Property Tax Deduction in Income Tax

Property owners can become liable to pay income tax on their property as per Section 24, titled “Deduction From Income from House Property”.

Let’s take a look at the cases where the property owners have to pay income tax on their property under Section 24-

  • If the property owners have rented their house/s, then the rent obtained is considered as income
  • If the property owners have more than one house, then the Net Annual Value of those houses, except the one the owner is living in, is considered as income

In case, the property owner has only one house and he/she is living in it, then the income from that property will be considered as NIL. Any other income which is collected in the form of rent or the Net Annual Value of the additional houses will be considered as income under Section 24.

Deductions Under Section 24

There are two types of deductions for the property owners who are liable to pay income tax under Section 24 as explained below:

  • Standard Deduction: The house owners, who are already taxpayers, can be exempted if the income collected from the house is 30% of the Net Annual Value of the house. This is not applicable in case the owners are residing on that property
  • Interest on Loan: In case the house owners have taken a house loan, the interest amount paid on the principal amount is exempted from the income tax. There are three sub-clauses of this category:
  1. House owners can claim exemptions of up to Rs. 2 lakh on the house loan for a self-occupied house
  2. When the house owners take a loan for buying or constructing a house, they can claim an exemption even before buying or completing the construction. They can claim exemptions on the interest paid on the principal amount of the loan. House owners will also be eligible for 5 instalments of equal deduction
  3. In case of renovation or reconstruction of the house, owners cannot claim the exemptions until the renovation or reconstruction is completed

Exemptions Under Section 24

The owners can get exempted from the income tax under Section 24. Here are the following cases where they can be exempted:

  • If the property owners do not reside in the house they have taken a loan for, they can be exempted from the entire interest with no upper limit on the exemption
  • If the house owners do not reside in the property because they are living in a different city due to employment or business, and they have purchased or rented a house there, they can claim exemption on the interest but only up to Rs. 2 lakh
  • There are no deductions on brokerage or commissions for arranging loans or tenants for the house owners
  • House owners need to complete the construction of their houses within three years of taking the loan to claim the maximum exemption of Rs. 2 lakh. In case they fail to complete the construction in three years, they can only claim an exemption of INR30,000.

House owners should have the interest certificate for the loans that they have taken to submit as proof of the loan during the calculation of tax deductions.

Tax Deductions from Section 80C

Tax deductions under Section 80C come into the picture for a newly bought house. House owners can claim deductions on stamp duty and registration charges, which is usually up to 10% of the amount at which the house is purchased. The maximum amount that can be deducted under Section 80C is INR 1.5 lakh. House owners are also entitled to claim the dedications for the costs incurred during the transfer of a newly constructed house.

Capital Gains on House Property

Capital Gains is the tax paid on the profit gained by the sale of a property. Capital Gain can contribute to the wealth drain hugely if the house owners do not handle it well. However, this can be avoided by investing the profit in the purchase of another property within two years of the sale of the property.

Conclusion

House owners are liable to pay income tax for the profit earned from the properties they own. However, if the house is self-occupied by the owner, then they are exempted from the income tax. There are two types of deduction under Section 24, which can be exempted from the income tax if several conditions are met. There are also other types of tax deductions on the property apart from Section 24, such as Section 80C and the Capital Gains.

FAQs
Who is liable to pay income tax on property under Section 24?
The following are the cases where an individual or an organization is liable to pay income tax on property under Section 24:
  • If the property owners have rented their house/s, then the rent obtained is considered as income
  • If the property owners have more than one house, then the Net Annual Value of those houses, except the one the owner is living in, is considered as income
What are the types of Property Tax Deduction in Income Tax deductions under Section 24?
There are two types of deductions under Section 24 which are as follows:
  • Standard deduction
  • Interest on Loan
Do I have to pay income tax for the property I am living in?
No, if the owners are residing in the property, then they are not entitled to pay income tax on that property. However, if there are tenants on the property, then the rent obtained from them is termed as income on the property and will attract income tax on it.
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