One of the most popular genres of queries from individuals is about the way the rental income from house property is taxable, and the way out.
In this section, we set out in simple terms and with a very user-friendly approach exactly how income received from house properties (i.e. rent) is taxed, and under what not conditions.
Let’s hit the stage now.
1) Suppose I receive rental income from a house property, is it taxable?
Ans: Yes. The rental income received from a property is referred to as the annual value. So the annual value (i.e. rental income) of property is taxable as ‘Income from House Property ’ if the following conditions are satisfied:
Ans: No, for the purpose of the ‘Income from House Property ’ section, there are definitions that are applicable, as follows:
“Building” is defined as any building (whether occupied or intended for self-occupation), office building, go-down, storehouse, warehouse, factory, halls, shops, stalls, platforms, cinema halls, auditorium etc. Income arising out of the building or a part of the building is covered under this section.
“Land” is defined as land adjoining to or forming a part of the building. It would depend on the nature of the land, whether it is appurtenant to the residential building, factory building, hotel building, club house, theatre etc. and will include courtyards, compound, garages, car parking spaces, cattle shed, stable, drying grounds, playgrounds and gymkhana.
Income from buildings and lands appurtenant are taxable under Income from House Property.
So, this will include income from a building (that part of it which is owned by you e.g. the flat that you own), and the income from the land appurtenant. If you own a vacant plot and are receiving income from it, it is not included under ‘Income from House Property’; it is included under ‘Income from Other Sources’.
3) I have let out a property and receiving rent there from.
How do I calculate how much of this rent is taxable?
Ans: We can capture this situation in 3 meagre steps.
First: Determine your property’s Gross Annual Value
Second: Deduct Municipal Taxes actually paid by the owner
Third: Make standard deductions available under Section 24(a) and Interest On Borrowed Capital under Section 24(b) i.e. a home loan, if any.
The net figure is your Taxable Income from House Property.
4) How do I calculate the ‘annual value’ of my property?
Ans: Following are the required steps:
In this section, we set out in simple terms and with a very user-friendly approach exactly how income received from house properties (i.e. rent) is taxed, and under what not conditions.
Let’s hit the stage now.
1) Suppose I receive rental income from a house property, is it taxable?
Ans: Yes. The rental income received from a property is referred to as the annual value. So the annual value (i.e. rental income) of property is taxable as ‘Income from House Property ’ if the following conditions are satisfied:
- You own a property that consists of buildings or lands attached along with (for instance, a garage); and
- The property should not be used for the purpose of any business or profession, the profits of which are taxable.
Ans: No, for the purpose of the ‘Income from House Property ’ section, there are definitions that are applicable, as follows:
“Building” is defined as any building (whether occupied or intended for self-occupation), office building, go-down, storehouse, warehouse, factory, halls, shops, stalls, platforms, cinema halls, auditorium etc. Income arising out of the building or a part of the building is covered under this section.
“Land” is defined as land adjoining to or forming a part of the building. It would depend on the nature of the land, whether it is appurtenant to the residential building, factory building, hotel building, club house, theatre etc. and will include courtyards, compound, garages, car parking spaces, cattle shed, stable, drying grounds, playgrounds and gymkhana.
Income from buildings and lands appurtenant are taxable under Income from House Property.
So, this will include income from a building (that part of it which is owned by you e.g. the flat that you own), and the income from the land appurtenant. If you own a vacant plot and are receiving income from it, it is not included under ‘Income from House Property’; it is included under ‘Income from Other Sources’.
3) I have let out a property and receiving rent there from.
How do I calculate how much of this rent is taxable?
Ans: We can capture this situation in 3 meagre steps.
First: Determine your property’s Gross Annual Value
Second: Deduct Municipal Taxes actually paid by the owner
Third: Make standard deductions available under Section 24(a) and Interest On Borrowed Capital under Section 24(b) i.e. a home loan, if any.
The net figure is your Taxable Income from House Property.
4) How do I calculate the ‘annual value’ of my property?
Ans: Following are the required steps:
- Find out reasonable expected rent of the property (municipal rent or fair rent, whichever is higher)
- Consider rent actually received / receivable (refer below mentioned illustrations)
- Take whichever is higher from a. and b.
- Calculate loss due to vacancy
5) How to Calculate Gross Annual Value?
Mr. X owns a property at Mumbai. Municipal Value is 1, 80,000. Fair rent is 2, 15,000. He has given it on rent in the past financial year for 10 months. Actual rent received is 30,000 per month. The house is vacant for 2 months in the past financial year.
6) How to Calculate Net Annual Value?
Deduct municipal taxes from Gross Annual Value to arrive at the Net Annual Value of your property.
The same Mr. X’s municipal taxes are 10, 000 annually.
3) How to Calculate Net Taxable Income from House Property?
Also, Mr. X has taken a home loan to buy this property. The loan amount is 15 lakhs. The interest component paid in the last financial year is 1, 50,000 i.e., 10%. Now we calculate how much is Mr. X’s taxable rental income he has received from his property.
4) What is the difference between classifying my property as Let Out, Self Occupied or Deemed to be let out?
Ans: For the purpose of taxability of Income from House Property, House property is classified as:
Mr. X owns a property at Mumbai. Municipal Value is 1, 80,000. Fair rent is 2, 15,000. He has given it on rent in the past financial year for 10 months. Actual rent received is 30,000 per month. The house is vacant for 2 months in the past financial year.
| Municipal Value | Rs. | 180,000 |
| Fair Rent | Rs. | 215,000 |
| Annual Rent (for 10 months) | Rs. | 300,000 |
| Gross Annual Value is calculated as below: | ||
| Step 1: Reasonable expected rent (MV or FR – whichever is higher) | Rs. | 215,000 |
| Step 2: Annual Rent (for 12 months =30,000 x 12) | Rs. | 360,000 |
| Step 3: Higher of Step 1 and Step 2 | Rs. | 360,000 |
| Step 4: Less Loss Due To Vacancy (Rs. 30,000 x 2) | Rs. | 60,000 |
| Gross Annual Value (Step 3 – Step 4) | Rs. | 300,000 |
6) How to Calculate Net Annual Value?
Deduct municipal taxes from Gross Annual Value to arrive at the Net Annual Value of your property.
The same Mr. X’s municipal taxes are 10, 000 annually.
| Gross Annual Value | 300,000 | |
| Municipal Taxes | Rs. | 10,000 |
| Net Annual Value (GAV less municipal taxes) | Rs. | 290,00 |
3) How to Calculate Net Taxable Income from House Property?
Also, Mr. X has taken a home loan to buy this property. The loan amount is 15 lakhs. The interest component paid in the last financial year is 1, 50,000 i.e., 10%. Now we calculate how much is Mr. X’s taxable rental income he has received from his property.
| Net Annual Value (GAV less municipal taxes) | Rs. | 290,000 |
| Less Deductions under Section 24 | ||
| Standard Deduction (30% of Net Annual Value) | Rs. | 87,000.0 |
| Interest on Borrowed Capital | Rs. | 150,000 |
| Taxable Rental Income from Property | Rs. | 53,000.0 |
4) What is the difference between classifying my property as Let Out, Self Occupied or Deemed to be let out?
Ans: For the purpose of taxability of Income from House Property, House property is classified as:
- Let Out – House Property actually given out on rent
- Self Occupied – House Property self occupied by owner – you actually live in this house
- Deemed to be Let Out – In case of owning more than one house property, one property is treated as Self Occupied, and the other is automatically classified as Deemed to be Let Out property
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