A salaried taxpayer purchased a 2 BHK flat in Delhi last year with the help of a home loan for which he is paying Rs 3.5 lakh as interest annually. While he is living in a rented house in Mumbai because of his job in the city, he has let out the Delhi flat and is receiving Rs 20,000 per month as rent from a tenant.
As the income tax return filing season has started, many salaried taxpayers like the above are not sure how to calculate their tax liability for the rental income from a property purchased on a home loan. Also, whether they can claim House Rent Allowance (HRA) as well while living and working in another city.
According to Dr Suresh Surana, Founder of RSM India, any rental income received by a taxpayer would be subjected to tax under income from house property. Taxpayers may take the benefit of nil annual value on any two house properties as self-occupied properties (SOPs).
“However, a self-occupied property would constitute a property owned by the taxpayer which is occupied throughout the year by the owner for the purposes of his own residence and is not actually let out during the whole or any part of the year. Thus, the taxpayer may not be able to claim the benefit of SOP on any property given on rent,” Dr Surana told FE PF Desk.
In the above case, the computation of Income from House Property (rental income) would be as follows, according to Dr Surana.
| Particulars |
Amount |
| Gross annual value (Rs 20,000×12 months) |
Rs 2,40,000 |
| Less: Municipal taxes (Note 1) |
(Nil) |
| Net annual value |
Rs.2,40,000 |
| Less: Deduction u/s 24(a) (Note 2) |
(Rs.72000) |
| Less: Deduction u/s 24(b) (Note 3) |
(Rs.3,50,000) |
| Income/ (Loss) from house property |
(Rs.1,82,000) |
Note 1: Municipal taxes levied by the local authority are to be deducted from the gross annual value if such taxes are borne and paid by the owner during the previous year.
Note 2: Under section 24(a) of IT Act, a standard deduction of 30% on the Net Annual Value can be claimed with respect to expenses such as painting, repairs, insurance, repairs, electricity, water supply, etc.
Note 3: Under section 24(b) of IT Act, a deduction of up to Rs. 200,000 for a home loan’s interest can be claimed by the owner of a self-occupied property. Further, the owner of a let-out property shall be eligible to claim the entire interest on the home loan as a deduction.
Note 4: If loss under the head “Income from house property” cannot be fully adjusted in the year in which such loss is incurred, then the unadjusted loss can be carried forward for 8 years immediately succeeding the year in which the loss is incurred.
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