Updated on : Feb. 18, 2023 - 1 p.m. 17 min read.
In India, the income from house property is governed by Income Tax Act, 1962. Everyone dreams of owning a house but it does not come without responsibilities. Paying taxes on house property is one of them. There are several deductions and exemptions available for the owners to save their tax. The principal amount and interest of the loan could be taken for self-occupancy and let-out purposes. The section covered the details of deductions and exemptions in section 24, section EE and section EEA.
What is House Property?
Any property which is bought for the purpose of a home, shop, rent, or any other commercial purpose like the parking lot, or renting a building comes under house property.
Income From House Property
The income earned by the self-occupied and rental property is the source of income from house property. The income tax is calculated under 'Income From House Property '.
Usage of House Property :
The owner of the house property may use the property either for personal use such as residence and storehouse or it may be for the purpose of business or profession.
A. Self-Occupied House Property
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 self-occupied for the purpose of Income Tax. From FY 2020 onwards the owners can take the benefit up to 2 houses as self-occupied and the remaining will be considered as let out.
B. Let Out House Property
A house property that is rented for the whole or a part of the year is considered a let-out house property for income tax purposes.
C. Inherited Property
An inherited property i.e. one bequeathed from parents, grandparents, etc again, can either be a self-occupied one or a let-out one based on its usage as discussed above.
Chargeability Under Section 22 :
The income earned from house property by performing any business or professional activities is chargeable under section 22 of the Income Tax Act, 1995.
Section 22 :
Income from house property 1The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income- tax, shall be chargeable to income- tax under the head "Income from house property".
DEDUCTION UNDER SECTION 24
The following deductions are made under section 24 from the net adjusted annual value in order to arrive at taxable income:-
- A sum equal to thirty percent of the annual value.
- Where the property has been acquired, constructed, repaired, renewed, or reconstructed with borrowed capital, the amount of any interest payable on such capital. In deduction of the interest on borrowed capital, the assessee has to prove nexus with the acquisition/construction/ reconstruction/ repair/ renewal of property. Only interest is deductible, not interest on interest.
An amount of up to 2 Lakh is deductible on interest.
DEDUCTION UNDER SECTION 80C
The deduction to claim principal repayment is available for up to Rs. 1,50,000 within the overall limit of Section 80 C.
The conditions applied are as follows :
DEDUCTION UNDER SECTION 80EE
Section 80EE is applicable only to first-time homebuyers. Section 80EE recently added to the Income Tax Act provides the homeowners, with only one house property on the date of sanction of loan, a tax benefit of up to Rs 50,000.
DEDUCTION UNDER SECTION 80EEA
A new section 80EEA is added to extend the tax benefits of interest deduction for housing loans taken for the affordable housing scheme. The maximum deduction under Section 80EEA is 1.50 Lakh.