Property Tax Deduction

Reviewed by Annapoorna | Updated on Aug 27, 2020

Introduction

Homeowners who are also renting out such property have an option to claim the deduction from the rental income. It is known as a property tax deduction.

What is Property Tax Deduction?

Property tax deduction refers to the deduction of the property tax from the rental income of the house property, which is subject to Indian income tax. Property tax is alternatively called as municipal tax. It is available as a deduction for every such house property rented out and earning a rental income during the year. It is allowed as a deduction for the whole amount. It is allowed even though the property was vacant for a part of the year.

Section 23 of the Indian Income Tax Act, 1961 deals with the calculation of the annual value of the rental income for computation of total income for income tax. It states that the taxes levied by any local authority for the property is allowed to be deducted. For example, the property tax paid in Bangalore could be called municipal tax. It is allowed irrespective of the previous year in which the owner incurs the liability to pay such taxes. It means the deduction is allowed on payment basis, regardless of the method of accounting regularly employed by him.

The amount of property tax deduction must be reported in the respective field of the computation of income from house property of any income tax return. The property tax paid receipt must be kept on record for any future reference or verification of the details by a tax officer.

Who is eligible to pay?

A tax assessee being the homeowner or owner of the property who has let out the property shall be eligible for a deduction of the municipal tax. He must have earned rental income for the part of the year.

Alternatively, the property tax deduction is allowed against the deemed rental income in case of a deemed letting out of the property.