As per the Income Tax Act, 1961, a house property included building, flats, office space, shops, factory sheds, commercial building or agricultural lands. Any income generated from house property is taxable, and it falls under the tax liability of a taxpayer who owns it or who is the immediate owner of the property.
House property are of three types:
- Self-occupied property.
- Let out property and
- Deemed to be let out property.
The value of a house property is calculated as per the market value or per the municipal value + income receivable from the property. So, the Gross Annual Value (GAV) is calculated as the value of the property – vacancy loss.
The Net Annual Value (NAV) is calculated as; GAV (-) income tax paid. Now coming to deductions, house properties are eligible for two-types of deductions. One is standard deduction of 30% of the NAV and another is the interest paid for the loan. The net income of the house property is calculated as
NAV (-) Deductions.
Property losses can be carried forward for a financial year with accurate conditions. If a taxpayer has two properties, then loss from one property can be set off with the income generated from other property. If no other property is available then the loss can be set off against other income such as salary or business income or capital gains or other sources. If losses still remain then it can be carried forward to the next financial year. This can be done for the next 8 financial years after which the loss will be counted as forgone.
Income from house property
Income from House Property is inclusive of the rent earned from the House property which is also liable for taxation. Sometimes, an owner is required to pay tax on 'deemed rent' if the property has not been rented out.
Income from house property is added to a person’s Gross Total Income on satisfaction of the required conditions:
- The owner of the property is the assesse himself/herself.
- The type of property must either be a house, a building or a land.
- The property should be utilized for any other purpose other than used by the owner as an office for operating a business or profession.
Under Section 27 of the Income Tax Act, deemed ownership for levying tax is defined to the following:
- Transfer of the house property ownership to either the spouse or a minor child.
- Impartible estate holder; meaning, the property which cannot be divided legally (for example; dividing a single storey house with 4 rooms amongst 7 heirs).
- A property which is held by the member of a co-operative society.
- Any property acquired through Power of Attorney transaction.
Deductions from house property before tax has been levied
In the process of determining the income which has been earned by letting-out property, one can avail deductions which is applicable under section 24 of the Income Tax Act. These deductions are inclusive of standard deduction, municipal tax deductions, deduction for the interest paid on home loan etc. The brokerage fee or commission paid to someone else to acquire the asset is not applicable for deduction.