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How to calculate Income from house property

Any income earned from a property by the assessee is termed as income from the property. However, house property includes flats, shops, office space, factory sheds, agricultural land and farm houses. Further, house property includes all type of house properties, i.e., residential houses, godowns, cinema building, workshop building, hotel building, etc.

When an assessee earns any income from a house property, it is taxed under the head ‘Income from house property’ as per the Income Tax Act. Tax calculation on such income varies depending on the type of house property & several other factors.

In order to understand how to calculate income on house property & subsequent tax on such income is calculated, one needs to understand the following terminologies:

Annual value: It is the amount for which the property might be reasonably be expected to be let out from year-to-year. However, if the actual rent received or receivable in respect of any let out property exceeds the reasonable amount, the tax is charged on the actual amount of rent received or receivable.

Municipal value: This is the value as determined by the Municipal authorities for levying Municipal taxes on house property. Municipal authorities normally charge house tax/Municipal taxes on the basis of annual letting value of such house property.

Rental Value: It is an assumed rental value of the property which is calculated by comparing it with a similar property having similar features.

Standard Rent: The standard rent is fixed under the Rent Control Act. If the standard rent has been fixed for any property under the Rent Control Act, the owner cannot be expected to get a rent higher than the standard rent fixed under the Rent Control Act.

Actual rent received/receivable: It is the actual amount of rent received by the owners from the tenants.

Gross Annual Value (GAV): The one which has highest value among the below three terms is considered Gross Annual Value:

a) Rent received or receivable

b) Fair Market Value

c) Municipal Valuation

If the Rent Control Act is applicable, then the one which has highest value among the below two items is considered Gross Annual Value:

a) Standard Rent

b) Rent Received

Net Annual Value (NAV) is calculated as:

NAV = GAV – Municipal Taxes Paid

Deductions: To calculate the actual taxable income from house property, the following two deductions are allowed under section 24 of the Income Tax Act.

a) Standard Deduction which is 30% of the NAV, is allowed as a deduction towards repairs, rent collection, etc. irrespective of the actual expenditure incurred. This deduction is not allowed if the Gross Annual Value is nil.

b) Interest on home loan is allowed as a deduction under section 24. Annual Value: Annual Value = NAV Deductions.

Owner/deemed owner:The person who is entitled to receive the income is called owner of the property, while the person who receives financial benefits from the property but is not registered as its owner is called deemed owner of the property. Income from house property is taxable for the person who actually receives monetary benefits from the property but may or may not be the registered owner of the property.

However, there are few tips from which you can save Tax on income from House Property?

Opt for Joint Home Loan- Under joint home loan you will both be eligible for tax deductions on interest up to Rs. 1,50,000 each.

Buy the second home on your spouces/ relative name- To avoid excess tax on the second property simply register the second property on your spouse/relatives name as joint ownership Taxation on income from house property can be divided between co-owners, and hence lessen the load.

To-Let- Due to fair rental value, is is advisable to let any and all empty properties out, enabling income and no loss because of taxation.

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