Income Tax – Rebate on Housing Loan up to Rs.2 lacs allowed

Income or Loss from House Property – Deduction of Interest paid on Home Loan from Income under Section 24 of Income Tax Act.

Calculation of net income or loss on house property is an important aspect as far as tax payers who own a house property is concerned. Section 24 of Income Tax Act provides the method to quantify Income or Loss on house property. The procedure for calculating Income or Loss on house property is as follows

1. Net Income out of House Property (Rental Value) is worked out by deducting expenses such as property tax, and 30% rebate as maintenance from Annual Rental Value.

2. Secondly, this income is deducted by Annual value of Interest paid in respect of the said property.

3. If the result so arrived is a +ve value then property of the tax payer earns net income which has to be added to gross income for the year.

If the result is a -ve value then the same can be deducted from the income as loss on house property

The following five important points are very important when calculating Income or loss on house property.

1. In the case of self occupied property, annual rental value is nil. In this case interest that paid in a year (limited to Rs. 2,00,000/-) for housing loan can be deducted. Income Tax provisions terms this deduction as loss on house property. Loss on House property will be a negative figure which can be deducted from the gross total income.

2. If the home loan was borrowed before 1st April 1999, deduction in respect of interest paid on loan will be restricted Rs. 30,000/-. As far as home loan borrowed on or after 01.04.1999, annual interest paid up to Rs, 2,00,000 can be deducted from the Annual Rental Value of the property.

3. In the case of let out house property annual rental value will have to be added as an income out of house property. Even if the house property is not actually let out, and the property is also not self occupied then a rental value has to be determined as per the provisions income tax rules. By declaring annual rental value of house property for inclusion in gross total income, the ceiling of Rs. 2 lakh on deduction of interest paid on house property can be avoided. In other words, there will not be any limit in the deduction of interest paid on house property, if annual rental value is added to gross total income.

4. From the said annual rental value, municipal taxes are to be deducted.

5. Also, Deduction equal to 30% of the annual Rental value (Rental value-Tax paid), can be deducted while determining the income on house property.

Also checkout following links for more details on determination of Annual Rental Value and how to deduct entire amount of interest paid on housing loan from the gross total income.

Income from house property – Exemption for Interest paid on Housing Loan

Income or loss on House property – Revision in calculation method

How to calculate Income or Loss on House Property ? – GConnect Calculator

Income tax exemption for the interest on housing loan

Income tax deduction on housing loan interest – Applicability of condition of three years for completion

Declaration of Savings, income or loss on house property by Salaried Employees

GConnect Income or loss on House Property Calculator

GConnect income tax exemption on house property calculator will take all the factors in to account and would provide the income or loss on house property which will have to be added / deducted from gross total income of the tax payer.

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Section 22 to Section 27 of Income Tax Act which govern the inclusion of income or deduction of loss out of house property

Section – 22, Income-tax Act, 1961-2015

C.—Income from house property

22. The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head “Income from house property”.

Section 23 of Income Tax Act

How to Determine Annual Rental value ?

23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be—

(a)  the sum for which the property might reasonably be expected to let from year to year; or

(b)  where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or

(c)  where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable :

Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.

Explanation.—For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual rent received or receivable by the owner shall not include, subject to such rules 8 as may be made in this behalf, the amount of rent which the owner cannot realise.

(2) Where the property consists of a house or part of a house which—

(a)  is in the occupation of the owner for the purposes of his own residence; or

(b)  cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him,

the annual value of such house or part of the house shall be taken to be nil.

(3) The provisions of sub-section (2) shall not apply if—

(a)  the house or part of the house is actually let during the whole or any part of the previous year; or

(b)  any other benefit therefrom is derived by the owner.

(4) Where the property referred to in sub-section (2) consists of more than one house—

(a)  the provisions of that sub-section shall apply only in respect of one of such houses, which the assessee may, at his option, specify in this behalf;

(b)  the annual value of the house or houses, other than the house in respect of which the assessee has exercised an option under clause (a), shall be determined under sub-section (1) as if such house or houses had been let.

Section 24 of Income Tax Act

Deductions that can be availed as far as income from house property is concerned

Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:—

(a)  a sum equal to thirty per cent of the annual value;

(b)  where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :

Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed, the amount of deduction under this clause shall not exceed 9[two lakh rupees].

Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:

Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.

Section 25 of Income Tax Act

Amounts not deductible from income from house property.

25. Notwithstanding anything contained in section 24, any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938), on which tax has not been paid or deducted under Chapter XVII-B and in respect of which there is no person in India who may be treated as an agent under section 163 shall not be deducted in computing the income chargeable under the head “Income from house property”.

Section 26 of Income Tax Act

Property owned by co-owners.

26. Where property consisting of buildings or buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons, but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income.

Explanation.—For the purposes of this section, in applying the provisions of sub-section (2) of section 23 for computing the share of each such person as is referred to in this section, such share shall be computed, as if each such person is individually entitled to the relief provided in that sub-section.

Section 27 of Income Tax Act

“Owner of house property”, “annual charge”, etc., defined.

27. For the purposes of sections 22 to 26—

(i)  an individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter, shall be deemed to be the owner of the house property so transferred;

(ii)  the holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate ;

(iii) a member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association, as the case may be, shall be deemed to be the owner of that building or part thereof ;

(iiia) a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882), shall be deemed to be the owner of that building or part thereof ;

(iiib) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof;

(iv) [***]

(v)  [***]

(vi) taxes levied by a local authority in respect of any property shall be deemed to include service taxes levied by the local authority in respect of the property.

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