How To Calculate and report Income from House Property while filing ITR 1
Almost every one of us saves towards owning a property and hopes to achieve this one day. However, this dream comes with costs when fulfilled. Once you own a property, you have to carry the responsibilities of paying house property taxes annually. In this article, we will discuss on how to calculate income from house property while filing income tax. We will also tell you some tricks on how to save tax.
Before we start, let us dig deep into the basics of house property tax. House is not only exclusive under this category; it can be an office, a shop, a building, or some land attached to the building. Example: a parking lot. All the above mentioned types of properties are taxed under the header of ‘income from house property’ while you fill your income tax.
It should be noted that if the tax payer has only one house then he / she would have to provide a detailed breakup of income in the ITR-1. The calculation of income from the house property and the eligibility of tax deductions claims depend upon whether the house is let-out or self-occupied.
It must be noted that when a property is used for some kind of business including freelancing then it is taxed under the ‘income from business and profession’ header.
Types of house property
Broadly, we can categorize house property in three types.
- Self-Occupied House Property –
These are simply residential properties. It can be occupied by the taxpayer’s family members. Eventually, it can also be a vacant property. It must be noted that, till 2019, if more than one self-occupied house property is owned by the taxpayer, then only one of them was treated as a self-occupied property.
The taxpayer was given the full freedom to choose the self-occupied property. From 2019-20 onwards, this benefit has been extended to 2 houses which means, now, a taxpayer can claim his 2 properties as self-occupied. Simply, the other houses owned by the taxpayer would be let out of Income tax. - Let out House Property –
These are rental properties. A house property which is rented irrespective of whether it is rented partly or fully, comes under this category. The owner of the housing has to pay the tax. - Inherited Property –
It is simply a property that is bequeathed from parents, grandparents or someone else. The one who is inheriting the bequeathed property has to pay the property tax.
Calculation of house property tax
In this part, we will elaborately describe the components of house property tax and how to calculate house property tax. In order to claim property tax deduction, you have to first fill up the income tax form. You will be required to fill the type of house property.
The drop down will come with two selectable options: “Self-occupied” and “Let-out” property.
Calculation for Self occupied property:
Under this category, the annual value will automatically be taken as zero or nil. Here, you can get deduction only for the interest paid on the borrowed capital. The maximum amount you can fill in the “interest paid on borrowed capital” column under the header income from house property is INR 2 lakh.
In simple words, this means, if the interest paid by you exceeds INR 2 lakh in a year, then the maximum amount that can be entered by you shall be INR 2 lakh.
For an example, if you have paid INR 2 lakh as interest then you will be able to claim a maximum of INR 2 lakh deduction from the income from house property.
Now, as the calculation goes, since the annual value of the house is a zero or nil, the deduction claimed of INR 2 lakh will result in a negative figure, or a loss of INR 2 lakh under ‘income from house property” category.
Now consider, that you have filled the form showing a loss as discussed above, then, this loss will be adjusted against other heads of income such as “income from salary”. This will bring down your gross income chargeable to tax.
Now, if you don’t have any other source of income, and you want to carry forward the losses, then you have to file return in other ITR forms as ITR-1 has no column to carry forward loss.
Calculation for Let-out property:
Here, you have to full in three additional cells in the income from house property section. However, this is a bit tricky as you have to make a few calculations of a couple of things. Let us understand what we have to calculate and how.
a. Gross rent received/ receivable/ let-able value –
Under this option, you have to calculate two values: Actual rent receivable and Expected rent. Out of these two options, whichever value is higher, will be automatically selected as Gross rent received / receivable.
Let us now have a clear understanding of each of these two components.
i. Actual rent received / receivable –
It is nothing but the amount received by you from your tenant during the year. Please note that if there is any arrear yet to be received, it should also be added and computed.
ii. Expected rent –
It is nothing but the amount that is expected to be received as rent. It should be determined by taking the higher of the Municipal valuation and Fair rent, provided the higher value does not exceed standard rent, if applicable.
iii. Municipal valuation –
As per laws, the local municipality should conduct a survey in order to determine the tax to be paid up by the house owner. This municipality survey determines the gross rental valuation of all the buildings within the area and calculates taxes that should be levied over them. You will get details of this in the form you fill to pay your property taxes. You must know that this tax varies from one locality to another as per gross valuation of the area. Sometimes, local authorities allow a deduction on account of repair and considers only the net municipal value to determine the tax/ In this case, the tax payer has to adjust the net municipal value himself to get a gross value out of it.
iv. Fair rent –
Rent payable for similarly situated properties are taken into consideration here to determine the annual value.
v. Standard rent
Exclusively, if your state comes under the Rent Control Act then you have to follow this. As the name suggests, it is the base price set by the government over which, a landlord cannot charge.
vi. Actual Rent –
It is nothing but the sum of Rent Received and Rent receivable and subtraction of Unrealized rent from it.
Simply, take the higher value of Municipal valuation and Fair Rent. If Rent Control Act is applicable, and standard rent is lower than higher value, then it is your Expected Rent. Compare this Expected Rent with the Actual Rent received by you.
b. Tax paid –
If you have paid any tax to the municipal authority, include it in this part. You must have got a challan if you have paid tax. You have to fill up the ITR form mentioning the challan numbers.
c. 30% of annual value –
As soon as you fill up the previous two parts, the form will automatically calculate the annual value of your house along with a deduction of 30% from the annual value. For let-out properties, this deduction comes straight forward as a deduction for maintenance cost.
d. Interest paid on home loan –
If applicable, you have to fill up the interest paid on home loan. Unlike the calculation of self-occupied property, you can enter a value of more than INR 2 lakh as shown in your home loan statement but you can claim a maximum loss of INR 2 lakh only.
However, the residual can be carried forward in this case. But for that, you have to fill up other income tax forms as ITR 1 does not allow any kind of carry forward of loss.
It must be noted that you will get a deduction of INR 30000 only instead of INR 2 lakhs if the loan is taken on or after 1st April 1999 and if the purchase or construction is not completed within 5 years from the end of the fiscal year in which loan was availed.
There are a few more conditions for deduction under home loan. They are:
The home loan must be taken for purchase or construction of a new property and the property must not be sold within five years of taking possession.
So far, we have discussed the whole mechanism of how to how to calculate income from house property while filing income tax. We believe that now, you have got a fair understanding of the calculations. As we have promised, now, we will tell you a trick on how to save tax from house property.
Tax benefits on Home Loans for Joint Owners
If a self-occupied property has more than one owner, and all the joint owners are co-borrowers of a home loan, then both or all of them can claim a deduction on interest on the home loan up to INR 2 lakh each. Apart from this, they can also claim a deduction on principal repayments such as deduction for stamp duty and deduction of registration charges under Section 80C within the overall limit of INR 1.5 lakh each owner. All these deductions are allowed to be claimed in the same ratio as the ownership ratio goes.
However, be cautious that you might be a joint owner of a property but you must have also taken the loan to get this benefit. Similarly, you might be taking a loan jointly, but to get this benefit, you have to be a joint owner of the property as well. If you are planning for a / another house, then keep this in your mind and save some tax by sharing loan borrowing and property ownership. Technically, this will suit joint families best but neutral families can also try out this by sharing loan and property with family members.
Conclusion
We have discussed the components of house property tax and how to calculate and report it quite elaborately so we hope you don’t have any problem while filing it. However, we would recommend you take expert assistance while filing your income tax because one negligible error can cost you big. It will not only just dig a hole in your purse but also cost you hours if you make a mistake. As promised, we have also added a post script trick for you to save some property tax if you are still planning for your house. If you have any query, feel free to ask it in the comments section below.
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