If you have a house/flat that is either rented out or kept vacant you need to know about income from house property for tax calculation purposes. This is also important for tax saving if you want to set off the interest you are paying on any home loan taken for the same house against the income from house property.

A person's gross total income chargeable to tax is a sum of income under various heads such as 'income from salary', 'income from other sources' etc. One of these heads of income is 'Income from House Property'.

What is income from house property
Income from House Property covers the rent earned from the House property which is chargeable to tax. Sometimes, the owner may have to pay tax on 'deemed rent' in case the property is not let out.

The income from house property is added/ included in a person's (the assessee)' gross total income only if it satisfies three essential conditions:
1. The assessee is the owner of that property.
2. The property must consist of house, buildings and/or land.
3. The property may be used for any purpose except used by the owner for the purpose of running his business or profession.

Here ownership includes freehold, leasehold rights and also includes deemed ownership.

Section 27 of the Income Tax Act defines deemed ownership of the house property for the purpose of levying tax as:
1. Transfer of ownership to a spouse or minor child
2. Holder of impartible estate. Impartible estate refers to the property which is not legally divisible such as dividing a single storey house with say 3 rooms among 7 heirs.
3. Property held by member of a co-op ..

4. Any person who has acquired a property under Power of Attorney transaction.

Deductions from house property before levying of tax
While computing the income earned from letting out the property, one can avail (where eligible) various deductions available under section 24 of the Income Tax Act to arrive at the net taxable income from house property income. These deductions include standard deduction, These deductions include standard deduction, the deduction of municipal taxes, deduction of Interest paid on home loan which is allowed under this head.

Brokerage or commission paid to acquire an asset is not allowed as a deduction.

Interest paid on a home loan: Any Interest paid/payable on the loan taken for acquiring, constructing, or repairing the property is allowed as a deduction from the income from that house property.

Interest paid /payable in the previous years i.e. prior to the year in which property was acquired or constructed (i.e. interest paid in pre-construction period) will be aggregated and will be allowed as a deduction in five successive financial years starting from the year in which acquisition/construction was completed.

Municipal taxes paid: Any taxes paid to the Government during the financial year (for which the income is being computed) on the property owned, such as house tax, are allowed for deduction from the Gross Annual Value which is calculated on the basis of the total rent receivable/received/deemed rent for the property for that FY.

If the owner does not pay the taxes on a property then he cannot avail the deduction too. Owner can claim deduction even for arrears of house tax in the financial year in which these arrears are actually paid.

Standard deduction: It allows the assessee a deduction of 30% of the 'Net Annual Value'.

Gross Annual Value and Net Annual Value
Gross Annual Value of a property is the value at which the property might reasonably be expected to be let from year to year. It is more like a notional rent which one could have earned in case property had been let out. Even if the property is not let out, the notional rent or deemed rent receivable is taxable.

The Annual Value is determined after taking 4 factors into consideration. These are: (i) Actual rent received or receivable (ii) Municipal Value (iii) Fair Rent (iv) Standard rent.

Net Annual Value is calculated as gross annual value less municipal taxes paid. ...