- Date : 05/11/2022
- Read: 4 mins
You must know everything about deductions from your house property income to maximize your tax savings on your total income.
In India, we have always given investment in real estate a top priority. Filmstars, Big business owners, Entrepreneurs, other rich individuals tend to invest their money in house properties and end up owning 2 or more properties.
So investments always attract income, and on any additional income, you need to pay more taxes.
But do you know, as per the income tax act, any person has to pay taxes on his house property income, even if it is not let out? Yes, you are worried now. You are wondering why? And is it true?
A big question must be popping into your head, so how can we maximize the tax savings on our house property income? You must be thinking about deductions from such house property income, as well.
Let us understand everything step by step with the help of an example that how can we save maximum tax in every situation?
Situation 1: Owning 3 house properties and all of them are self occupied.
Suppose Mr. A owns 3 house properties in his name but in different states or cities, say one in Delhi, one in Bangalore and one in Mumbai. He lives in Delhi along with his family and his parents stays a Bangalore. Property at Mumbai is not let out.
Here what are the tax implications:
- As per the income tax rules, Mr A can not claim more than 2 house properties as self occupied. He has to compute house property income as per the income tax rules.
- Here, one of the property shall be considered as deemed let out according to taxation rules. So Mr A will compute taxable income for all the house properties.
- After computing taxable income of all 3 properties, he can choose properties with higher rental income as self occupied in order to save maximum tax.
- And he can choose property with lower income as let out & can choose to pay lesser taxes on the same.
Rules of computation of house property income as per Income Tax Act:
Related: Detailed view of House Property Income and its taxability.
Some times, a person who avails a home loan to purchase or construct the property can claim dual tax benefits. These can be:
- He or she can claim interest paid during the year as an expense from House Property income under section 24 of the Income Tax Act.
- He or she can claim home loan principal repayment upto Rs. 1.5 lakhs as deduction under section 80C.
Further, a person can claim interest as an expense for all properties, be it a self-occupied property or let out property. This sometimes results in loss under house property income where the property is self-occupied.
In such cases, that loss can be adjusted against other house property income and remaining unabsorbed losses can be carried forward up to 8 years under the act.
Situation 2: Owning 3 house properties with a home loan and, one is self occupied & two are let out properties
Suppose Mr. B has 3 house properties, one in Delhi where he lives with his family, one in Chennai & one in Goa and both are let out. Further, Mr. B had taken the loan for these properties on which he is paying interest Rs. 2 Lakhs (Delhi based), Rs. 5 Lakhs (Chennai based) and Rs. 12 lakhs (Goa based). Now what will be his tax implications?
Here, the net annual value of a self-occupied property is always considered as Nil as per income tax rules.
Further, income from Chennai property will be set off against losses from other two properties, i.e. the remaining loss of Rs. 640000 (Rs. 500000+200000-60000) will be further set off against income under other heads, i.e. salary, other sources, business income etc. restricted upto Rs. 200000.
Related: Set off and carry forward of House Property losses
It means remaining unabsorbed loss of Rs. 400000 can be carried forward upto next 8 financial years till the time loss is completely set off against other incomes of a person.
In order to carry forward of losses, a person has to file his or her income tax return as per the provisions of Income Tax Act.
Related: Frequently asked questions about income under head house property
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
In India, we have always given investment in real estate a top priority. Filmstars, Big business owners, Entrepreneurs, other rich individuals tend to invest their money in house properties and end up owning 2 or more properties.
So investments always attract income, and on any additional income, you need to pay more taxes.
But do you know, as per the income tax act, any person has to pay taxes on his house property income, even if it is not let out? Yes, you are worried now. You are wondering why? And is it true?
A big question must be popping into your head, so how can we maximize the tax savings on our house property income? You must be thinking about deductions from such house property income, as well.
Let us understand everything step by step with the help of an example that how can we save maximum tax in every situation?
Situation 1: Owning 3 house properties and all of them are self occupied.
Suppose Mr. A owns 3 house properties in his name but in different states or cities, say one in Delhi, one in Bangalore and one in Mumbai. He lives in Delhi along with his family and his parents stays a Bangalore. Property at Mumbai is not let out.
Here what are the tax implications:
- As per the income tax rules, Mr A can not claim more than 2 house properties as self occupied. He has to compute house property income as per the income tax rules.
- Here, one of the property shall be considered as deemed let out according to taxation rules. So Mr A will compute taxable income for all the house properties.
- After computing taxable income of all 3 properties, he can choose properties with higher rental income as self occupied in order to save maximum tax.
- And he can choose property with lower income as let out & can choose to pay lesser taxes on the same.
Rules of computation of house property income as per Income Tax Act:
Related: Detailed view of House Property Income and its taxability.
Some times, a person who avails a home loan to purchase or construct the property can claim dual tax benefits. These can be:
- He or she can claim interest paid during the year as an expense from House Property income under section 24 of the Income Tax Act.
- He or she can claim home loan principal repayment upto Rs. 1.5 lakhs as deduction under section 80C.
Further, a person can claim interest as an expense for all properties, be it a self-occupied property or let out property. This sometimes results in loss under house property income where the property is self-occupied.
In such cases, that loss can be adjusted against other house property income and remaining unabsorbed losses can be carried forward up to 8 years under the act.
Situation 2: Owning 3 house properties with a home loan and, one is self occupied & two are let out properties
Suppose Mr. B has 3 house properties, one in Delhi where he lives with his family, one in Chennai & one in Goa and both are let out. Further, Mr. B had taken the loan for these properties on which he is paying interest Rs. 2 Lakhs (Delhi based), Rs. 5 Lakhs (Chennai based) and Rs. 12 lakhs (Goa based). Now what will be his tax implications?
Here, the net annual value of a self-occupied property is always considered as Nil as per income tax rules.
Further, income from Chennai property will be set off against losses from other two properties, i.e. the remaining loss of Rs. 640000 (Rs. 500000+200000-60000) will be further set off against income under other heads, i.e. salary, other sources, business income etc. restricted upto Rs. 200000.
Related: Set off and carry forward of House Property losses
It means remaining unabsorbed loss of Rs. 400000 can be carried forward upto next 8 financial years till the time loss is completely set off against other incomes of a person.
In order to carry forward of losses, a person has to file his or her income tax return as per the provisions of Income Tax Act.
Related: Frequently asked questions about income under head house property
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
