Understanding Tax Implications of Income from House / Property

If you own a property which is a building, plot or land attached to such building, then any rental income from such property will be chargeable to tax under the head “Income from House Property”.

One important point to be kept in mind is that such a property should not have been used for personal business or profession. So even if you own a shop (which is a building) and given it on rent, than income from such shop will be taxed as “Income from House Property”.

What is considered as House Property?

Let’s understand what exactly house property means in order to understand the income from house property.

• House property consists of any building or land attached to that building. The land may be in the form of a courtyard or compound forming part of the building.
• An open plot of land is not considered as House property
• House property includes flats, shops, office space, factory sheds & farm houses.
• Further, house property includes all type of house properties, i.e., residential houses, godowns, cinema building, workshop building, hotel building, etc.

What conditions need to be met?

Now the income will be taxed as income from house property only if following conditions are satisfied:

• Assessee has to be the owner of the property
• The property is being used for any purpose other than for carrying out business & profession.

Income from House Property & Scenarios

Now there are two scenarios of income from house property:

1. Income from self-occupied house property is the property which you are using as your own residence throughout the year without letting it out or using it for another purpose and since you are using the property for your own purpose, there will not be any income from the same property. Thus your income from self-occupied house property will always be NIL.
2. Income from let out house property: In case if your property is let out, you will receive rent from your tenant(s). This rent income will be taxed as your income from house property. In short rental income received by the owner from letting out the house property will be taxed under income from house property.

Rental income from subletting is not taxed as income from house property since in that case person receiving the rent income from subletting is not the owner of the property.

How to calculate Income from House property FY 2023-24 / AY 2024-25?

First we determine the Gross Annual Value. The gross annual value of a self-occupied house is zero. Whereas in case of Let out house, it is the rent collected.

Since the gross annual value of a self-occupied house is zero, claiming the deduction on home loan interest will result in a loss from house property. This loss can be adjusted against income from other heads in the current Assessment Year. Losses that cannot be set off, shall be carried forward up to 8 assessment years.

Income Tax Benefits on home loan for AY 2024-25 (under Old Tax Regime)

Tax benefit u/s 80C

You can claim home loan interest on any number of homes you own. The home loan benefits can be categorised into two parts, principal repayment and interest payment. Benefits for principal repayment are available u/s 80C and the maximum deduction limit u/s 80C is Rs. 1,50,000.

Tax deduction u/s 24

The benefits for home loan interest payments are available u/s 24B and 80EE of the income tax act. As per income tax act, you can have only one home two homes as self-occupied (from FY 2019-20 / AY 2020-21) and for that, you can claim the home loan interest benefits u/s 24B up to Rs. 2,00,000.

For all the let out and deemed let out properties, you can claim the home loan interest benefits u/s 24B without any limits.

• Tax benefit on loan repayment of second house / Let-out property will be restricted to Rs 2 lakh per annum only (even if you have multiple house the limit is still going to be Rs 2 Lakh only and the ceiling limit is not per house property).
• The unclaimed loss if any will be carried forward to be set off against house property income of subsequent 8 years. In most of the cases, this can be treated as ‘dead loss‘.
• I believe that this is a major blow to the investors who have bought multiple houses on home loan(s) with an intention to save taxes alone.
• As of now (till FY 2016-17), interest paid on your housing loan is eligible for the following tax benefits ;
  • Municipal taxes paid, 30% of the net annual income (standard deduction) and interest paid on the loan taken for that house are allowed as deductions.
  • After these deductions, your rental income can be NIL or NEGATIVE and is called ‘loss from house property’ in the latter case.
  • Such loss is currently allowed to be set off against other heads of income like Income from Salary or Business etc. which helps you to lower you tax liability substantially.

• Interest paid on housing loan taken (Section 24).
  • Under the new tax regime, set-off & carry forward of loss under Income from House Property is not allowed. However, you can still use it to nullify rental income from a let-out property.

Section 80EE

This was a new proposal which had been made in Budget 2016-17. The same will be continued in FY 2017-18 / AY 2018-19 too. First time Home Buyers can claim an additional Tax deduction of up to Rs 50,000 on home loan interest payments u/s 80EE. The below criteria has to be met for claiming tax deduction under section 80EE.

• The home loan should have been sanctioned during / after FY 2016-17.
• Loan amount should be less than Rs 35 Lakh.
• The value of the house should not be more than Rs 50 Lakh &
• The home buyer should not have any other existing residential house in his name.

New Section 80EEA

Besides the tax deductions under Section 80C and 24b, an individual can now claim up to Rs 1.5 lakh under Section 80EE from FY 2019-20 or AY 2020-21 onwards, subject to below conditions;

• The home loan should have been sanctioned between 1st April, 2019 to 31st March 2020.
• The Stamp duty value of the property should not exceed 45 Lakhs.
• Taxpayer should not own any other residential property on the date of loan sanction.
• This tax benefit will be available from 1st April 2020 (AY 2020-21) and till the end of the home loan tenure (closure).
• The total interest deduction is now Rs. 3.5 lakh (Rs 2 Lakh +
  Rs 1.5 Lakh).

Kindly note that the deduction under Section 80EEA is available for home loans from banks and approved financial institutions only. Under Section 24, even interest paid on home loans from friends and relatives is eligible for tax benefit.

To claim tax benefit under Section 24, you should have received possession of your house (interest paid before possession is eligible for deduction over the next 5 years in 5 equal installments). Section 80EE and 80EEA do not impose any requirement of possession or completion of construction. Therefore, Section 80EEA provides you immediate tax relief even if you have purchased an under-construction property.

Continue reading :

• Income Tax Deductions List FY 2023-24 | Under Old & New Tax Regimes

• Self Occupied Property (SOP) & Tax implications

• Under Construction House : How to claim tax deduction on Home Loan Interest payments?

Disclaimer: All information in this article has been provided by Quicko.com and Relakhs.com is not responsible for correctness of the data. Quicko is engaged in assisting in online ITR preparation and filing. You can sign up with Quicko.com and efile your tax returns within minutes absolutely free. The author can be contacted at anand@quicko.com. 

(Kindly note that ReLakhs.com is not associated with Quicko.com) (Post last updated on : 23-Sep-2023))