“Income from House Property” [Sections 22 to 27]

Income from house property is one of the five heads of income under the Income Tax Act, 1961. It applies when an individual earns rental income or owns more than one self-occupied property. Below is a structured breakdown of its taxation rules, deductions, and exemptions.

1. When is Income from House Property Taxable?

• Taxable if:
  • You own a house property (residential/commercial).
  • It is not used for your own business/profession.
  • It is either let outor deemed to be let out (if more than one self-occupied property).
• Not taxable if:
  • Used for own residence (self-occupied)(only one property can be claimed as self-occupied).
  • Used for business/profession(taxed under “Profits and Gains from Business”).

2. Property Classification

Properties are categorized as:

1. Self-occupied:
   • Used for the owner’s residence.
   • Annual Value (AV) is nil.
   • Up to two properties can be declared self-occupied (additional properties are deemed let-out).
2. Let-out:
   • Rented during the year.
   • Taxable based on actual rent received.
3. Deemed let-out:
   • Properties not rented but not self-occupied (e.g., vacant properties beyond two self-occupied ones).
   • Taxed on “reasonable rent” based on location and market rates.

3. Calculation of Income from House Property

Step 1: Determine Gross Annual Value (GAV)

• For Let-Out Property:
  • GAV = Higher of Actual Rent Receivedor Municipal Rental Value (MRV).
  • If rent exceeds ₹2.4L/year, TDS @ 10%applies if PAN is provided (else 20%).
• For Self-Occupied Property (SOP):
  • GAV = Zero(since no rental income).
• For Deemed Let-Out Property (if you own multiple houses):
  • One house can be declared as self-occupied, others are deemed let-out.
  • GAV = Fair Rental Value (FRV) or MRV.

Step 2: Deduct Municipal Taxes (if paid by owner)

• Net Annual Value (NAV) = GAV – Municipal Taxes Paid

Step 3: Deduct Standard Deduction (30% of NAV)

• 30% of NAVis allowed as deduction for repairs/maintenance (even if no expense is incurred).

Step 4: Deduct Home Loan Interest (Section 24)

• For Let-Out Property:
  • Full interest paidis deductible (no limit).
• For Self-Occupied Property:
  • Max ₹2 lakh/yeardeduction on home loan interest.

Step 5: Final Taxable Income

• Taxable Income = (NAV – 30% Standard Deduction – Home Loan Interest)

4. Key Deductions & Exemptions

5. Special Cases & Exemptions

A.  Self-Occupied Property (SOP)

• Only one housecan be declared as SOP.
• If you own multiple houses, the others are deemed let-out.
• Tax benefit:
  • Interest deduction up to ₹2 lakh(if loan taken).
  • No rental income taxation.

B.  Deemed Let-Out Property

• If you own more than one house, the additional houses are taxed as deemed let-out.
• Taxable value = Fair Rental Value (FRV) or Municipal Value.

C.  Unrealized Rent & Vacancy Allowance

• If property is vacant, actual rent receivedis considered (not full MRV).
• Unrealized rent(if tenant defaults) can be deducted if conditions are met.

D.  Joint Ownership & Co-Borrowers

• Each co-owner can claim proportionate deductions(interest & principal).
• E.g., If two owners have a home loan, each can claim ₹2L interest deduction(total ₹4L).

6. Tax Implications on Selling House Property

A.  Capital Gains Tax

• Long-Term Capital Gains (if held > 24 months):
  • Taxed at 20% with indexation benefit.
  • Can be exemptedif reinvested in:
    • New house (Section 54)
    • Capital Gains Bonds (Section 54EC)
  • Short-Term Capital Gains (if held < 24 months):
    • Taxed as per income slab.

B.  TDS on Sale (if property value > ₹50L)

• Buyer must deduct 1% TDS(if sale price > ₹50L).

7. Common Mistakes to Avoid

❌ Not declaring deemed let-out property.

❌ Missing home loan interest deduction (Section 24).

❌ Ignoring municipal tax deductions.

❌ Not utilizing loss from house property against other income.