If you own a house and given it on rent, you will have to calculate income tax on it and pay your taxes.
You cannot claim any expenses against rent received for any repair or maintenance done by you. However government do give a standard deduction of 30%.
In this article I will explain you about calculating income from house property.
Under income-tax any income from house property (building or any structure on land), is charged under the head "Income from house property".
Income from vacant land is to be charged under head "Income from other sources".
If you are receiving rent for house and also for other services then income from house should be charged under the head "Income from House property" and income from other services should be charged either under the head "Income from Business or profession" or "Income from other sources".
Only legal owner of the house can pay tax under the house property head. If you own the house only then you can calculate tax under this head otherwise tax will be under the head income from other sources.
The very first condition is that you should own the house. It is the legal owner of a house property who is chargeable to tax in respect of property income.
In following cases a person will be treated as deemed legal owner of a house property.
Income from house property is calculated as below.
Particulars | Amount (Rs.) |
---|---|
Gross Annual Value (GAV) | xxxx |
Less: Municipal taxes | xxx |
Net Annual Value (NAV) | xxxx |
Less: Deduction under section 24 |
|
Standard deduction (30% on NAV) |
XX |
Interest on borrowed capital |
XX |
Income from from House property | xxx |
The first step in calculating income from your house is to calculate Gross Annual Value (GAV).
How to calculate Gross Annual Value of a house?
To calculate GAV of a house follow these steps.
Once you have done the above steps, you have take higher value from step 1 and step 2 and deduct value from step 3.
For example, if expected rent as per step 1 is Rs. 1,20,000 and actual rent received was Rs. 60,000 then you have to consider Rs. 1,20,000 as GAV. Again, if house was vacant for 5 months then you have to deduct 50,000 (5*10,000) from your GAV.
You can calculate Net annual value by deducting municipal taxes from gross annual value.
Now you know that you cannot claim any expenses while calculating income from house property. However, Income tax act provides deductions under section 24.
Following expenses can be deducted from Net annual value (NAV) while calculating income from house property:
Standard deduction of 30% is allowed irrespective of actual expenditure.
Interest can be claimed if borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of house property. Interest on borrowed capital is allowed, but if you have any unpaid interest, interest charged on unpaid interest is not allowed.
Even interest of pre-construction period is allowed in five equal installments. If you took a loan to construct house, you can claim interest paid during construction time in five equal installments.
I will take a simple example to explain you calculation of income from house property.
Mr. A has a flat and rented it to Mr. B for Rs. 10,000 per month (10,000 is fair value and higher than municipal value). He paid municipal taxes of Rs. 5,000 for the flat and interest of Rs. 1,00,000 on loan he took to buy the flat.
This is a simple example and covers most of the practical cases. Here is the calculation of his income from House Property.
Particulars | Amount (Rs.) |
---|---|
Gross Annual Value (GAV) | 1,20,000 |
Less: Municipal taxes | 5000 |
Net Annual Value (NAV) | 1,15,000 |
Less: Deduction under section 24 |
|
Standard deduction (30% on NAV) |
34,500 |
Interest on borrowed capital |
1,00,000 |
Income from from House property (Loss) | -19,500 |
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