About Tax Under House Property
All the income is taxed under house property when it is earned through the owned house property by a tax payer. No matter if it’s a commercial or a residential property. They are taxed if you own them and are earning through them. In short, if you have rented out a property, you are liable to pay tax from whatever income you receive from the rented property.
What is the Basis of Taxation?
According to income tax parlance, the actual rent amount or the notional rent received by the property owner is termed as ‘annual value’ and hence, is taxed. Nevertheless, if one is using the same property for personal, business, or professional purpose, then NO tax is to be paid on the income received through such modes.
In case a tax payer owns two houses at one time, then law has the right to treat one house as a self-occupied while other house is bound to offer notional rent and hence, is taxable. The annual value of the property will be considered as Nil only if you are using the property for your own dwelling purpose, or the house is vacant due to your residency in another house not owned by you.
Is There Any Tax Deductions Available?
Yes, there are two deductions available on the tax.
1. Deductions with respect with repairs and other overhead expenses. An approximate deduction of 30% of the annual value is availed on the rent-out property. Even if no repair or overhead expense takes place, the deduction can be requested.
2. Second deduction is available with respect to the money borrow for the purpose of construction, reconstruction or even purchase of the property. This deduction is also available on commercial properties. You can claim for deduction over fee paid as a processing fee or prepayment fee.
For self-occupied property, the amount is restricted to ₹2 lakh per year while the properties that are rented out or are additional self-occupied ones can claim deductions on entire interest on loan.
Hence, it is advised to treat your second property as self-occupied in case the interest rate exceeds 2 lakh on such properties.
Can We Claim Deductions on Under Construction Properties?
Certainly, we can. But the claim will be valid only from the year of completion of the construction and the possession taken. You can play clever here. You can claim the interest for the entire year when the property was under construction even if the possession was taken at the end of the very year. You can claim these interests in five equal instalments but the overall interest to be claimed must be capped to ₹2 lakhs, in case of the self-occupied property only.
Other Deductions? – Deduction Under Section 80C
Under section 80 C the individual owner or Hindu Undivided Family (HUF) can claim the deduction for the repayment of home loan principal. This deduction, unfortunately is availed by specific institutions only. As compared to the deduction discussed above, the limitation to the claim is restricted to ₹1.5 lakh per annum. Besides, stamp duty and registration fee, life insurance premiums and investments in NSCs, EPF, ELSS, etc. Moreover, one can claim for such deduction only upon purchase or construction of the residential property.
If you have purchased or constructed a property and sold it within 5 years from the year of possession taken, then the entire deductions taken place for all these 5 years shall be reversed and the income earned by selling the property will be taxed as income of the year. In this case, deduction under section 80C will not be applicable.