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House Property Taxes

House Property Taxes

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House Property Taxes

If you are thinking about buying a house or want to understand the tax implications of a home purchase, this page is a solid introduction to home buying and taxes.

House Property and Taxes
Section I:
Tax deductions on home loans
1. Tax Deduction on Home Loan Interest: Section 24

Homeowners can claim deduction of up to Rs.2 lakhs (Rs. 1,50,000 if you are filing returns for FY 2013-14) on their home loan interest if the owner or his family reside in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire interest on the home loan is allowed as a deduction.
Your deduction on interest is limited to Rs.30,000 if you fail to meet any of the conditions given below for the Rs.2 lakh rebate.

2. Tax Deduction on Principal Repayment: Section 80C

The deduction to claim principal repayment is available for up to Rs. 1,50,000 within the overall limit of Section 80C in FY 2014-15 (Rs. 1,00,000 if you are filing returns for last financial year). Check the principal repayment amount with your lender or look at your loan installment details.
House Property and Taxes
Stamp duty and registration charges
Stamp duty and registration charges and other expenses related directly to the transfer are also allowed as a deduction under Section 80C, subject to a maximum deduction amount of Rs.1,50,000. Claim these expenses in the same year you make the payment on them.

3. Tax Deduction for First-Time Homeowners: Section 80EE

Section 80EE, recently added to the Income Tax Act, provides first-time homeowners tax benefit of up to Rs.1,00,000.
How to claim tax deductions on home loans?

The amount of deduction you can claim depends on the ownership share you have on the property.
The home loan must also be in your name. A co-borrower can claim these deductions too.
The home loan deduction can only be claimed from the financial year in which the construction is completed.

Submit your home loan interest certificate to your employer for him to adjust tax deductions at source accordingly. This document contains information on your ownership share, borrower details and EMI payments split into interest and principal.
Otherwise you may have to calculate the taxes on your own and claim the refund, if any, at the time of tax filing. It’s also possible that you may have to deposit the dues on your own if there is a tax payable.

Tax benefits on home loan for joint owners

The joint owners, who are also co-borrowers of a self occupied house property can claim – deduction on interest on home loan up to Rs 2,00,000 each. And deduction on principal repayments, including deduction for stamp duty and registration charges under section 80C within the overall limit of Rs 1,50,000 for each of the joint owners. These deductions are allowed to be claimed in the same ratio as that of the ownership share in the property.

You may have taken the loan jointly, but unless you are an owner in the property – you are not entitled to the tax benefits. There have been situations where the property is owned by a parent and the parent and child together take up a loan which is paid off only by the child. In such a case the child, who is not a co-owner is devoid of the tax benefits on the home loan.
Section II:
Income from House Property
Determine what your income from house property is.

The owner of a house property is taxed under the head ‘Income from House Property’ in his income tax return. Income from a property which is used for carrying on business or profession is not taxed under this head.

Steps to calculate income from house property

Gross Annual Value of the property

The gross annual value of a self-occupied house is zero. It is the rent collected for a house on rent.

Less: Property Tax

Property tax, when paid, is allowed as a deduction.

Net Annual Value

Net Annual Value = Gross Annual Value – Property Tax

Less: 30% standard deduction on NAV

A standard 30% deduction on NAV is allowed as a deduction under Section 24 of the Income Tax Act. No other expenses such as painting and repairs can be claimed as tax relief beyond the 30% cap under this section.

Less: Interest on home loan

Deduction is allowed for Interest on home loan.

Income from house property

The resulting value is your income from house property. This is taxed at the slab rate applicable to you.
House Property and Taxes
Loss from house property

Since the gross annual value of a self-occupied house is zero, claiming the deduction on home loan interest will result in a loss from house property. This loss can be adjusted against income from other heads.
Section III:

Basics of house property taxes

What is a house property as per the Income Tax Act?

A house property could be your home, an office, a shop, a building or some land attached to the building say a parking lot. The Income Tax Act does not differentiate between a commercial and a residential property. All types of properties are taxed under the head ‘income from house property’ in the income tax return.

When a property is used for the purpose of business or profession or for carrying out freelancing work – it is taxed under the ‘income from business and profession’ head. Expenses on its repair and maintenance are allowed as business expenditure.
Who is an owner of a house property?
An owner for the purpose of income tax is its legal owner, someone who can exercise the rights of the owner in his own right and not on someone else’s behalf.
What does a self-occupied house property mean?
A self-occupied house property is used for one’s own residential purposes. This may be occupied by the taxpayer’s family – parents and/or spouse and children. A vacant house property is considered as self occupied for the purpose of Income Tax.

If more than one self-occupied house property is owned by the taxpayer, only one is considered and treated as a self-occupied property and the remaining are assumed to be let out. The choice of which property to choose as self-occupied is up to the taxpayer.
House Property and Taxes
What does a let out house property mean?
A house property which is rented for the whole or a part of the year is considered a let out house property, according to the I-T Department.

How is an inherited property taxed?
I inherited a property from my father. Will the property value of the home be added to my income? Yes, you will be taxed just like if it were your own property. When you own more than one house property, only one house is treated as self-occupied house property according to the I-T Department while others are assumed and taxed as if they are on rent.

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