Property Help

Legal & Taxation

  1. Do I have to pay any tax on "Income from House Property"?
  2. Do I have to pay Income Tax on Annual Value of the house occupied by me?
  3. What are the deductions available to me in case of self occupied property?
  4. What are the deductions available to me in case of a property given on rent or which is deemed to be let out?
  5. What is the benefit of Capital Gain in case of a house property?
 
 1. Do I have to pay any tax on "Income from House Property"?


Income from house property is taxable just as any other income like salaries, profits & gains of business and profession, income from other sources etc and added to total income. Tax is computed on the Annual Value of the House Property. It is calculated on the basis of inherent capacity of the house property to ear rent. "Inherent capacity" denotes the amount for which the property might be reasonably let out. This could be the actual rent received or annual rateable value fixed by the municipality, or rent of the similar property in the locality etc.

 2. Do I have to pay Income Tax on Annual Value of the house occupied by me?


No, when a house property is self occupied the Annual Value of such property is taken as "nil" and as such no income tax is payable. In fact you shall be eligible for deductions such as interest etc from your total income

 

However, if you happen to be the owner of more than one house property for own residential purposes then only one house (as per your choice, it is also necessary that you reside in that house) can be treated as self occupied and the Annual Value of that property shall be taken as nil. All other houses used for self-occupation shall be deemed to be let out and the Annual Value shall be computed accordingly and subjected to Income Tax.

 3. What are the deductions available to me in case of self occupied property?

Interest payable (whether paid or not) on loan for purpose, repairs, renewals, construction or reconstruction of house property is allowed as a deduction (from total income) up to Rs 30000/-.

 

However, where a house property is acquired or constructed after 1st April 1999 and such acquisition is completed within 3 years from end of the financial year in which capital was borrowed for construction or purchase of property, then the deduction allowable on interest payable shall be up to Rs 1,50,000/- per annum.

 

It may be pertinent to note that the interest attributable to the period from obtaining of loan to the period prior to completion of acquisition / construction is also allowable as deduction in equal installments over five successive financial years starting from the year in which the acquisition or construction is completed. However, this benefit is not allowed for interest on loans taken for repairs, renewals or reconstruction work.

 4. What are the deductions available to me in case of a property given on rent or which is the deamed to be let out?


The following deductions are permissible:

  • Municipal taxes actually paid as a deduction from Annual Value.
     

  • 30% of Net Annual Value, after deducting Municipal Taxes paid, towards repairs and collection charges (allowed in notional basis irrespective of the amount incurred)
     

  • Interest on money borrowed for the purpose of construction or acquisition of a house property without any upper limit.

What is the position if there is a loss under the head Income From House Property?

In case of self occupied property, since the Annual Value is taken as Nil, deduction is allowed on interest on borrowed capital upto a maximum of Rs 1,50,000/- effective Financial Year 2002-03.
 

In case of a let out property there are no restrictions on deducting the full interest payable on loans and so there can be loss under this head also.

Loss from house property can be set off against income from another property and also from any other head of income such as salaries, profit and gains of business or profession, income from other sources etc during the same financial year.
 

In case where the loss cannot be set off against any other heads of income within the same year then the balance loss can be carried forward and set off in subsequent years subject to a limit of 8 years but only against income from house property.

 5. What is the benefit of Capital Gain in case of a house property?


Benefit on Sale of any capital assets (Section 54F)

The Income Tax Act, 1961 gives an individual or HUF who do not own a residential house a concession to purchase a residential house as and when they sell a Long Term Capital asset (for e.g. shares, bonds, debentures, motor car etc). When you sell a capital asset normally you are required to pay tax on the gain on the value of asset after the benefit of indexation. If however, you do not own a residential house you can reinvest the net consideration received from the sale of capital assets in a residential house property and if the amount invested is equal to or more than the net consideration no income tax is payable on such Long Term Capital gain. However, the following needs to be noted for claiming such benefit.

  • You should purchase the residential house within a period of one year before or two years after the date on which the transfer took place or construct a residential house within 3 years of such transfer.
     

  • You should not own more than one residential house property other than the new asset on the date of transfer of the original asset.
     

  • You should not purchase a residential house other than the new asset within a period of one year of construct any residential house other than new house within a period of three year after the date of transfer of the original asset .

Benefits on re-investment in house property (section 54)

Apart from this if an Individual or HUF reinvests in a residential house property i.e. invests the sale proceeds of a residential house property which has been held for more than 3 years in purchase of new house, such reinvestment is exempt from Capital Gains u/s 54 provided the new house is purchased/one year before or two years after the transaction or has constructed a residential house within a period of three years.

 

What are the other deductions  available to me?

The following payments are eligible for rebate from tax to the extent of 20% of a maximum of Rs 20,000 (i.e. maximum rebate is up to Rs 4,000 p.a.). U/s 88 of the Income Tax Act

  • Any installment or part payment of the amount due under any self financing scheme of any development authority, housing board etc. engaged in construction and sale of house property or
     

  • Any installment or part payment of the amount due to any company or cooperative society of which the assessee is a share holder or member towards the cost of the house property allotted to him; or
     
  • Repayment of the amount borrowed by the assessee from:
    • The Central or State Government
    • Any bank (including cooperative bank)
    • The Life Insurance Corporation of India
    • The National Housing Bank
    • Any Housing finance Company approved by National Housing Bank for the purpose of refinance
    • Any public company or co-operative society that is engaged in business of financing construction of houses
    • The assessee's employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society
    • Any of the above for payment of Stamp duty, registration fee and other expenses for the purpose of transfer of such house property to the assessee

What are the provisions of Wealth Tax Act and Gift Tax Act applicable to house property?

One house or a part of the house belonging to an Individual or a Hindu Undivided Family is not chargeable to Wealth Tax. Gift made after 1.10.98 does not attract levy of gift tax either in the hands of donor or done.

 

Disclaimer :

The purpose of this FAQ is to provide the visitors a general understanding of the law on Income from House Property. The above FAQ been prepared on the basis of advice received and may vary from person to person, based on facts of such case. Reasonable efforts have been taken in collecting, preparing and providing quality information, but we do not warrant or guarantee the accuracy, completeness, adequacy or currency of the information. You are requested to contact your tax consultant for specific problems / clarifications. The contents of the FAQ are subject to changes / amendments made by the CBDT / Finance Ministry.