People work hard to meet their needs and earn money. Some people want to get more profit by investing money, but their various income is taxed by the government and they have to pay some part of their income to the government as tax. House property is also taxed by the government. Income from house rent or income from house transfer is called ‘income from house property’. Property, house, office, building or warehouse can be anything. ‘Income from house property’ is one of the five main sources of income that are used to calculate your total gross income in a year and then you are taxed accordingly. So through this article we are going to tell you how you can save tax on income from house property.
Head of income
- Salary income
- Income from house property
- Income from profit in business and profession
- Income from capital gains
- Income from other sources
Your income will be taxed under income from house property only when the following conditions are met –
- Your house property must be something of a building, land or apartment.
- You must own the property.
- The property should not be used for commercial purposes or any business.
The property can be inherited, let-out or self-occupied. You should calculate the tax on income in a manner specified for self-occupied and lay-out properties. Self-occupied properties are used for residential purposes and your family members live in or are owned by them. An empty house is considered self-occupied for income tax. If your property is vacant due to employment reasons, you may be the exception. You can consider two houses to be self-occupied, while any other house is considered a let-out.
Calculation of income from self-occupied property
You can use the following steps to calculate income from self-occupied property.
- Calculate the gross annual value (GAV) of the house. The gross annual value of a self-occupied property is zero.
- Municipal taxes paid during the year are subtracted to find the net annual value (NAV) of the property.
- You can get some higher deduction under section 24. A standard deduction of 30% is allowed on the net annual value of the property under section 24 (a) and a deduction under section 24 (b) is allowed on the interest paid on a home loan.
- The resulting income is taxed after taking advantage of the deduction received under section 24.
The gross annual value (GAV) of a self-occupied property is zero. It does not matter whether your gross annual value is zero or in case of loss (in case of a home loan) it becomes negative. This can be adjusted based on other key sources of income.
Computation of income from let-out property
You can calculate the income from the let-out property through the following steps –
- If you have rented your house property for a few months, then this property will be called a let-out property.
- You should first calculate the annual base income as a rental from the property.
- This time you should deduct the Municipal taxes paid to the Corporation to get the Net Annual Value (NAV).
- Now you should deduct 30% standard from this net asset value and also deduct the interest of the home loan to calculate the final value of the let-out house property.
You can understand the method of calculating income from house property through an example –
Suppose you have given your house on rent at the rate of 20 thousand rupees per month. You have paid 10 thousand rupees in a year as tax to the municipality for your property. With this, you took a home loan, on which you are paying 60 thousand rupees interest.
|Income from house property||Amount (Rs)|
|Total annual rental income||20,000 * 12
|Nagal municipality tax has to be reduced||10,000|
|Net Annual Value (NAV)||2,30,000|
|Deduction under section 24|
|NAV – 30% of NAV||2,30,000 – 30% of 2,30,000 = 1,61,000|
|Interest on borrowed amount||60,000|
|Income from house property||101,000|