For all those who own a residential property which is either let out on rent or is vacant, it is important to know everything about income from house property, and how to calculate income from house property with examples. Here is a comprehensive guide for you to answer the above questions.
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Basically, income from house property is income which has been earned as rent from the property. If the property hasn’t been let out, the owner still has to pay tax according to ‘deemed rent.’
According to Section 27 of Income Tax Act, the income from house property tax is calculated on a self occupied property only if the property count is more than 2, let out house, or an inherited property.
How to calculate income from house property?The formula for calculating income from house property is:
Gross Annual Value - Municipal Taxes = Net Annual Value - standard deduction at 30% - Interest paid on loan = Income from house property
To determine Gross Annual Value you will have to calculate rent earned from the property which is let out (if it is a self-occupied property, it will be NIL), municipal taxes are property taxes paid to the municipal bodies (to be excluded if a tenant pays these taxes), the standard deduction of 30% from Net Annual Value which is a rebate as per Income Tax Act. If your expenses on the property exceed 30% then the tax relief claim can’t be made. You can also deduct the interest you have paid on home loan during the financial year (if applicable).
Let us look at the examples for both self-occupied and let out properties for income from house property.
Self occupiedSuppose Shilpi bought a house and lives in it. She paid an interest of Rs. 267000 in a financial year. She paid the municipal taxes of Rs. 3000. She also incurred pre-construction taxes of Rs. 300000.
Since the gross annual value of the self occupied property is NIL, hence this is how Shilpi made a loss on house property as per section 24 of income tax act.
Type of House Property |
Self Occupied |
Gross annual Value |
NIL |
Less: Municipal Taxes or Taxes paid to local authorities |
NA |
Net Annual Value(NAV) |
NIL |
Less: Standard Deduction(30% of NAV) |
NA |
Less: Interest on Housing Loan (Rs. 267000 but we will take Rs. 200000 as per the limit according to ITA) |
200,000 |
Less: Pre-construction interest (1/5th of 3 Lakhs) |
60,000 |
Income from House Property |
(260,000) |
Overall loss restricted to |
(200,000) |
Suppose, Shipli bought a house and paid an interest of Rs. 267000 in a financial year. She paid the municipal taxes of Rs. 3000. She also incurred pre-construction taxes of Rs. 300000. She has let out this property on a monthly rent of Rs. 7000.
This is how we can calculate the income from house in this case:
Type of House Property |
Let Out |
Gross annual Value (Rent paid- 7000*12) |
84,000 |
Less: Municipal Taxes or Taxes paid to local authorities |
3,000 |
Net Annual Value(NAV) |
81,000 |
Less: Standard Deduction(30% of NAV) |
24,300 |
Less: Interest on Housing Loan |
200,000 |
Less: Pre-construction interest (1/5th of 3 Lakhs) |
60,000 |
Income from House Property |
(203,300) |
Overall loss restricted to |
(200,000) |
I know this is a little too much to understand, but when it comes to calculating incomes and taxes, I prefer relying on CA as they have better knowledge and they are well versed with in and outs of taxation laws.
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How to calculate income from house property?
Himanshi
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4 Year
2021-04-07T13:54:28+00:00 2025-02-21T00:03:53+00:00Comment
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