The rent received from any property (whether commercial or residential) is taxable as Income from House Property and deductions are also allowed from such income.
The manner of computation of taxable income from house property and deductions allowed from income from house property is as explained below:-
|Gross Annual Value (i.e. Actual Rent or Expected Rent, whichever is higher)
|Municipal and Other taxes paid to Local Authority
|Net Annual Value (1-2)
|Deductions allowed under Section 24
|a. Statutory Deduction @ 30% of NAV
|b. Interest on Loan
|Income chargeable under head House Property (3-4)
The Income chargeable under head House Property would be added to the income computed under the other 5 heads of income in the income tax return and tax would be levied as per the income tax slab rates.
Income from House Property: Deductions allowed for Tax purposes
The following are allowed to be claimed from Income from House Property as Deductions:-
Income from House Property: Deduction for Payment of Municipal Taxes
The municipal taxes etc levied by the local authority are to be deducted from the Gross Annual Value to arrive at the Net Annual Value. However, this deduction is allowed only if both the following conditions are satisfied:-
- The municipal taxes have been borne by the owner.
- These have actually been paid during the financial year.
Therefore deduction for municipal taxes etc levied by any local authority is allowed if they are borne and actually paid by the owner. It must be noted that the taxes are allowed as a deduction only in the financial year in which they are paid.
Municipal taxes which are due but have not been paid are not allowed as a deduction. Municipal taxes etc due but not paid shall not be allowed as a deduction. However, municipal taxes etc paid during a financial year are allowed even if they relate to past years or future years.
Income from House Property: Statutory Deduction @ 30% of NAV
From the Net Annual Value, the taxpayer is allowed a statutory deduction of 30% of the Net Annual Value. This deduction of 30% is a flat deduction and is allowed to everyone.
It is to be noted that this deduction is allowed from the Net Annual Value and not from the Gross Annual Value. (Net Annual Value = Gross Annual Value – Taxes paid)
Income from House Property: Deduction for Interest on Loan
In case the taxpayer has borrowed capital for the purpose of acquiring, constructing, repairing, renewing or reconstructing any property, the amount of interest payable on such loan is allowed as a deduction.
The amount of interest payable every year should be calculated and claimed as a deduction. It is irrelevant whether this interest has actually been paid or not during the year.
In case the loan is being taken for a Residential property, deduction under Section 80C is also allowed for repayment of Principal.
- Recommended Read: Tax benefits of Home Loans under Section 24 & Section 80C
In case loan is being taken for an under-construction property (whether Residential or any other property), the interest on loan payable for the period while the property was under construction will not be allowed to be claimed during the period of construction.
Such Interest will be aggregated and allowed as a deduction in 5 successive instalments starting from the year in which the construction has been completed. The interest will be aggregated starting from the year in which the loan was taken till the year prior to the year in which the construction has been completed and not till the actual date of completion.
- Recommended Read: Service Tax on Under-Construction Property
Relevant points regarding Income from House Property and Deductions allowed
- Any amount paid for brokerage or commission for arrangement of the loan will not be allowed as deduction [Circular No. 28 dated 20-08-1969]
- Where a fresh loan has been taken to repay the original loan, if the second borrowing has really been used merely to repay the original loan and this fact is proved to the satisfaction of the Income Tax Officer, the interest paid on the second loan would also be allowed as a deduction. [Circular No. 28 dated 20-08-1969]
- Interest on Interest is not deductible. The taxpayer is entitled to deduct only the interest payable by him on the capital borrowed.
- Generally, the municipal taxes are to be paid by the occupier. In the case of let out property, the occupier is the tenant and therefore he should pay the municipal taxes etc. In such case, no deduction of municipal tax etc will be allowed from gross annual value as these taxes have not been paid and borne by the owner.
- Taxes levied by a local authority in respect of any property shall be deemed to include service tax levied by the local authority in respect of the property.
- The taxpayer should not be allowed in any other deduction on account of any expenses incurred in relation to such property.