Calculation of Income or loss from House Property

A person’s gross total income chargeable to tax is a sum of income under various heads such as ‘income from salary’, ‘income from other sources’ etc. One of these heads of income is ‘Income from House Property’. The income from House property is added to the person’s total income for assessment of tax only if such house or part of the house is let out for whole or part of the year, or any other benefit derived from the house by the owner. For the FY 2020-21, Salaried individuals, who have no business income, have the option to choose between the old (existing) and new tax regimes u/s 115BAC as per their convenience. There are different types of income allowed as deduction while computing the income chargeable under the old rule. Section 24 of the Income Tax Act is one of such provisions which allows owners of the house to claim a deduction of up to Rs. 2 lakhs on their home loan interest on the self-occupied house (if the owner or his family resides in the house property). From the FY 2019-20 and onwards, under the above provisions, the benefit of considering the houses as self-occupied has been extended to 2 houses in place of earlier consideration for one house. Now, a homeowner can claim deduction on his 2 properties (including inherited property) as self-occupied and the remaining house as to let out for Income tax purposes. When you own a self-occupied house, since it’s (Gross Annual Value) GAV is Nil, claiming the deduction on home loan interest will result in a loss from house property. This loss can be adjusted against income from other heads. However, for properties more than two house properties, the owner may have to pay tax on ‘deemed rent’ in case the property is not let out.

The housing loan borrowers also eligible to claim deductions u/s 80( C), 80 EE, and 80EEA. To know the details read, ‘tax benefits on purchase of residential property‘.

The interest paid on the housing loan is waived off as a deduction up to Rs.2 lakh when the house is given on rent and when the actual expenses on the property are higher than the rent received. The calculation of income or loss for the purpose of income tax assessment is as below.

1. Gross Annual Value of the property: Rent collected for a house on rent. The rental value must be higher than or equal to the reasonable rent of the property determined by the municipality.
2. Less: Municipal tax paid:  Property tax, when paid (including tax-related to previous years), is allowed as a deduction from GAV of property
3. Net Annual Value: Gross Annual Value – Property Tax (A-B)
4. Less: Deduction under section 24: Any Interest paid/payable on the home loan taken for acquiring, constructing, or repairing the property is allowed as a deduction from the income from that house property
5. Less: Standard Deduction @30% of the ‘Net Annual Value [No other expenses such as painting and repairs can be claimed as tax relief beyond the 30% cap under this section].
6. Income/Loss from House property: (C–D-E) The resulting value is your income or loss from your house property. This is taxed at the slab rate applicable to you.

A taxpayer can claim deduction under Section 24 of interest paid on home loan for each of the houses separately. Such deduction is allowed on an accrual basis, not on a paid basis. The deduction can be claimed for two or more housing loans. However, the overall loss from house property that can be claimed for a year is restricted to Rs 2 lakh.

Eligibility to claim deduction under section 24 of income tax act:

For claiming deduction under section 24, the home loan should be taken on or after April 1, 1999, for purchasing or constructing a property. The construction should be completed within a period of 5 years from the end of the financial year in which the loan is taken. For instance, if you have taken a loan for the construction of a house during June 2018, the construction of the property should be completed by 31st March 2024, failing which his deduction on interest is reduced to just Rs.30,000.