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Introduction: 

According to India’s Income Tax Act of 1961, income from housing property is one of the five categories of income. It is the money that a person makes from their own residential property. Any building or piece of land that is connected to a building , a store, office, factory, or other business establishment is referred to as “house property.”

Income from House Property Analysis

• Income from home property is calculated using the property’s annual value, which is established by taking into account both the actual or potential rent received. What the property owner has received or is expected to receive in rent for the fiscal year is the actual rent received.

• If the property is let out  for the entire fiscal year, the annual value is determined by the actual rent received or receivable. For periods of partial let out  during the financial year, the annual value is computed by multiplying the actual rent received or receivable by the number of months the property was leased and dividing it by the total months in the fiscal year.

• If the property is not let out, the annual value is established based on the potential rent the property could generate if leased. The potential rent is determined as the higher of the fair rent or the municipal value of the property. Fair rent denotes the amount a comparable property in the same or similar locality would command, while municipal value represents the value assigned to the property by municipal authorities for property tax assessment.

Self-Occupied : 

• When an individual possesses a house property for personal residence, its annual value is regarded as zero. Nevertheless, if the individual has secured a home loan for the property’s purchase or construction, the interest paid on the loan qualifies for deduction from the income from the house property, capped at a maximum limit of Rs. 2 lakhs per year.

• In the scenario where an individual owns more than one self-occupied property, only one of the properties can be designated as self-occupied, and the remaining property/properties are considered deemed let-out for the calculation of income from house property.

Deemed Let-Out:

• In the event that an individual owns multiple house properties, and all of them are not utilized for personal residence, all except one are considered deemed let-out properties. The annual value of these deemed-let-out properties is determined by the potential rent they could generate if leased.

• If the actual rent received or receivable exceeds the potential rent, it is regarded as the annual value. Conversely, if the actual rent received or receivable is less than the potential rent, the annual value is determined based on the potential rent.

Deduction: 

The Income Tax Act permits deductions from house property income, including:

• Deductions are allowable for any municipal taxes paid on the property during the financial year.

• When a property is financed with a home loan, the interest paid on the loan can be deducted from the income generated from the house property, and this deduction is applicable even if the property is self-occupied.

• A deduction of 30% from the net annual value is permitted as a standard allowance for expenses such as repairs, maintenance, and collection charges.

• Deductions can be claimed for property tax paid on the property during the financial year.

Exceptions to House Property:

• When the property is utilized for personal residence and is not rented out, its annual value is regarded as zero.

• When the property is designated as stock-in-trade and remains unleased, any income derived from such property is subject to taxation under the classification of “Profits and Gains of Business or Profession.”

• When the property is utilized for business or professional activities, the income derived from such property is subject to taxation under the category of “Profits and Gains of Business or Profession” rather than “Income from House Property.”

Conclusion:

Understanding annual value calculation and allowable deductions is crucial for maximizing tax benefits from income generated from house property. Timely payment of municipal and property taxes is also essential to Utilize available deductions.