Income from house property in India is taxed under the head “Income from House Property” in the Income Tax Act. This income is typically derived from owning property that is either let out or self-occupied. Here’s how it is taxed:
1. Self-Occupied Property
For a self-occupied property (where the owner lives), the tax treatment is as follows:
- Income: The income from a self-occupied property is considered to be nil, meaning no rental income is deemed to be earned.
- Deductions:
- Interest on Housing Loan: Deduction of up to ₹2 lakh per annum on interest paid on a housing loan is available under Section 24(b).
- Principal Repayment: The principal repayment of housing loan can be claimed under Section 80C, subject to the overall limit of ₹1.5 lakh for all eligible investments.
2. Let-Out Property
For a property that is rented out, the taxation process involves:
Gross Annual Value (GAV): The higher of the actual rent received or the fair market value (FMV) is considered as the Gross Annual Value.
Net Annual Value (NAV): From the GAV, municipal taxes (such as property tax) paid during the year are deducted to determine the Net Annual Value.
[
\text{Net Annual Value} = \text{Gross Annual Value} - \text{Municipal Taxes}
]
Deductions:
- Standard Deduction: A flat 30% of the Net Annual Value is allowed as a standard deduction under Section 24(a).
- Interest on Housing Loan: The interest on housing loan (borrowed for the purchase, construction, renovation, etc.) is deductible under Section 24(b), with a cap of ₹2 lakh per annum for let-out property. There is no upper limit on interest deduction for a let-out property, but the total loss under the head “Income from House Property” can be set off against other heads of income (except for salary) up to ₹2 lakh, and any remaining loss can be carried forward to subsequent years.
3. Deemed Income
- Unoccupied Property: If an individual owns more than one residential property, the additional properties (beyond one self-occupied property) are treated as deemed to be let out. The same taxation rules for let-out properties apply.
4. Special Cases
- Property under Construction: If the property is under construction and is not yet let out, no income is considered. However, once the construction is completed, the property will be taxed as let-out if it is not self-occupied.
- Annual Value Calculation: For properties owned by non-residents, special rules may apply.
Note: The tax treatment might change based on specific provisions and updates in tax laws, so it's always a good idea to consult the latest guidelines or a tax professional for detailed and personalized advice.
