A Guide to Income from House Property

Income from House Property or Commercial Property constitutes a major proportion of ‘Income from other sources’ for a lot of people. However, under Section 22 of Income Tax Act, owner has to pay tax for ‘Income from House Property.’ 

What is Income from House Property?

The income of a person from house property is one of the major sources of income in India. Section 22 to 27 of Income Tax Act lets you know the process of Income Tax computation. The rental income from residential or commercial property is taxable. Now let’s see in detail what it is all about in detail.

What are the Types of House Property?

• Self-occupied- The property which the assessee or their immediate family uses for his/her residential purposes is deemed to be self-occupied. Anyone can have up to 2 self-occupied house properties. If anyone has more than two of them, it will be treated as deemed to be let out property.
• Let Out- The properties that the assessee has rented out and is receiving a rental amount in exchange for that is considered as let-out property. The rental income is taxable under ‘Income from House Property’ after deducting interest paid, taxes and others.
• Deemed to be Let Out-  As stated above, if someone owns more than 2 house properties, it will be treated as deemed to be let out property. It will be taxable similar to let out property. Let’s assume, Mr. Naresh owns 3 houses. He lives in one of them with his wife and children. The second one is where his parents live. He uses the third one for vacation purposes during weekends or holidays. In such case, the third house will be taxable on fair market value or municipal value even though he is not receiving any rental income.

How to calculate Income from House Property?

Let’s assume the Gross Annual Value (GAV) of the property is ₹20,000. Also, please note that Gross Annual Value (GAV) is the highest of all among fair value, municipal value, and actual rent.

Exceptions for Income from House Property

However, there are few exceptions to Income from House Property provided by Income Tax Act-

1. If the house property is used for one’s own business

When a person uses their house property for their own business, then the rental value of such property is not treated as income. However, at the same time, it is also not deductible. Still, the amount that is used for renovation or repairs, paying taxes and similar expenses are deductible.

1. When the person owns two property

If a person owns two housing properties and occupies both of them due to reasons like ancestral home, different location of employment, etc then it is exempted from tax. This is because the annual value is taken as zero in such cases under Section 23(2) of the Income Tax Act. However, if the person has put up one property on rent, it is taxable.

1. Income of Political Party

If any political party has any income from the house party, it is not taxable under Section 13A of the Income Tax Act.

1. Income of Registered Trade Union

According to Section 10(24) of the Income Tax Act, Income from house property is not taxable for a registered trade union.

1. Income of Educational or Medical Institutions

Not just political party or trade union, any income of educational or medical institutions too from house property is exempted from tax under Section 10(23C) of the Income Tax Act.

Can a person claim both HRA (Housing Rent Allowance) and home loan tax benefits?

Under some circumstances, yes you can. If you are living in a rented home and you have bought another house for you with a home loan, you can claim both. For this, you may or may not have put your property on rent. 

Should all rent received be reported in the Income Tax Report (ITR)?

Yes, it is advisable to report all rental income while filing your Income-tax Returns. This is because rental income is taxable. However, you can deduct any expenses (if you have any) that is related to your rental income. These deductions can be for taxes, repairs, and maintenance.

Also read:

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