An owner of a house property can use his property for any purpose. He may use it for his own residence or for residence of his family members. He may also use it for his business or profession or give it on rent. In all cases, the annual value of such property (except where house property is used for own business or profession) is chargeable to tax under the head house property.
In order to compute the income chargeable to tax under the head house property, an assessee is allowed to deduct municipal taxes paid during the year from the annual value of a property to arrive at net annual value. From net annual value so computed, a standard deduction of a sum equal to 30 per cent of the net annual value is also allowed.
The standard deduction is allowed in lieu of annual maintenance expense incurred by a person on house property. Further, any interest on loan taken for purchase, construction, renovation, repair etc. of house property is also allowed to be deducted from the net annual value.
If a person receives any arrears of rent or recovered unrealised rent during the year then it shall be added under the head income from house property after reducing the standard deduction at the rate of 30% of the rent so received.
Computation of annual value
The annual value of a property depends on whether the property is let-out or self-occupied during the year. In case of a let-out property, higher of the fair market rent or the actual rental income from such property is treated as the annual value. In case of self-occupied property, the annual value of any one house can be taken as 'nil'.
When a property is considered as self-occupied?
A property is treated as self-occupied house property if it is not let-out even for a single day during the year and meets any one of the following two conditions:
1. If it is occupied by the owner for his own residence; or
2. If it can't be occupied by him owing to employment or business at any other place, and he resides at that other place in a rented house/house not belonging to him.
When a property is considered deemed let-out?
If a person owns more than one house property and none of them have been let-out during the year (even for a single day), then he can treat only one house property as self-occupied, and all other house properties are deemed to be let-out (however, from financial year 2019-20 two houses can be treated as self-occupied). As a result, higher of municipal valuation of such property or market rent of a similar property in similar location may be deemed as the annual value of such property and a person has to pay tax on it even if he does not earn any income from such property.
Deduction for interest on housing loan
If a person has taken any loan for purchase, construction, repair, renovation etc. of a house property then the interest paid or payable on such loan is allowed to be reduced while computing the income from house property. The interest on housing loan is allowed without any limit in case of let-out and deemed let-out property. However, in the case of self-occupied property, a deduction for interest is allowed up to Rs 200,000 if the loan is taken for purchase or construction of residential house property and it is completed within five years from the end of the financial year in which loan was taken.
Set-off of loss from house property
If a person has incurred loss from one house property then he is allowed to set-off such loss against income from any other house property. If income from other house properties is not sufficient then the unadjusted loss is allowed to be set-off from income chargeable under the head salary, business or profession, capital gain or other sources, subject to a limit of Rs. 200,000. Any unclaimed losses can be carried forward to subsequent years which can be adjusted against future income from house property.
Which ITR form can be used to report Income from house property?
Income from house property can be reported in ITR 1 to 4 in accordance with the following table.
ITR 1 or ITR 4 can be filed by an individual who earns income from one house property. Thus, while reporting income from house property, an assessee can either mark this house property as 'self-occupied' or 'let out' during the year.
A new option 'deemed let out' under the category of 'type of property' is inserted in the new ITR 1 and 4. Now following three options are available to select 'type of property':
3. Deemed let-out
The option of 'deemed let out' shall be selected in respect of that house property which has not been claimed as self-occupied by the assessee. ITR 1 and 4 can be used only in case of income from only one house property. In very rare situation deemed let-out option shall be selected by an assessee.
(The author is DGM - R&D, Taxmann.com and Dipen Mittal, Manager - R&D, Taxmann.com)