What is house property?
House property as per the Income-tax Act, 1961 means any building (or land adjacent to such building) owned by assessee himself. House property includes flats, shops, office space, factory sheds, commercial building, agricultural land and farm houses etc.
When is house property income taxable?
House property income (rental income) is taxable. Even if house property is not registered in the name of taxpayer, rental income shall be treated as his income because he is enjoying the ownership right viz. possession of such house property.
What are the categories of house properties ?
There are 3 categories of the house property as under:
- Self occupied house property
- Let out property
- Deemed to be let out property
- Self occupied house property: This means property which is used by assessee or his family for their own residence. As per the Income-tax Act, if assessee owns more than 1 self occupied properties, only one of them can be claimed as Self occupied property. The taxpayer can choose any beneficial property as his self occupied property. As the owner himself is residing in it, question about rent receivable does not arise. Hence there is no income from self occupied house property, however interest paid on housing loan can be claimed as deduction.
- Let out property: This means the property which has been let out by an assessee for monetary consideration i.e. rent. The rent received shall be treated as ‘Income from house property’.
- Deemed to be let out: All vacant properties are treated as ‘Deemed to be let out’. Also if the taxpayer is having more than one self occupied house property then any one property can be claimed as self occupied house property and all other self occupied house properties will be treated as “Deemed to be let out”. The fair rent receivable from such property shall be treated as ‘Income from house property’. Fair rent can be computed on the basis of rental income for similar house property located in the same area.
Income from house property can be computed with following steps:-
Fair market value or municipal value (Government valuation) of the property, whichever is higher.
Amount calculated in Step I above or Actual rent receivable from house property, whichever is higher.
Step III: Gross Annual Value (GAV)
If the house property has remained vacant during any part of the year, the rental income not received by taxpayer due to such vacancy shall be deducted from amount calculated in Step II. So taxpayer will get Gross Annual Value of the property.
GAV= Amount computed in Step II minus Vacancy Loss.
Note- In case of self-occupied house property, as there is no rental income received by taxpayer, Gross annual value of a self occupied property is always ZERO)
Step IV: Net Annual Value (NAV)
Net Annual Value shall be computed as follows-
Gross Annual Value of the property minus municipal taxes paid during the year by the owner.
Points to remember-
- Municipal taxes paid by tenant shall not be allowed.
- If some municipal taxes remain unpaid during the year by owner, no deduction is allowed.
- No deduction for municipal taxes is allowed for self occupied house property.
- In case of self occupied property, Gross Annual value is ZERO, and no deduction for municipal taxes is allowed and hence Net Annual value is also ZERO).
Step V: Eligible Deductions
There are 2 deductions which are eligible to be deducted from NAV namely:
- Standard Deduction of 30% of NAV.
- Interest on housing loan.
Step VI: Income from house property
Net Annual Value minus eligible deduction.
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