Taxation

Do I have to pay any tax on "Income from House Property"?

Income from house property is taxable just as any other income like salaries, profits & gains of business and profession, income from other sources, etc., and added to total income. Tax is computed on the Annual Value of the House Property. It is calculated on the basis of inherent capacity of the house property to earn rent.

"Inherent capacity" denotes the amount for which the property might be reasonably let out. This could be the actual rent received or annual ratable value fixed by the municipality, or rent of the similar property in the locality, etc.

Do I have to pay Income Tax on Annual Value of the house occupied by me?

No, when a house property is self occupied the Annual Value of such property is taken as "nil" and as such no income tax is payable. In fact you shall be eligible for deductions such as interest, etc., from your total income.

However, if you happen to be the owner of more than one house property for own residential purposes then only one house (as per your choice, it is also necessary that you reside in that house) can be treated as self-occupied and the Annual Value of that property shall be taken as nil. All other houses used for self-occupation shall be deemed to be let out and the Annual Value shall be computed accordingly and subjected to Income Tax.

What are the deductions available to me in case of self-occupied property?

Interest payable (whether paid or not on loan for purchase, repairs, renewals, construction or reconstruction of house property is allowed as a deduction (from total income) up to Rs. 30,000/-.
However, where a house property is acquired or constructed after 1st April 1999 and such acquisition is completed within 3 years from end of the financial year in which the capital was borrowed for construction or purchase of property, then the deduction allowable on interest payable shall be up to Rs. 1,50,000/- per annum.

It may be pertinent to note that the interest attributable to the period from obtaining of loan to the period prior to completion of acquisition / construction is also allowable as deduction in equal installments over five successive financial years starting from the year in which the acquisition or construction is completed. However, this benefit is not allowed for interest on loans taken for repairs, renewals or reconstruction work.

What are the deductions available to me in case of a property given on rent or which is deemed to be let out?

The following deductions are permissible:

What is the position, if there is a loss under the head "Income from House Property"?

In case of self occupied property, since the Annual Value is taken as nil, deduction is allowed on interest on borrowed capital upto a maximum of Rs. 1,50,000/- effective Financial Year 2002-03.
In case of a let out property there are no restrictions on deducting the full interest payable on loans and so there can be loss under this head also.

Loss from house property can be set off against income from another property and also from any other head of income such as salaries, profit and gains of business or profession, income from other sources etc., during the same financial year.

In cases where the loss cannot be set off against any other heads of income within the same year then the balance loss can be carried forward and set off in subsequent years subject to a limit of 8.