Rebate in income from house rent

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• Deductions: To arrive at the actual taxable income from house property, two deductions are allowed, under Section 24 of the Income Tax Act :
• Statutory Deduction: 30% of the NAV is allowed as a deduction towards repairs, rent collection, etc. irrespective of the actual expenditure incurred. This deduction is not allowed if the Annual Value is nil.
• Interest on borrowed capital: is allowed as a deduction on accrual basis if the money was borrowed to buy/construct the house. Deduction is allowed on whichever is lesser between Rs.1,50,000 or the actual interest amount (in case the construction was completed within 3 years of taking the loan, on or after 1-April-1999.) In other cases, it’s between Rs.30,000, and the actual interest, whichever is less.
• Annual Value: Annual Value = NAV – Deductions.
• Owner/deemed owner: Income from house property is taxable to the owner of the property. The owner is the person who is entitled to receive income from property. This means that income is chargeable to the person who receives financial benefit from the property, even if the property is not registered to him, i.e. deemed owner. A deemed owner is an owner by implication and not necessarily documented registration.

How to compute your income from house property.

Income from house property contains the income generated by the owned property of an individual.

Let’s assume you have a property and are charging Rs. 15,000 per month as rent. Let’s also assume that you have paid Rs. 10,000 in municipal taxes for that year, and have Rs. 50,000 as interest on borrowed capital.

When is Annual Value “NIL”?

The annual value can be considered to be nil if the owner is residing in his property (Self-occupied property or SOP) and does not derive financial benefit from the same. It will be nil if the owner of the property has to move out of the city his property is in to another city for work and resides in a rented property not owned by him.

Example: Mr. Babu, who bought a house in Bangalore has to move into a rented place in Pune for his job. The annual value on Mr. Babu’s Bangalore property will be nil, and he will get a tax deduction for interest paid on borrowed capital.

How do I Save Tax on Income from House Property?

Careful planning can enable you to save a sizeable amount from taxation. Some of the things you can do to save tax are as follows:

• Joint Home Loan – If you jointly own a property with someone and also apply for a joint home loan with your partner, you will both be eligible for tax deductions on interest up to Rs. 1,50,000 each.
• Planning a second home? If you already have one self-occupied property registered to your name and wish to avoid paying taxes on a second home, register the second property on your spouse/relatives name to avoid excess taxation.
• Joint ownership – Taxation on income from house property can be divided between co-owners, and hence lessen the load.
• Ownership of more than one property – If you own multiple properties, only one of these can be registered as your residence and fall under self-occupied property (SOP). It is important to evaluate the tax liability on all your properties and choose the one with the highest tax liability to call home, and let out the remaining. You can also change the SOP every year.
• Empty houses – that you own will still be taxed based on the fair rental value, so it’s advisable to let any and all empty properties out, enabling income and no loss because of taxation.