How to Calculate Income from House Property Last Updated : 10 Jul 2020

Income from house property includes all the income earned by the assessee from a property. The building and all the land attached to the building is part of the house property. Tax is calculated differently for different types of house properties.

Calculate Income from House Property
Calculate Income from House Property

Income from house property is defined as the income earned from a property by the assessee. House property includes the building itself and any land attached to the building. Property refers to any building (house, office building, warehouse, factory, hall, shop, auditorium, etc.) and/or any land attached to the building (compound, garage, garden, car parking space, playground, gymkhana, etc.). There are many intricacies and types of house property which is calculated in different ways. Taxability may not necessarily be on actual rent or income received. If the property is not let out, the tax will be charged on the potential income the property is capable of yielding.

Before learning how to compute income from house property, it is important to understand the terminology.

  • Annual Value: This is the capacity of a property to earn income is its annual value.
  • Municipal Value: This is the value of your property as evaluated by municipal authorities on which they charge municipal tax. Municipal authorities have a host of factors that they consider before assigning a municipal value.
  • Fair Rental Value: The rent which a similar property with similar features in the same (or similar) area would fetch is the fair rental value.
  • Standard Rent: Under the Rent Control Act, a standard rent is fixed and owners cannot receive rent higher than that specified in the Rent Control Act. This Act ensures that owners are paid fair rent, tenants are not exploited and are protected from eviction.
  • Actual Rent received/receivable: This is the actual amount received by the owner from the tenant as rent, depending on who pays the water, electricity and other utility bills.
  • Gross Annual Value (GAV): This is the highest among:
    • Rent received or receivable
    • Fair Market Value
    • Municipal Valuation

If the Rent Control Act is applicable, the GAV is highest among:

  • Standard Rent
  • Rent Received
  • Net Annual Value (NAV): NAV = GAV Municipal Taxes Paid
  • Deductions: To arrive at the actual taxable income from house property, two deductions are allowed, under Section 24 of the Income Tax Act
  • Statutory Deduction: 30% of the NAV is allowed as a deduction towards repairs, rent collection, etc. irrespective of the actual expenditure incurred. This deduction is not allowed if the Annual Value is nil.
  • Interest on borrowed capital: is allowed as a deduction on accrual basis if the money was borrowed to buy/construct the house. Deduction is allowed on whichever is lesser between Rs.1,50,000 or the actual interest amount (in case the construction was completed within 3 years of taking the loan, on or after 1-April-1999.) In other cases, its between Rs.30,000, and the actual interest, whichever is less.
  • Annual Value: Annual Value = NAV Deductions.
  • Owner/deemed owner: Income from house property is taxable to the owner of the property. The owner is the person who is entitled to receive income from property. This means that income is chargeable to the person who receives financial benefit from the property, even if the property is not registered to him, i.e. deemed owner. A deemed owner is an owner by implication and not necessarily documented registration.

How to compute your income from house property.

Income from house property contains the income generated by the owned property of an individual.

Lets assume you have a property and are charging Rs. 15,000 per month as rent. Lets also assume that you have paid Rs. 10,000 in municipal taxes for that year, and have Rs. 50,000 as interest on borrowed capital.

Income of House Property Amounts (in Rs.)
Total annual rental income value 15,000 x 12 = 1,80,000
Less: Municipal Taxes 10,000
Net Annual Value (NAV) 1,70,000
Deductions under Section 24  
Standard deduction (30% of NAV) 1,70,000 – 51,000 = 1,19,000
Interest on borrowed capital (if applicable) 50,000
Income from House Property 69,000

When is Annual Value "NIL "?

The annual value can be considered to be nil if the owner is residing in his property (Self-occupied property or SOP) and does not derive financial benefit from the same. It will be nil if the owner of the property has to move out of the city his property is in to another city for work and resides in a rented property not owned by him.

Example: Mr. Babu, who bought a house in Bangalore has to move into a rented place in Pune for his job. The annual value on Mr. Babus Bangalore property will be nil, and he will get a tax deduction for interest paid on borrowed capital.

How do I Save Tax on Income from House Property?

Careful planning can enable you to save a sizeable amount from taxation. Some of the things you can do to save tax are as follows:

  • Joint Home Loan If you jointly own a property with someone and also apply for a joint home loan with your partner, you will both be eligible for tax deductions on interest up to Rs. 1,50,000 each.
  • Planning a second home? If you already have one self-occupied property registered to your name and wish to avoid paying taxes on a second home, register the second property on your spouse/relatives name to avoid excess taxation.
  • Joint ownership Taxation on income from house property can be divided between co-owners, and hence lessen the load.
  • Ownership of more than one property If you own multiple properties, only one of these can be registered as your residence and fall under self-occupied property (SOP). It is important to evaluate the tax liability on all your properties and choose the one with the highest tax liability to call home, and let out the remaining. You can also change the SOP every year.
  • Empty houses that you own will still be taxed based on the fair rental value, so its advisable to let any and all empty properties out, enabling income and no loss because of taxation.

