If you own a house, make sure to understand the income tax implications. Knowing your tax liability in connection with a house property will smooth out your income tax return (ITR) filing process.
What is house property?
In income tax lingo, your home, office space, shop, building, parking space, or any plot that you legally own qualifies as house property. From a tax perspective, there is no difference between a residential property and a commercial one.
When you file your ITR, any income you earn from such property will normally be classified under ‘Income from house property’. However, if you use it for business or professional purposes, the income earned can be placed under ‘Income from business and profession’. In this case, any repair and maintenance expenses will be business expenditure.
House property terms
As a property owner, you need to be familiar with the following terms when filing your ITR.
- Self-occupied house property: This is a property you use for residential reasons. It may be occupied by you or your immediate family. It may even be vacant.
- Let-out house property: This is a property that you rent out for the whole year or a part thereof.
- Inherited property: This is a property that you inherit (e.g. from a parent or grandparent). This may be self-occupied or let out, depending on how you use it.
- Gross annual value: This is the value of rent likely to be earned from the property in a given year. In some cases, if the property is not on rent, the deemed rent may be taxable.
Income from house property
This covers any rental income that you earn from the property. In some cases, if the owner does not actually rent out the property, they may have to pay deemed rent.
To include the income from a property in your gross total income while filing ITR, you must satisfy three conditions:
- You are the legal owner of the property.
- The property comprises a house, buildings, or land.
- You are not using the property for business or professional purposes.
Income tax deduction
Even as you compute the annual income earned on a property you own, factor in the deductions applicable to you.
- Deduction on home loan: You can get tax benefits under a few different heads.
- Section 24: Deduction of up to Rs 2 lakh on home loan interest paid in case of self-occupied properties. If the property is let out, claim the entire interest payment as a deduction.
- Section 80C: Deduction of up to Rs 1.5 lakh on repayment of home loan principal as well as stamp duty and registration charges.
- Section 80EE: Additional deduction of Rs 50,000 on home loan interest paid to first-time homeowners.
- Section 80EEA: Additional deduction of up to Rs 1.5 lakh on home loan interest paid to first-time homeowners of affordable housing. This deduction can be claimed only after exhausting the Section 24 deduction.
- Deduction on municipal taxes paid: Any taxes (such as house tax) paid to the government can be claimed as deduction from the gross annual value of the home.
Claiming income tax deduction
The amount of deduction depends on your share of ownership. In case of home loan-related deductions, the loan must be in your name, even if you are a co-borrower. Make sure to collect the home loan interest certificate. Itwill provide a clear overview of your interest and principal payments, thus simplifying your tax computation during ITR filing.