- What is the tax that I have to pay on “Income from House Property”?
- What is the benefit of Capital Gain in case of House Property?
- What are the deductions available in case of self occupied property?
- What are the deductions available in case of property given on rent or which is deemed to be let out?
- What are the benefits of re-investment in house property?
- What are the other benefits if any available?
- What is tax that I have to pay on Annual Value of the house occupied by me?
1. What is the tax that I have to pay on “Income from House Property”?
Income from house property is taxable just as any other income like salaries, profits and gains of business and profession, income from other sources, etc and added to total income. Tax is computed on the Annual Value of the House Property. It is calculated on the basis of inherent capacity of the house property to earn rent. “Inherent Capacity” denotes the amount for which the property might be reasonably let out. This could be the actual rent received or annual rate able value fixed by the municipality, or rent of a similar property in the locality.
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2. What is the benefit of Capital Gain in case of House Property?
Benefit on sale of capital assets (Section 54F)
The Income Tax Act, 1961 gives an individual or HUF who do not own a residential house a concession to purchase a residential house as and when that sell a Long Term Capital asset (like shares, bonds, debentures, motor car, etc). When you sell a capital asset normally you are required to pay tax on the gain value of the asset after the benefit of indexation. If however, you do not own a residential house you can re-invest the net consideration received from the sale of capital assets in a residential house property and if the amounts invested is equal to or more than the net consideration no income tax is payable on such Long Term Capital gain. However, the following needs to be noted for claiming such benefit:
- One should purchase the residential house within a period of 1 year before or 2 years after the date on which the transfer took place or construct a residential house within 3 years of such transfer.
- One should not own more than one residential house property other than the new asset on the date of transfer of the original asset.
- One should not purchase a residential house other than the new asset within a period of 1 year or construct any residential house other than the new house within a period of 3 years after the date of transfer of the original asset.
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3. What are the deductions available in case of self occupied property?
Interest payable (whether paid or not) on loan for purpose of repairs, renewals, construction or re-construction of house property is allowed as a deduction (from total income) up to Rs. 30,000/-.
However, where a house property is acquired or constructed after 1st April, 1999 and such acquisition is completed within 3 years from end of the financial year in which capital was borrowed for construction for purchase of property, then the deduction allowable on interest payable shall be up to Rs. 1,50,000/- per annum.
Moreover, the interest attributable to the period from obtaining of loan to the period prior to completion of acquisition / construction is also allowable as deduction in equal installments over 5 successive financial years starting from the year in which the acquisition or construction is completed. However, this benefit is not allowed for interest on loans taken for repairs, renewals or re-construction work.
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4. What are the deductions available in case of property given on rent or which is deemed to be let out?
The following deductions are permissible:
- Municipal taxes actually paid as deduction from Annual Value.
- Municipal taxes actually paid as deduction from Annual Value.
- Interest on money borrowed for the purpose of construction or acquisition of a house property without any upper limit.
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5. What are the benefits of re-investment in house property?
If an individual or a HUF re-invests in a residential house property i.e. invests the sale proceeds of a residential house property which has been held for more than 3 years in purchase of a new house, such re-investments is exempt from Capital Gains u/s 54 provided the new house is purchased one year before or two years after the transaction or has constructed a residential house within a period of three years.
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6. What are the other benefits if any available?
The following payments are eligible for rebate from tax to the extent of 205 of a maximum of Rs. 20,000 (i.e. maximum rebate is up to Rs. 4,000 per annum) u/s 88 of the Income Tax Act :
- Any installment or part payment of the amount due under any self financing scheme of any development authority, housing board, etc. engaged in construction and sale of house property; or
- Any installment or part payment of the amount due to any company or co-operative society of which the assessee is a share holder or member towards the cost of the house property allotted to him; or
- Any installment or part payment of the amount due to any company or co-operative society of which the assessee is a share holder or member towards the cost of the house property allotted to him; or
- The Central or State Government
- Any Bank (including Co-operative bank)
- The Life Insurance Corporation of India
- The National Housing Bank
- Any Housing Finance company approved by National Housing Bank for the purpose of re-finance.
- Any public company or co-operative society that is engaged in the business of financing construction of houses.
- The assessee’s employer where such employer is a public company or a public sector company or a university established by law or a college affiliated to such university or a local authority or a co-operative society.
- Any of the above for payment of Stamp Duty, registration fees and other expenses for the purpose of transfer of such house property to the assessee.
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7. What is tax that I have to pay on Annual Value of the house occupied by me?
When a house property is self occupied the Annual Value of such property is taken as “NIL” and as such no income tax is payable on such property. In fact you will still be eligible for deductions such as interest, etc from your total income.
However, if you are the owner of more than on house property for own residential purposes then only one house (as per your choice, it is also necessary that you reside in that house) can be treated as self occupied and the Annual Value of that property shall be taken as NIL. All other houses used for self-occupation shall be deemed to be let out and the Annual Value shall be computed accordingly and subject to Income Tax.
