How is income from self-occupied house property calculated? Read below to find out how is income from self-occupied house properties calculated
A self-occupied house property is the house where a taxpayer is residing and a maximum of two houses can be considered as self-occupied, as per income tax laws."For the FY 2019-20 and onwards, the benefit of considering a house as self-occupied has been extended to two houses from one previously. Thus, now a homeowner can claim any of his 2 properties as self-occupied and the remaining house as let out or deemed to be let out for Income tax purposes," said Archit Gupta, founder and CEO, Clear, a tax filing assistance company.
If you have a home loan, you can use the interest paid on that loan to bring down your gross total income. This will help you in bringing down your tax liability, provided you opt for the old tax regime. If you opt for the new tax regime, you cannot claim any deduction from the house property.
What is income from house property?
To claim a deduction on the interest paid on the housing loan, it is important for individuals to understand the concept of 'income from house property' under the income tax laws.CA Ruchika Bhagat, MD at Neeraj Bhagat and Co, a Delhi-based CA firm, said: Income from house property needs to be calculated by an individual if either of these conditions are met.:
He/she wants to claim a deduction on the interest paid on housing loan for self-occupied property under the old tax regime;The house property earned rental income in a financial yearThe house property is considered as 'deemed to be let out.
How to calculate income from a self-occupied property?
The process of calculating income from house property can be considered complex. Here is an example to make it easier for you to understand.Let's take the example of Mr. A who has two houses - 1 and 2. As per income tax laws, both the houses can be considered as self-occupied house property. Suppose home loan is going on house 1. Here's how an individual can calculate income from house property.
In case of self-occupied, property, the Gross Annual Value is considered as nil. Further, no other deductions can be claimed.
Income from self-occupied house properties
ParticularsHouse-1House-2Type of house propertySelf-occupiedSelf-occupiedGross Annual Value (GAV)NilNilLess (municipal tax)Not applicableNot applicableNet Annual Value (NAV)Not applicableNot applicableLess standard deduction (@30% of NAV)Not applicableNot applicableLess Interest on home loanRs 2,00,000nilIncome/Loss from house property(Rs 2,00,000)nil
From the table above, it is seen that income from house property has a loss of Rs 2 lakh. This loss can be set off against other sources of income such as salary, interest income etc. This will bring down the gross total income.
Things to know about self-occupied house property
There are certain important aspects that one must know about self-occupied property to claim a deduction on the interest paid on the housing loan. Home loan interest deduction: Section 24 of the Income-tax Act, 1961 allows an individual to claim a deduction of up to Rs 2 lakh on their home loan interest if it is a self-occupied property.
"Individuals can claim deduction on interest paid on housing loan provided they are both i.e. owner of the property and the borrower in the home loan. While filing income tax returns, individuals can be asked to disclose the ownership of the self-occupied property. It depends on the ITR form applicable to his/her income. If applicable, they are required to report the property details, including address, ownership percentage, and home loan details. Also ask the home loan lender for interest certificates in order to claim a correct deduction," said Abhishek Soni, co-founder and CEO of Tax2win, a tax filing assistance portal.
No municipal tax deductions are allowed for self-occupied house properties: "For self-occupied properties no deductions such as municipal taxes paid, standard deduction of 30% etc. are allowed except interest paid on home loans," said S Ravi, founder and managing partner of Ravi Rajan & Company, a Delhi-based CA firm.
Deduction on home loan principal amount: One can claim the principal amount portion of the home loan as a deduction within the Rs 1.5 lakh section 80C limit. If the home is owned jointly and the loan is also taken jointly, then each of the co-owners can claim a deduction under section 80C for the principal amount of the home loan in their respective ownership ratio.
Aashish Sharma, Co-founder & Litigation Head, Lex N Tax, a Delhi-based tax and law firm, said "While filing ITR, the taxpayer must mention whether the house bought on loan is co-owned by him or he is the single owner. If it is a co-owned house, then he will have to claim the principal amount of the loan u/s 80C in the ownership ratio. This ownership ratio by default is 50: 50, unless the taxpayer wants to plan his taxes or specifically mentions in the property papers any different ratio."
Self-occupied house property's annual value will be nil: The annual value for a self-occupied property will always be nil. This is because there is no scope of income from a self-occupied property.
Pre-construction phase interest paid can be claimed: An individual opting for the old tax regime and has taken a home loan during the pre-construction phase can claim it later when the building's construction is completed.
However, there are certain conditions attached to it. One is that the construction should be completed within 5 years from the end of the financial year in which the loan was taken. Second is that the home loan should not be taken for repairs or reconstruction. Lastly, the interest deduction is limited to Rs 2 lakh under section 24 in a financial year and can be claimed in five equal installments starting from the year of possession of the home.
For example: Mr. A has paid Rs 4.8 lakh to the bank as interest on the home loan during the pre-construction phase during FY 18-19 and FY 19-20. In FY 20-21, the construction was completed. From the time the construction was completed, i.e., FY 20-21, Mr. A can claim Rs 96,000 (Rs 4,80,000/5) each year for up to five financial years. Further, Mr. A can claim both the pre- (Rs 96,000) and post-construction interest within the overall umbrella limit of Rs 2 lakh under section 24 per year.
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This story originally appeared on: India Times - Author:Faqs of Insurances