News About Income from House Property

  • Telangana May Hike Property Value By 30%

    The Telangana government is likely to increase its land and house values with an eye on higher revenues from stamp duty and registration fees.

    The registration department revises land and property rates once a year in urban areas and once in 2 years in rural areas. Property value revision in Telangana region was last done in 2013. In the past 2 years, the government has been rejecting proposals to hike prices to offer reprieve to property buyers in the new state.

    Currently, the actual market prices and government valuations are seeing a huge gap, which makes a revision imminent.

    10 June 2016

  • First -Time Home Buyers now to enjoy additional Tax Benefit

    First time home buyers will have additional tax benefit from April 1 onwards, when purchasing residential properties of that are up to Rs 50 lakh.The government's proposal will be implemented from April 1 and has been initiated with the intention to promote 'housing for all' scheme and boost the the real estate sector which is facing a huge slowdown for last 3 to 4r years.

    20 April 2016

  • Interest can be claimed as Deduction when Calculating Income from House Property

    The Union Budget 2016 saw the implementation and alteration of several different laws, and one such case was Section 24b of the Income Tax Act relating to income from house property. Existing provisions had stated that the deduction of interest paid on capital borrowed to purchase the property would be allowed provided the property is constructed within three years from the end of the financial year in which the capital was borrowed. But starting 01.04.2017, the period is proposed to extend from three to five years. Customers who have taken out housing loans can claim the interest payments as deductions if the interest is paid for three years from the date on which the loan was borrowed.

    22 March 2016

  • Budget 2016 - Buying your 1st Home will now save you an additional Rs. 50,000

    In the Budget 2016, it was announced by the Finance Minister Arun Jaitley, that buying your first home could save you an additional Rs. 50,000 in a way of tax. The loan amount must be over Rs. 35 lakhs but not Rs. 50 lakh, to be eligible for the additional deduction. This has been a welcomed decision when it comes to costs of housing units. Apart from the interest the portion of an EMI towards the principal is claimed under the section 80C of the IT Act 1961. A maximum deduction of Rs. 2 lakh will be allowed under the 'Income from House Property', if the interest payable is on a 'self-occupied' house.

    2 March 2016

  • House Owners, Tenants to receive Tax Benefits

    The government of India, In a move to promote rental housing in urban areas to meet the growing need of migrant population on the lines of other countries, has proposed tax relief. Tax benefits, by the Centre, states and local governments, will give both direct and indirect relief to house owners and tenants.

    The policy suggests that since a number of urban households live in rental and shared housing, the states should consider renting to be one of the various ways to improve housing condition. Some of the recommendations include setting up of a cheap arbitration and conciliation service for landlords and tenants by estimating the number of rental households and landlords. The service will quickly facilitate online registration of rental properties, property dealers working in informal sector, and also a grievance redressal system.

    03 December 2015

  • Current Fiscal Year will see Tax on Unsold Stocks

    The Income Tax Department has received the go ahead from the Central Government to tax unsold apartments across the country held by real estate developers. Officials said that income from house property will be charged under Section 43CA of the Income Tax Act, 1961. And will be effective from the current fiscal year 2015-16. The type of property ownership will facilitate the rate of tax. If the property is under the investor or builders name, they will be charged tax as per his income slab. The IT Department have decided on this move to make developers in cities such as Mumbai, Bengaluru, Chennai, and more will remain highly priced despite registrations being poor.

    15 October 2015

  • Delay in Possession of New House can Cause Tax Consequences

    Many builders are inviting home buyers to pick up homes now and pay later and also offering no VAT or Service Tax for early bookings these are for under constructions properties. A delay in possession does not only delay your pre-EMI costs, it also has tax-implications for taxpayers at a significant level. No tax benefit will be applicable on an uncompleted project, if the house is not completed the interest will not be deductible.Tax benefits are provided for a deduction of up to Rs. 1.5 lakh for principal repayment as per Section 80C and a deduction of up to Rs. 2 lakh for interest payment as per Section 24, assuming this is the only house owned and will be self occupied. Delay in possession can have significant adverse tax consequences.

    25 September 2015

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