How to Calculate Income Tax Deduction From House Property

As Income Tax Act does not differentiate between commercial and residential property and considers them as same. A "house property" can be your home, an office, a building, land attached to your building like parking slots, or a shop. All the properties fall under the head - Income from house property, in the Income Tax Return. An owner of a property for the purpose of income tax is the legal owner; he is someone who can exercise the rights of the owner in his own right and not on other's behalf.If a property like a house is utilised for conducting business or profession or is used for freelancing work, the property is taxed under "Income from Business and Profession" head. In this head, expenses on repair and maintenance are allowed as business expenditure.

1. Self-Occupied House Property -

Property used for own residential purposes is known as self-occupied house property. The taxpayer's family - parents and/or spouse and children may occupy this property. Also, a vacant home falls under self-occupied house property for Income tax .

2. Let Out House Property -

A property that is rented for a part of the year or the whole year falls under let out house property for IT purposes.

3. Inherited Property -

A property passed on from parents, grandparents, etc. can fall under self-occupied property or a let out one based on its usage as mentioned above.

1. Define Gross Annual Value (GAV) of your property: The gross annual value of a self-occupied house: Zero.For a let out property: Rent collected.
2. Decrease Property Tax: When the Property tax is paid, it is allowed as a deduction from GAV (Gross Annual Value) of property.
3. Define income from house property: The subsequent assessment is your income from house property. This value is taxed at the slab rate applicable to you.
4. Define Net Annual Value (NAV): Net Annual Value = Gross Annual Value – Property Tax
5. Lessen home loan interest: For the interest paid on the availed housing loan during the financial year, deduction under Sec. 24 is available.
6. Decrease the standard deduction of 30% of NAV: Under Sec. 24 of the Income Tax Act, 30% on NAV is a permitted deduction from the Net Annual Value. No expenses like painting, repairs, etc. can be claimed as tax deduction beyond 30% cap.
7. The loss incurred from house property: When you have a self-occupied home, it’s GAV is nil as stated above. Claiming the deduction on interest of the loan will consequence to losses from house property. This loss can be settled against income from other heads of Income Tax .

Let’s take an example to understand the calculation:You have property which you have rented for Rs. 20,000 per month. You have paid municipal taxes for Rs. 15,000. Interest on burrowed capital is Rs. 50,000 Annual income from Rent = Rs. 20,000 X 12 = Rs. 2,40,000 NAV = Rs. 2,40,000 – Rs. 15,000 = Rs. 2,25,000 Decreasing 30% of NAV 2,25,000 – (30% of 2,25,000) = Rs. 1,57,500 Decreasing Home loan interest Rs. 1,57,000 – Rs. 50,000 = Rs. 1,07,000 Income from house property is Rs. 1,07,000 Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.