Buying a home is one of the most common long-term investment goals for most Indians. House prices have indeed shot through the roof and many end up taking home loans. A great chunk of one’s income goes towards home loan EMI. So, the government has given plenty of tax benefits for house property under Section 24 of the Income Tax Act.
1. Income from House Property
Income from House Property is possible in these cases –
- Rental Income on a let out property
- Annual Value of a property which is ‘deemed’ to be let out for income tax purposes ( when you own more than two house property)
- Annual Value of the property which is self occupied, which isNil
Annual Value of the property which is self occupied, which isless Municipal Taxes Paid. If the property is let out, its rent received is your Gross Annual Value. For a deemed to be let out property, a reasonable rent of a similar place is your Gross Annual Value. For a self occupied house property the Gross Annual Value is Nil.
2. Deductions Under House Property
a. Standard Deduction – Standard Deduction is 30% of the Net Annual Value calculated above. This 30% deduction is allowed even when your actual expenditure on the property is higher or lower.
Therefore, this deduction is irrespective of the actual expenditure you may have incurred on insurance, repairs, electricity, water supply etc.
For a self occupied house property, since the Annual Value is Nil, the standard deduction is also zero on such a property.
b.Deduction of Interest on Home Loan for the property –Homeowners can claim a deduction of up to Rs.2 lakh (Rs 1.5 lakh if you are filing returns for FY 2013-14) on their home loan interest, if the owner or his family reside in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire interest on the home loan is allowed as a deduction.
Your deduction on interest is limited to Rs.30,000 if you fail to meet any of the conditions given below for the Rs.2 lakh rebate.-
i. The home loan must be for purchase and construction of a property;
ii. The loan must be taken on or after 1 April 1999;
iii. The purchase or construction must be completed within 5 years from the end of the financial year in which the loan was taken
3. Pre Construction Interest
When you have taken a loan for purchase or construction of a house property, you can claim a deduction on pre-construction interest. However, this is not allowed in case of the loan for repairs or reconstruction. The total amount of pre construction interest and interest on housing loan that can be claimed in a year should not exceed Rs 2 lakh in any case.
The deduction for this interest is allowed in 5 equal installments starting from the year in which the house is purchased or the construction is completed. Example, if construction of your property completed in FY 2018-19, on 25 June 2018, you can claim 1/5th of interest paid up till 31 March 2018 when you file your return for FY 2018-19.
4. Conditions for Claiming Interest on Home Loan
You need to meet all the below 3 conditions to claim this deduction
a. Loan has been taken after 1st April 1999 for purchase or construction
b. The acquisition or construction is completed within 5 years (3 Years till FY 2015-16) from the end of the financial year in which the loan was taken
c. There is interest certificate available for the interest payable on the loan
Note that your interest deduction may be limited to Rs 30,000 if any one of these conditions is met –
a. Loan is borrowed before 1st April 1999 for purchase, construction, repairs or reconstruction of house property
b. Loan is borrowed on or after 1st April 1999 for purchase, construction, repairs or reconstruction of house property.
5. Computation of Income Under House Property
Say, a person repays housing loan of Rs 4 lakh annually out of which Rs 2 lakh is the interest component. He has also incurred a pre-construction interest of Rs 3 lakh. He is earns Rs 7000 monthly from a let out property and also pays municipal taxes of Rs 3000 for the house. Let’s calculate his Income from house property in both the scenarios:
1. He has a self-occupied property, or
2. The property is rented out
|Type of House Property||Self Occupied||Let Out|
|Gross annual Value (Rent paid- 7000*12)||NIL||84,000|
|Less: Municipal Taxes or Taxes paid to local authorities||NA||3,000|
|Net Annual Value(NAV)||Nil||81,000|
|Less: Standard Deduction(30% of NAV)||NA||24,300|
|Less: Interest on Housing Loan||200,000||200,000|
|Less: Pre-construction interest (1/5th of 3 Lakhs)||60,000||60,000|
|Income from House Property||(260,000)||(203,300)|
|Overall loss restricted to||(200,000)||(200,000)|
Remember, maximum loss set off allowed in a financial year is limited to Rs 2 lakh. Remaining loss can be carried forward to future years – 8 years in total. However, in these 8 years, it can only be set off from income from house property.