as well. It is irrespective of the expenditure which you incur on insurance, strength, maintenance, water supply, and many others.
- Deduction of interest on house loan for belongings
Homeowners get to assert a deduction of as much as ₹2 lakh on the home loan interest if their family lives in those belongings. The same is implemented whilst the house is vacant. In case you set free the property on rent, the entire interest on the home loan is permitted as a deduction.
Who Can Claim Deductions Below Section 24?
Individuals owning residential belongings that generate rental Income or are self-occupied are eligible to claim deductions below Section 24.
Types of Deductions
- Standard deduction: A flat 30% deduction is authorized on the gross annual price of the belongings, regardless of any real costs incurred. This makes it problem-free and accessible.
- Interest on home loan: If you have availed a loan for the purchase, construction, or restoration of the belongings, you could claim the interest paid on the loan as much as Rs. 2 lakhs per year.
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Calculating the gross annual price
The gross annual cost is the honest rental Income the assets need to fetch if rented out in its current situation. It may be calculated as:
- Real rent received: If the assets are rented out, the real rent acquired is taken into consideration as the gross annual cost.
- Municipal valuation: If there are self-occupied assets, then municipal valuation is used for gross annual income.
Pre Construction Interest
An advantage of pre-construction interest arises when you take a home loan for buying or construction. Two critical factors so that it will not be forgotten earlier than claiming this interest are:-
- It cannot be claimed for a loan taken for maintenance or reconstruction of the house;
- The pre-construction and interest on housing loans that can be claimed for a specific year cannot exceed Rs 2 lakhs.
- Also, it would be exceptional if you remembered that the interest is authorized in 5 same installments starting from the year the house is bought or the construction is completed.
If the construction of our home gets finished on 15 September 2022 (FY 2022-23), then we are eligible to assert a deduction accruing to at least 1/5th of the interest paid until 31 March while submitting tax returns.
Conditions for Claiming Interest on Home Loan
To be eligible for this deduction, you shall fulfill the three requirements mentioned below.
- After 1 April 1999, the purchase or construction for which the loan was received.
- The acquisition or creation is finished in 5 years (3 years till FY 2015–16) following the end of the fiscal year wherein the loan became taken.
- For loan, an interest certificate is accessible. Your interest deduction may be confined to Rs. 30,000 if one or more of these conditions is real.
- The real property was bought, built, repaired, or rebuilt with the loan before 1 April 1999.
- The loan is received on or after 1 April 1999 and is hired to purchase, construct, renovate, or rehabilitate real property for a house.
Computation of Income Under House Property
Say, someone repays a housing loan of Rs 4 lakh yearly out of which Rs 2 lakh is the interest component. He is earning Rs 7000 monthly from permit-out belongings and also pays municipal taxes of Rs 3000 for the house. Let’s calculate his Income from the home property in both the eventualities: (1) He has a self-occupied property, or (2) The assets are rented out.
| Type of House Property | Self Occupied | Let Out |
|---|---|---|
| Gross annual Value (Rent paid- 7000*12) | NIL | 84,000 |
| Less: Municipal Taxes or Taxes paid to local government | NA | 3,000 |
| Net Annual Value(NAV) | Nil | 81,000 |
| Less: Standard Deduction(30% of NAV) | NA | 24,300 |
| Less: Interest on Housing Loan | 200,000 | 200,000 |
| Less: Pre-construction interest (1/5th of three Lakhs) | 60,000 | 60,000 |
| The overall loss is constrained to | (260,000) | (203,300) |
| Overall loss is constrained to | (200,000) | (200,000) |
Remember, the most loss set-off allowed in a financial year is set to Rs 2 lakh. The final loss may be carried forward to future years – 8 years overall. However, in those 8 years, it can only be sparked off from Income from house assets.
Conclusion
Understanding the details of Section 24 of the Income Tax Act can help you make smarter tax decisions for Income from house property. If you’re a homeowner or planning to buy a home, clarity on deductions, gross annual value, and the net annual cost of house property is crucial to avoid tax discrepancies.