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Owning a house property in this fast moving world is considered as a safe investment but it comes with certain responsibilities as well, such as timely payment of municipal taxes and paying the relevant income taxes as well. We would be discussing them in detail below.
Definition of House Property as per Income Tax Act’1961
House property as defined under Income Tax Act’1961 consists of:
Computation of House Property Income under the Act
| Particulars | Self -Occupied Property | Let Out Property |
| Gross Annual value(GAV) (1) | Nil | Higher of Expected Rent and
Gross Rent received/receivable |
| (Less): Municipal Taxes (2) [Restricted to GAV amount] | Nil (Not allowed in case of Self -Occupied property) | Allowed on the payment basis by the owner himself. No deductions allowed for the payment by tenant. |
| Net Annual Value(NAV) [(1-2)=(3)] | Nil | Deduct municipal taxes from GAV |
| (Less): Standard deduction u/s 24(a) equal to 30% of NAV (4) | Nil | Deduction for whitewashing, repairs, etc. are being given as a standard deduction under this section |
| (Less): Deduction u/s 24(b) for Interest on borrowed capital (5) | Limit discussed below* | No such limit |
| House Property Income/(Loss)[(3-4-5)=6] | Amount as per calculations | Amount as per calculations |
Deduction u/s 24b for Interest on Borrowed Capital for Self-Occupied Property
Most of us take a home loan nowadays for the purchase/construction of the house property and to give benefit to the Assessee Income tax act’1961 provides for the deduction of the interest paid on the home loan. The Principal repaid is allowed as a deduction u/s 80C. The Act provides for both the pre and post construction/purchase interest to be allowed as deduction but in a different manner discussed below:
Post Construction Interest: The Interest on home loan paid after the completion of the property is allowed to be deducted u/s 24b restricted to a limit of Rs 30,000 to be started from the end of the financial year in which the house property is constructed or purchased. An Assessee can claim the deduction Upto Rs 200,000 if the following conditions are satisfied:
Further, if the assessee is not able to fully claim his interest due to the limit restrictions he can claim such remaining interest restricted to additional Rs. 50,000 u/s 80EE only if he satisfies all the following conditions:
With an objective to provide an objective to the ‘Housing for all’ initiative of the Government Finance (No. 2) Act, 2019 has inserted a new Section 80EEA under the Income-tax Act for those individuals who are not eligible to claim deduction under Section 80EE. An individual can claim deduction up to Rs. 150,000 under section 80EEA subject to following conditions:
Hence, an individual who does not meet the criteria of Section 80EE shall now be eligible to claim deduction under section 80EEA.
Pre- Construction Interest: The interest paid before the completion of house property is also deductible under section 24b in 5 equal annual installments beginning with the year in which the property was acquired/ constructed. For e.g. if the pre-construction paid is Rs. 50,000 so the amount that will be allowed in the current year is Rs. 10,000[50,000/5].
Concept of Deemed Let-out in case of multiple house property
Until FY 2018-19, if an Assessee owns more than one house property as a self- occupied property then he was required to pay the tax on one of his self-occupied property as a let out property calculated on the notional rent as reduced by the applicable deductions. This concept is known as “Deemed to be let out Concept”.
From FY 2019-20, the relaxation of the number of house property as a self- occupied property has been increased to 2 which means the Assessee can now hold Upto 2 Self- occupied properties and does not pay the tax as per deemed to be let out concept.
Suppose if an Assessee is holding more than 2 house property as self-occupied property then he has to deem one of his property as the Let out as per the benefits he is gaining by choosing the nature of House property.
Set off and Carry Forward of House Property Loss
The Loss incurred under the head “House Property” is allowed to be set off against the other head incomes restricted to a limit of Rs. 200,000 and any balance remaining is allowed to be carry forward for a period of 8 assessment years and this brought forward loss can be setoff only against “Income from House Property” only in the subsequent years.
For Example: Mr. A has incurred a loss of Rs 300,000 from House property during the year and earned a salary income of Rs 250,000. He is allowed to set off house property loss up to Rs 200,000 with the salary income and can carry forward loss of Rs. 100,000 [3L-2L] for the 8 assessment years. The brought forward loss in the subsequent years will be allowed to be set off only against House Property Income.
Treatment of Arrears and Unrealized Rent
Arrears of rent mean the rent, which is to be paid by the tenant on account of increase in the rentals from the retrospective date. If an owner receives arrears of rent from his tenant, he is required to pay the tax on such receipt reduced by a standard deduction of 30% means he is required to offer his income from arrears of rent at 70% only.
Unrealized rent is the rent, which is not recovered by the owner from the tenant. The income tax act gives the option to reduce such period rent from Annual Value if the following conditions are satisfied:
Note: The Subsequent realization of Unrealized rent will be taxed in the hands of the Assessee and a 30% standard deduction will be allowed to be reduced from the receipt irrespective of the fact where the Assessee is the owner or not in the year of receipt.
Taxability of House Property income in the New Tax regime from AY 2021-22
As we all know the Finance Act’2020 has introduced some major changes in the tax slabs if an Assessee opts for the new regime as per Section 115BAC. He is required to forego major of the exemptions and deductions to avail the benefits of new regime.
In case of an Assessee owning a Self-occupied property or a vacant property, he will not be able to claim deduction u/s 24b for the interest on housing loan and hence his income from housing property will always be Nil. In case of let out property the Assessee can claim deduction u/s 24b but cannot set off or carry forward any loss arising due to such deduction under the head “House Property”.
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