Income of Owner of One Self Occupied House Property

Continuing from our last post where we learned the basic way of how to calculate Income from House Property.. ..What is your Income from House Property if you own a single house and live in it? How is Income from House Property computed when you have let out a portion of your house? Or you have let out your house for a part of the year?

One Self Occupied House Property

You own ONE Self Occupied House Property

If you are using your property for residence throughout the year and it’s not let out or used for any other purpose – in such a case the Gross Annual Value of the property is Nil. There is no income from your house property. But if you occupy your house property to carry on a business or profession or your freelancing work– any income or expenses with respect to this property shall be covered under the head ‘Profits & Gains of Business & Profession’. You will be allowed to deduct expenses that you may incur towards maintenance and repairs from your business income. Any rent receipts will be added to your income.

Can there be Loss from a self occupied house property? Although the Gross Annual Value and Net Annual Value for ONE self occupied house property is Nil. In case you take a loan to purchase or construct the self occupied property and such construction is completed within 3 years from the end of the financial year in which loan was taken – you can claim standard deduction under section 24 for interest on money borrowed. You will be allowed deduction for interest on the money borrowed up to a maximum of Rs 1,50,000. You will need an interest certificate from the lender (your bank) to claim this deduction that states the interest payable and the amount borrowed for the financial year. If the loan has been taken for reconstruction, repairs or renewal of a house property – this interest will be allowed up to a maximum of Rs 30,000. In this case this interest is negative income and this amount will be your ‘Loss’ under the head house property. So yes, you can have ‘Loss’ under the head House Property.

In case you have taken a loan jointly – both the co owners will be allowed this interest as loss in the proportion of their share in the property.

You will be allowed to set off this Loss under the head House Property against any head of current year’s income. When you are not able to set it off in the current year’s income you can carry forward this loss for 8 years and set off against the head Income from House Property.

Here’s an example – X owns one house property, the market value of the property is Rs 80lakhs. During the financial year the property was being exclusively used by X for residential purposes. Reasonable rent of the property is Rs 1,50,000 and during the year X incurs Rs 10,000 on repairs of the house. Rs 8,000 are the municipal taxes on the house. X had taken a loan to fund his house purchase and his annual interest payment is Rs 1,56,000.

Gross Annual Value                                        Nil

Less: Municipal Taxes                                     Nil

Net Annual Value                                            Nil

Less Interest on Money Borrowed           -1,50,000

(Loss) House Property                                   -1,50,000

 

Loss under the head house property for X is Rs 1,50,000. In case the annual interest on the property is Rs 1,00,000. Loss under the head house property shall be Rs 1,00,000. No deduction is allowed for repairs – deductions are only allowed as per section 24 towards (a) standard deduction which is 30% of Net Annual Value and (b) Interest on Borrowed Capital (see here for details https://blog.cleartax.in/calculate-income-from-house-property/ ).

The income from a house property will be similarly calculated when you leave your one self occupied house property vacant and it not used for any purpose – when you need to live in another city due to your work arrangements. The Gross Annual Value of such a property is also taken to be nil.

In case a portion of the property is let out and remaining portion is self occupied? Continuing with the assumption of a single self occupied property – in this case – the unit which is self occupied will have no Gross Annual Value, Income from the let out unit will be computed and taxed. You will be allowed to deduct interest on money borrowed for this house. Let’s see by way of an example –

Example –

Y has a house, which has 2 equal units on the ground and the 1st Floor. Unit 1 on the ground floor is self occupied by Y and used fully for residential purposes. Unit 2 on the 1st floor has been let out. Rs 6,000 is the rent received per month. Reasonable rent of the property is Rs 5,000 per month. Taxes paid to municipality are Rs 10,000. Rs 5,000 are the repairs incurred by Y. And Rs 20,000 is the interest on money borrowed to construct the house.

Unit 1 Self Occupied

Gross Annual Value                                        Nil

Municipal Taxes                                               Nil

Net Annual Value                                            Nil

Less: Interest (50% of 20,000)                     -10,000

Loss from house property                            -10,000 (A)

Unit 2 Let Out

Gross Annual Value                                        72,000

Less: Municipal Taxes (50% of 10,000)     -5,000

Net Annual Value                                            67,000

Less: standard deduction @30%                -20,100

Less: Interest                                                     -10,000

Income from House Property                     36,900 (B)

Therefore, Income from House Property for Y is Unit 1 + Unit 2 or (A)+(B) = 26,900. No deduction is allowed for repairs – deductions are only allowed as per section 24 towards (a) standard deduction which is 30% of Net Annual Value and (b) Interest on Borrowed Capital (see here for details https://blog.cleartax.in/calculate-income-from-house-property/ ). Municipal Taxes should have actually been paid.

What if property is let out for some months of the year? In case the property is let out for a part of the year – Income from house property will be calculated as if the property has been let out for whole of the year.  This will no longer be treated as a self occupied property, even though for the remaining part of the year you may have used it for self residence purposes.

Example – Z has a property in Jaipur. The house has been let out from 1st April 2013 to 31st December 2013. Rent Received is Rs 10,000 per month.  Municipal taxes paid by Z are Rs 5,000. Interest for the financial year on money borrowed is Rs 60,000.

Gross Annual Value                                        90,000

Less: Municipal Taxes                                     -5,000

Net Annual Value                                            85,000

Less : standard deduction @30%               – 25,500

Less : Interest                                                    – 60,000

Loss from House Property                                 – 500

Therefore, as seen above, the property has been treated entirely as a let out property.

 

The above details were regarding a house property when you own one self occupied house property. What is the tax treatment when you own more than 1 self occupied house property? To know more, keep watching out for our next post. If you need help with your calculation of income from house property or any other tax issue – write to us support@ cleartax.in

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