Guide to file House Property Income

What is house property Income?

The rent derived from building or land appurtenant thereto is called house property income. House property includes flat, office space, shop, farm house etc. If the income from the land appurtenant to a building is income from house property, but if the land is separated from the building such income can be either treated as income from other source or business income. The property can be given for commercial or residential purpose. Sometimes the owner is liable to collect service tax along with the rent due. Here income is the net amount after deducting service tax. If a resident Indian is getting a rental income from other country he is also liable to tax, subject to the tax treaty of that country.

Chargeability of House Property

Property means any building or land appurtenant thereto Assessee must be the owner of the property The property may be used for any purpose, but the owner should not use the same for the purpose of any business or profession carried on by him.

What is composite rent?

The owner of a property may sometimes receive rent of building along with rent of other assets like furniture, lift, security, plant and machinery etc. The total rent for all is called composite rent. The composite rent is to be split up into the sum attributable to use of property under section 22 as income from house property; and the sum attributable to use of services is to charged to tax under the head Profits and gains of business or profession or under the head Income from other sources.

What is the difference between self-occupied and let-out property?

If the owner of the building occupied the house for his own residential purpose is called self-occupied house while the other buildings are classified as let-out property. As per Income Tax Act one person can claim only one self-occupied property in a year.

The self-occupied house is completely exempted from charging rent, at the same time deductions like interest from housing loan and principal repayments can be claimed. But the principal repayment deduction is no longer available for let out properties.

How many self-occupied property can be declared?

A person can claim single house property as self-occupied in an assessment year.

I am residing in my flat at Delhi and two other houses at Mumbai, where my parents and kids are staying. What will be tax liability? Please advise me.

One house property can be declared as self-occupied property. But all other properties are to be treated as deemed let-out property (DLHP) and a notional rent shall be calculated for taxation. Here even all the houses are used for personal use; the other two houses are to be considered as DLHP and taxed.

What are the expenses and deductions available for house property income?

For computing the house property deductions, classify the house property into self-occupeid and let-out. There are three deductions available for house property income.

Step No.1 Building tax

Every half year the municipality or corporation or panchayats levy a building tax and the total amount paid for the year can be deducted from the total income received. No deduction is available for self-occupied property.

Step No. 2 30% standard deduction

Every half year the municipality or corporation or panchayats levy a building tax and the total amount paid for the year can be deducted from the total income received. No deduction is available for self-occupied property.

Step No. 3 Housing loan interest

Since the self-occupied property generate no income there is a maximum limit of Rs.2,00,000 is fixed for availing housing loan interest. But in case of let-out property there is no limit for availing housing loan interest.

The housing loan principal repayment is a deduction under section 80C subject to a maximum limit of Rs.1,50,000/-. But the principal repayment for self-occupied property is not an eligible deduction under section 80C. If the property is disposed off in three years, then the deduction availed incuding interest will be added back to the income of the third year.

What is co-ownership of house property and its tax treatment?

Co-ownership is the multi ownership of a single property. If an assessee possesses the ownership of a house along with his spouse without mentioning the percentage of ownership, then we can assume that the co-ownership is 50%. If the possession is mentioned specifically in the deed, we can fix the percentage accordingly.

The income earned from the property can also be apportioned according to the percentage of sharing or the part of sharing. The municipal tax, interest on housing loan, principal repayment etc. can also be shared accordingly.

If the co-owner is a minor then the income will be clubbed with the parent or guardian income, since the minor never applies any skill or performance in earning the rental income.

Is interest from housing loan a deduction? What is the limit?

Yes. Maximum deduction for interest paid for housing loan for a self-occupied property is Rs.2,00,000/- while the interest for let-out property is unlimited. Interest on loan taken for acquisition or construction of house on or after 01.04.1999 and same was completed within 3 years from the end of the financial year in which capital was borrowed. If the loan taken for acquisition or construction prior to 01.04.1999, or for repair, renovation or reconstruction, at any point of time, the interest payable is subject to a maximum of Rs.30000/-.

Can I carry forward the loss from House property income?

If the deduction on house property income exceeds the income the amount can be setoff with other income. If the other income is not sufficient to set off the loss, then the balance amount can be carry forward to the next year income to set off.

This is possible only if the return for the year is filed in time.

Can I claim the maintenance cost in House property income?

No. The income from house property income is subject to 30% standard deduction only. No other expenses are allowed. The standard deduction is given for adjusting the maintenance cost.

A portion of my house is used as my office. Can I claim the maintenance expenses?

If the building is used for business purpose and the maintenance can be claimed against the business income only.

If the portion of the self-occupied property is used for business, the assessee can claim the maintenance cost of the portion of the property from the business income derived.

I have a partnership firm owns 12 houses in Bangalore, and main objective of our firm is to provide houses for rent. Two partners are doing this activity. Let me know the taxability?

Since your firm established with an objective to let out houses for rent, it is treated as an income from business or profession’ rather than ‘income from house property’. Therefore no claims like section 24 are applicable in this case. As usual your expenses can be claimed as deduction from your turn over or income.

The house is owned by my wife, but the housing loan repayments are from my income. Can I claim deductions?

No. But she can claim the deductions even though the repayments are made by her spouse.

I transferred the ownership of one of my house to my son’s name and he is getting rent. What is the tax treatment for me? If the transfer is to my son’s wife, what will the tax liability?

Transfer to son’s name cannot make any tax liability to you. Whatever the rent earned by him will is the income of your son and tax liability will be in his name.

If a property transferred to the son’s wife and if she is getting rent or income from the house property, the income will be clubbed to your income and the tax liability will come to you only.

How to compute house property income?

First you have to calculate rent. For this the following steps are to be made.

1. Compare fair rent with municipal value and consider whichever is higher

2. Compare step one 1 value with standard rent, whichever is lower will be the annual lettable value (ALV).

3. If Actual rent is greater than ALV then consider Actual rent, if actual rent is less than ALV because of vacancy consider actual rent otherwise ALV.

1. Income from self-occupied property NIL
Less: Interest on Housing loan (maximum 2 lakhs) 000
Balance -000
2. Income from Let out property 0000
Less: Building Tax 00
Less: 30% standard deduction u/s 24(A) 000
Less: Interest on Housing loan (maximum unlimited) u/s 24 000
Balance 0000
Less: Deduction under section 80C
Principal repayment of housing loan for let out house 00
Taxable income 000

Can I deduct municipal tax on houses from my rent?

Yes. You can deduct the whole municipal taxes paid for the year from the rent received for the year.

I am receiving rent + service tax + electricity charges + service charges of the flat from my tenant how can I compute my income?

The extra collections like service tax, electricity charges, service charge of the flat etc. will not be the part of the house property income. The rent alone should be considered for calculating the income tax for the year.

The arrear rent not realized in the last year will be taxed in the year of receipt after deducting municipal tax and 30% standard deduction.

Income from House Property at a glance

SOP - Self-occupied property

LOP - Let-out Property

ALV - Annual Lettable Value

Arrear Rent

The arrear rent not realized in the last year will be taxed in the year of receipt after deducting municipal tax and 30% standard deduction.