House Property is one of the important source for tax planning under Income tax Act. Even we can observed that recently since last 2-3 years Government has also introduced various benefits related to house property investment so that tax payer tents to think for investing into house property and every Indian has his own dream house one day!
In today’s article we will discuss some Income tax provisions related to house property which can be used for saving tax in the hand of tax payer.
(1) Computation of Gross Annual Value
(2) Computation of Net annual Value
(3) Computation of Deduction available U/s 24
Income from House property is computed as under :
|Gross Annual value||**********|
|Less : Municipal Taxes
(It is deductible when it is born by the owner and actually paid by him during the year. )
|Net Annual value||**********|
|Less : Deduction U/s 24|
|(i)Standard Deduction @ 30% (Section 24(a))||(*********)|
|(ii)Interest on borrowed Capital (Section 24(b))||(*********)|
|Income from House Property||**********|
Gross Annual Value is determined as under:
|Step I||Find out reasonable expected rent of the property|
|Step II||Find out Actual rent received or receivable ( Note 1 )|
|Step III||Higher of the I or II above|
|Step IV||Find out Loss due to vacancy|
|Step V||Step III minus step IV is the Gross Annual Value|
Note 1: Unrealized rent if any has to be deducted from rent received or receivable if certain conditions are fulfilled.
Net Annual Value
Gross Annual Value minus Municipal taxes like property tax, paid by the owner.
Following two types of deductions from annual value are available u/s 24 of the Income Tax Act to arrive at the taxable income from HP.
Note 2: No other deduction towards expenditure such as insurance, repairs, electricity, water supply etc. is allowed.
1. Until FY 2016-17, Loss under the head Income from House Property could be set off against other heads of income without any limit. However, from FY 2017-18, such set off of losses has been restricted to Rs 2 lakhs only. This amendment would not effect on self-occupied house property, however this will have an impact on let-out properties. Though there is no bar on the amount of interest that can be claimed as a deduction under Section 24 for a rented house property, but the losses which arises on account of such interest repayment can be set off with other heads of income) only to the extent of Rs 200000.
2. Earlier only one property will be treated as a ‘self-occupied property’ and the other property will be taken as ‘deemed to be let out’ Now, from AY 2020-21 onwards two house properties can be taken as ‘Self-occupied properties’
a) Here please note that, the assesse do not have an option, either to shown it as ‘deemed to be let out’ or as ‘self-occupied property’ – But it is mandatory that if assesse have two house property he has to consider both as self-occupied.
b) The main key effect of this amendment is that, earlier if assesse is showing second property as deemed to be let out, and then in that case he is eligible to take deduction u/s 24(b) for interest on housing loan without any monetary limit.
But now henceforth, if he has to consider the second house as self-occupied property only and therefore now he is eligible for total deduction of maximum Rs. 2,00,000/- only towards interest on housing loan of both the properties.
Section 80C also offers deduction in respect of repayment of housing loan take for purchase or construction of residential property. Maximum amount qualified for deduction under section is Rs. 1,50,000. The deduction in respect of repayment of housing loan also falls under this limit. In other words, if taxpayer had made repayment of Rs.3,00,000 towards principal, he can claim deduction only up to Rs. 1,50,000 under this section .The taxpayer can also claim deduction stamp duty, registration charges and other expenses incurred for transfer of house property in his name subject to maximum limit of Rs.1,50,000. However, if the taxpayer transfers the house property before 5 years, then all the deduction already taken in previous years will be deemed as income in which the house property is transferred.
2. Additional Deduction in respect of Interest on Loan:
a) Section 80EE – Dedution amounting to Rs 50,000 is allowed in addition to deduction under section 24(b).
b) Section 80EEA – Additional deduction amounting to Rs 1,50,000 is allowed in addition to deduction under section 24(b).
Only the individual is allowed to claim the deduction under this section provided he does not own any other house property.
To conclude this article I would like to say if you follow the above mentioned provisions smartly then you will able to save large amount of tax that to within compliance limit.
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(Republished with Amendments by Team Taxguru)