Owning a House property or any property is not without responsibility but paying House property Tax on it annually definitely is. Property can be of any nature i.e., For residential purposes or commercial all are taxed under the head of ‘ Income from House property’.

Any property used for business purposes or profession is taxed under the head ‘Profit and gains from business or profession’ and Expenses On Repair and maintenance of such property are allowed as business expenditure.

As stated above, owning a house property is of great responsibility and some are relying upon Home loans to fulfill this. After the interim budget there is sigh of relief for the taxpayers as government has abolished  notional rent of second self-occupied House  benefitting those who have two house property and no outstanding loans , but this might not be good news for those with outstanding loans on second self-occupied property because the maximum tax benefit allowed on them is restricted to Rs. 2 Lakhs. Moreover, the carry forward on remaining house loan will not be allowed from now on…Earlier the carry forward losses can go up to 8 assessment years in case the loss from the second house property.

In this article, there is a brief discussion on Section-24 of the Income-tax Act, which defines Deductions from income from House Property in view of Deduction in respect of certain payments and Set off and carry forward of loss.

For instance, If a person owns two properties in Delhi and in Pune respectively. Either of the ones will be considered as self-occupied and the other one will be deemed to be let out. It totally depends on the owner which of the property he/she wants to be self-occupied. For the house considered let out/rented, the tax liability will be calculated by considering the higher of municipal value or market rental as annual rentable value and thereafter deducting house tax.

Section-24  and 80 C of Income Tax Act are not related:

Section 24, of Income Tax Act, defines Income chargeable under the head “income from house property” shall be computed after making the following deductions, namely-

  • a sum equal to thirty percent of the annual value.
  • Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on any such capital.

Section 24 (a) clearly defines the Standard Deduction which is 30% 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.

And, the owner can claim a deduction for up to Rs. 2 lakhs if he/she resides in the property and if the property is rented out (even not given on rent) the entire interest on the home loan is allowed as deduction.

Section-80C

This is the most used option to save Income Tax. The individual or Hindu Undivided Families (HUFs) can claim up to Rs. 1.5 Lakhs from total income. If the person has paid excess tax but has invested in Life insurance, Provident fund, Mediclaim, etc. This deduction is to avail tax benefits, by claiming it the person can reduce his/her gross taxable income and therefore the total tax payable.

Say For example,  If a person has a Gross total earnings of Rs. 6.5 Lakhs annually then he/she can invest Rs. 1.5 Lakhs in notified schemes will be liable to claim the tax benefit. The net taxable income will come down to Rs. 5 Lakh and the tax would be charged on this amount.

Amendment in Set off and Carry forward losses

Loss from an exempted source of income cannot be adjusted against taxable income If income from a particular source is exempt from tax, then loss from such source cannot be set off against any other income which is chargeable to tax. E.g., Agricultural income is exempt from tax, Hence, if the taxpayer incurs a loss from agricultural activity, then such loss cannot be adjusted against any other taxable income.

  • Intra-head Adjustment

Meaning of intra-head adjustment If in any year the taxpayer has incurred a loss from any source under a particular head of income, then he is allowed to adjust such loss against income from any other source falling under the same head. The process of adjustment of loss from a source under a particular head of income against income from other sources under the same head of income is called intra-head adjustment, e.g. Adjustment of loss from business A against profit from business B.

  • Inter- Head Adjustments

After making an intra-head adjustment (if any) the next step is to make an inter-head adjustment. If in any year, the taxpayer has incurred loss under one head of income and is having income under other head of income, then he can adjust the loss from one head [As amended by Finance Act, 2019] against income from other head, E.g., Loss under the head of house property to be adjusted against salary income.

 Clause 8) With effect from the assessment year 2018-19, loss under the head “house property” shall be allowed to be set-off against any other head of income only to the extent of Rs. 2,00,000 for any assessment year.

 9) However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years as per the existing provisions of section 71B. (Source: Income Tax Department notice)

Provisions under the Income-tax Law in relation to carrying forward and set off of house property loss:

 If loss under the head “Income from house property” cannot be fully adjusted in the year in which such loss is incurred, then the unadjusted loss can be carried forward to next year. In the subsequent years(s) such loss can be adjusted only against income chargeable to tax under the head “Income from house property”. Such loss can be carried forward for eight years (8 years) immediately succeeding the year in which the loss is incurred.

For Better Understanding

 

Type of House Property

 

         Self-Occupied

 

Let out

Gross Annual Value (8000*12)  xxx  96,000
 Municipal and other taxes (less) xxx    4,000
Net Annual Value xxx 92,000
Standard Deduction 30% of NAV xxx 27,600
Interest on Housing Loan (less) 2,00,000 2,00,000
Pre-construction Interest (less) 1/5th of 4,00,000 80,000 80,000
Income from House Property 2,80,000 2,15,600
Loss restricted 2,00,000 2,00,000

Here, the set of loss allowed is restricted to Rs. 2,00,000 in a financial year. Remaining loss can be carried forward to the next financial year consecutive 8 years and can be set off only in Income of House property.

This means, the taxpayer cannot keep carrying forward the loss from House Property for 8 assessment years as per his own wish and he would be required to adjust the loss in that year itself in which there is income under the head “Income from house property”.

  • Swati Srivastava, Advocate.

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2 Comments

  1. SrivastavaSwati says:

    Firstly, Yes you have to mention the rent for deemed to be let out property from 15th Feb- 31st March.
    the interest benefit can be availed which is maximum to 2 Lac.
    In the case of let-out house property, the net annual value of the property is derived by considering gross annual value after deduction for municipal taxes paid during the year. Also, an additional standard deduction of 30 percent on the net annual value is allowed along with the deduction for the interest on housing loan as mentioned in the table above in my article.

  2. Ajit patel says:

    Query for ITR2 FOR FY-18-19
    I have purchased new house on 15-Feb-2019 with HBL. This is my deemed let house for FY-18-19. I want to avail HBL interest tax benefit of Rs 200000 in ITR FY-18-19. My question (1) Should I have to show the rent for my this deemed lethouse in ITR2 ( as I have taken possessation on 15-Feb-2019 ) (2) Or I have to show rent for deemed Lethouse from 15-Feb-19 to 31-Mar-2019 or for whole FY-18-19 Period ( as I have taken possessation on 15-Feb-2019)

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