How to calculate income from house property


It is advisable to choose the property where you have to pay minimum municipal tax as self-occupied property

The Indian Income Tax Act divides income received by an individual into five heads for calculating tax. The five heads of income include income from salary, income from house property, profits & gains of business or profession, capital gains and income from other sources. This article will teach you how to find the income from the home you own.

Income from house property includes income earned by an individual through the property owned by him.

The property would comprise a house, an office building, godown, factory, shop, auditorium, etc.

Quick calculation

Income of house property

Figures in Rs.

Total annual rental income value

15,000 x 12 = 1.8 lakh

Less: Municipal taxes for the financial year

– 10,000

Net annual value (NAV)

1.7 lakh

Less: Deductions under Section 24

Standard deduction (30% of NAV)

1.7 lakh – 51,000 = 1.19 lakh

Interest on borrowed capital (if any)

1 lakh

Income from house property

19,000

The above calculation of income generated from house property is quite simple. It gives us a basic idea of what aspects we need to consider while calculating the income that would be liable for taxation.

Of this net annual income, 30% is allowed as a standard deduction. Further, if you have taken any loan, while buying the property, then you can also deduct the interest paid on the loan. The interest paid on the loan is exempt under Section 24. The above calculation is done for a let out property i.e. given on rent. Even if your property is not let out property, you still need to calculate the market rent (that you could have otherwise earned) as the notional income and pay tax on it. Therefore, it may be wise to rent the property instead of keeping it locked.

Renting your additional property is important from the wealth tax perspective. You have to pay wealth tax on all your properties (except one self-occupied property) unless they have been rented out.

Self-occupied property

For self-occupied property (SOP), rental income will be taken as ‘nil’ in the above calculation. The rental income is zero because we stay in that property and it doesn’t earn any rent. Accordingly, we cannot subtract municipal taxes nor can we deduct any standard deduction. But, we can still deduct the interest paid on the loan availed subject to a specified limit.

Thus, the income from an SOP will always be zero or negative (to the extent of interest paid or the specified limit, whichever is lower). This loss from SOP can be adjusted against your income from other sources such as salary, capital gains, business, etc and hence reduce your overall tax liability.

Points to remember

If you own more than one property, you can designate any one of these as SOP and pay tax on the others. It is advisable to choose the property where you have to pay minimum municipal tax as SOP. You can change the SOP every year.

Interest exempt u/s 24

For the SOP, there is a limit to the interest that you can deduct. If the property is acquired or constructed after 1 April 1999 (and such acquisition/construction is completed within three years) then you are allowed to claim deduction of interest up to Rs. 1.5 lakh. For loans taken to reconstruct the house (and those taken prior to April 1999), the limit is only Rs. 30,000.

However, there is no such limit on the interest deduction for all other properties, excepting the SOP one. Accordingly, you can take the loan for such property which gives you the maximum benefit.



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