House Property and Taxes

Know About House Property and Taxes

 

Purchasing a house is a time-consuming and hectic task. In this guide, we will help you understand all that you want to know while buying a house in a very easy and effective manner.

There are three sections which will help you understand how to claim your tax deduction for your house and the tax benefit on home loans which are as follows:

  1. Fundamentals of House Property Taxes
  2. Income from House Property
  3. Tax Benefit (Saver) on Home Loans

Part 1- Fundamentals of House Property Taxes

A house property could be land, office, building or anything which is not used for business/profession. The income from house property is taxed under the head ‘Income from House Property’ in the Income Tax Return. Income from business property is taxed under the head ‘Income from business and profession’.

Part 2- Income from House Property

The income from house property (by lending/selling) is taxable under the head ‘Income from House Property’ in the ITR of the taxpayer under Section 24 of the Income Tax Act. The following mentioned conditions must be satisfied before the income would be taxed:
a. The property must be consisting of land, buildings, etc.

  1. The taxpayer/assessee must be the owner of the house property.
  2. The property should not be used for the purpose of any business/profession by the taxpayer, the income is not chargeable to tax if it is used for such purposes.

Deductions to be made from the Income from House Property

The following deductions must be done before calculating the income from house property:

  1. Standard Deduction: The taxpayer/assessee is allowed a standard deduction of a sum equal to 30% of the net Annual value.
  2. Interest on borrowed capital: The amount of interest payable on borrowed capital which has been used to purchase /acquire/construct any property is given a deduction.

Calculation of ‘Income from House Property’

The following steps must be followed to calculate the income from house property:

  1. Calculate the Gross Annual Value (GAV) of the property- The gross annual value or GAV is the amount collected as rent on the house property, thus the GAV of the self-occupied house is zero.
  2. Subtract the property tax from the GAV calculated above- The property tax which is paid is subtracted from the GAV.
  3. Compute Net Annual Value- Net Annual Value= GAV-Property Tax.
  4. Subtract the Standard Deduction from the Net Annual Value- The standard deduction of 30% on NAV should be deducted as per Section 24 of the Indian Tax Act.
  5. Subtract the interest on home loan- The amount of interest on home loan should be deducted from the calculated amount.

The final value is the ‘Income from House Property’. This is the amount which is taxable according to the income tax slabs. Since the GAV of self-occupied house is nil, claiming the tax deduction will result in loss but this can be adjusted against other heads like ‘Income from Other Sources’.

Part 3: Tax Benefit on Home Loans

In this section, we will let you know what the tax benefits available on home loans are and how to avail these benefits. The repayment of the home loan has been divided into two categories which are being discussed in three different sections:

  1. Section 80C (Income Tax benefit on repayment of the principal amount of home loan)
  2. Section 24 (Income Tax benefit on repayment of the interest on home loan)
  3. Section 80EE (Income Tax benefit on repayment of interest on home loan for first time buyers)

Section 80C- Tax benefit on repayment of the principal amount of home loan.

This section deals with tax benefits which the individuals/Hindu Undivided Family (HUF) can get on the repayment of the principal amount of the home loan. The maximum amount which can be claimed for tax deduction under this section is Rs. 1.5 lakh. The amount includes total amount invested in PPF Account/ Equity Oriented Mutual Funds/National Savings Certificate (NSC)/Senior Citizens Saving Scheme, etc. The amount which has been paid as stamp duty and registration charges can also be claimed for deduction. An important point to notice is that the tax deduction on the principal amount is allowed only after the construction of the house is complete and only after getting the completion certificate. No deduction can be availed by anyone if the property of that particular person is under construction. In case the property is under construction, the service taxes are applicable on such properties.

Section 24- Tax benefit on interest on home loan

Under this section, the amount which is paid as interest on home loans is allowed for deduction. The maximum limit for the amount which can be claimed for tax deduction is Rs. 2 lakh. Understand that this amount is only applicable for self-occupied property. In case the property is not self-occupied, no maximum limit for tax deduction has been set on such properties. So, a taxpayer can claim the full amount for deduction.

 

NOTE: If the property has not been purchased/constructed within 3 years when the loan was taken in the corresponding financial year, then the interest benefit would be reduced to Rs. 30,000 from Rs. 2,00,000. From FY 2016-17, the limit of 3 years has been increased to 5 years.

 

Section 80EE- Tax benefit on repayment of Interest on home loan

This section has been introduced in the budget 2016. Under this section, there is a provision for additional deduction of Rs. 50,000 for interest on home loan. This deduction is above the tax deduction amount under Section 24 and Section 80C. This section provides for tax deduction only in the following cases:

  1. The values of the property purchased and the loan taken are less than Rs.50 lakh and Rs.35 lakh respectively.
  2. The loan should be sanctioned between 1st April 2016 and 31st March respectively.

The benefit of the deduction given would be available till the time the repayment continues and this deduction is available from FY 2016-17 onwards.

The quantum of deductions under all sections is shown in the table below:
Tax Benefits on Home Loans for Joint Owners. Joint owners can claim deduction on interest on home loan of up to Rs. 2 lakh each. The principal repayment amount including the amount for stamp duty and registration charges are deductible under Section 80C and the maximum amount which can be claimed for deduction is Rs. 1.5 lakh for each of the joint owners in the ratio of their ownership share in the property.Know How to the Claim Tax Deduction on Home Loans

Related Topic: A guide to help Freelancers in Tax

  • The amount of tax deduction which a person is claiming should depend upon the ratio of his/her ownership share in the property.
  • The home loan for which the tax deduction is being claimed must be in the name of the person claiming the tax deduction.
  • The home loan can be claimed only in the financial year in which the construction has been completed.
  • The ‘home loan interest certificate’ must be submitted to the employer for adjusting the TDS accordingly.

For any legal assistance in income tax return filing, contact TaxRaahi.

Quantum of Deductions            Section 24                 Section 80C        Section 80EE
Self-occupied property             2,00,000              1,50,000               50,000
Non self-occupied property             No limit              1,50,000               50,000

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