Income from a property that includes any building or land attached to it is taxable under the heading “house property.” House property is divided into three categories to calculate income under this heading: let-out, self-occupied, and deemed let-out house property.
Based on its annual value, a house property’s income is calculated. An annual value is determined by considering a variety of variables, including municipal valuation, fair rent, standard rent, and actual rent. Even if a property isn’t rented out throughout the year, its annual value is calculated on a notional basis and, as a result, taxed. However, the yearly value of any two of these properties is considered “nil” if they are both self-occupied or the owner can’t occupy them because of his employment, business, or profession at another location.
As per Section 14 of the Income Tax Act of 1961, there are several ways through which
a person can earn an income. This income is taxable. For the computation of taxes, these methods are broadly categorized under five heads. Income from house property is one such source.
- Self-occupied residential property: In this situation, no income was made.
- Let out house property: In this scenario, the income earned is the actual amount of rent received.
How do we determine the income from housing?
To calculate the income from housing, follow these steps:
- The gross annual value of the property (how to determine the gross annual value of real estate) – A self-occupied home has no yearly value. It is the income received for a home’s rent from an occupied rental property. After that, the article will respond to a frequently asked query about how to calculate the salary for a self-occupied home.
- Reduced Property Tax: The GAV of the property is reduced when a property tax is paid.
- Net Annual Value (NAV) = Gross annual value – income tax
- Section 24 of the Income Tax Act permits a deduction of 30% of NAV, which can be reduced to the standard of the 30% limit; other costs like painting and fixes are not eligible for tax relief. India has strict case laws governing income from residential property.
- Reduce house loan project: Under Section 24, mortgage interest paid during the year is also deductible.
- Find your house property income by multiplying the resultant value by 100. This is subject to tax at the appropriate slab rate. A self-occupied house’s annual value fluctuates according to the housing market.
- Loss from house property: Since a self-occupied home has no GAV, taking the home loan interest deduction will result in a loss from house property. Carefully calculate the income from a residential property.
How do you figure out a house’s gross annual value?
The amount of money the assessee earned in a given year because of the land the person or she owned is known as income from house property. The gross annual income is calculated differently for each category. The different types are listed below.
Category 1: Residential property leased or rented over the previous 12 months
In the following situations, the gross annual value of a home that was rented out in the previous year is higher:
a. Expected rent, also known as deemed rent, is determined by using the higher of the municipal valuation or the fair rental value.
b. The exact rent amount that the assessee receives from a property that is either entirely or partially rented out.
According to the clause, the amount of rent received must be considered the gross annual value of the real estate if it exceeds the anticipated rent. If the amount of rent collected falls short of what was expected, the anticipated amount is equal to the gross annual value of the real estate.
The higher the expected/deemed rent, the higher the municipal or fair rental value.
Category 2- Residential property partially rented or let out during the year
If a home was rented out for a specific amount of time but is vacant for the remainder of the year, there are two possibilities.
Case 1: Despite the vacant period, the total rent collected is higher than anticipated. In this case, the actual rent paid matches the gross annual value of a house property.
Case 2: Due to the vacant time, the total rent collected is less than the deemed rent. In this case, the actual rent received equals the gross annual value of a house property.
Case 3: A residential property was used as a rental for a portion of the year but was otherwise self-occupied.
In this case, the time the house property was used for the taxpayer’s use is unimportant. The higher the actual rent paid for renting out a property for a specific period or the planned rent for the entire year, the higher the gross annual.
What is self-occupied property?
Self-occupied property is real estate an assessee uses as their primary residence for the entire year. Even if the taxpayer’s spouse, parents, or children live there while the individual is away for personal or professional reasons, it would still be considered self-occupied property.
How is a Self-Occupied house property’s tax liability fixed?
Due to the amount of loan repayment and property tax repayment, the owner of a self-occupied home incurs a loss when there is no income from the property. The tax exemption on home loan interest for a self-occupied property is up to Rs. 2 lakhs under Section 24(b) of the Income Tax Act. Up to Rs. 1.5 lakh of the principal amount of a home loan is exempt from taxes under Section 80(C).