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Income from house property

If you want to learn how to save tax on home loan interest, this guide is for you. It also talks about how to report home ownership in your income tax return Income from house property calculations services company Bangalore. The guide has examples that explain all about income taxes on house property Computation of income from house property Bangalore.

Major Change in-house Property Applicable for FY 2017-18 as per Budget 2017

Reduction in Tax Benefit on Rented House Property

Till FY 2016-17, loss under the head house property could be set off against other heads of income without any limit income from house property limit Bangalore. However, form FY 2017-18, such set off of losses has been restricted to Rs 2 lakhs. This amendment would not really affect taxpayers having a self-occupied house property. This move will have an impact on taxpayers who have let-out/ rented their properties tax on income from house property Bangalore. Though there is no bar on the amount of home loan interest that can be claimed as a deduction under Section 24 for a rented house property, the losses which could arise on account of such interest repayment can be set off only to the extent of Rs 2 lakhs.

Computation of total income and tax liability

Particulars AY 2017-18 AY 2018-19
Salary income 10,00,000 10,00,000
Income from other sources (Interest income) 4,00,000 4,00,000
Income from house property (*) 4,40,000 2,00,000
Gross Total Income 9,60,000 12,00,000
Deductions 2,00,000 2,00,000
Taxable income 7,60,000 10,00,000
Tax on the above 77,000 1,12,500
Additional tax outgo excluding cess in AY 2018-19 on account of the amendment 35,500

Workings for Income from House Property(*)

Particulars AY 2017-18 AY 2018-19
Property A
Annual Value Nil Nil
Interest on housing loan restricted to(-) 2,00,000 2,00,000
Loss from House Property(A) 2,00,000 2,00,000
Property B
Net income from House Property after all deductions (B) 60,000 60,000
Property C
Annual Value 5,00,000 5,00,000
Less : Standard Deduction 1,50,000 1,50,000
Less : Interest on loan 6,50,000 6,50,000
Loss from House Property (C) 3,00,000 3,00,000
Total income from house property (A+B+C) 4,40,000 Restricted to (2,00,000).
Balance loss of Rs 2.4 lakhs can be carried forward for the next 8 AYs

Tax deductions on home loans

1. Tax Deduction on Home Loan Interest: Section 24

Homeowners can claim a deduction of up to Rs.2 lakhs (Rs. 1,50,000 if you are filing returns for FY 2013-14) on their home loan interest if the owner or his family reside in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire interest on the home loan is allowed as a deduction. Your deduction on interest is limited to Rs.30,000 if you fail to meet any of the conditions given below for the Rs.2 lakh rebate.

See all the conditions to claim the Rs.2 lakhs rebate-

  • The home loan must be for purchase and construction of a new property.
  • The loan must be taken on or after 1 April 1999.
  • The purchase or construction must be completed within 3 years from the end of the financial year in which the loan was taken.

I. When is the deduction limited to Rs.30,000?

If the construction of the property is not completed within 3 years the deduction on home loan interest shall be limited to Rs 30,000. The period of 3 years is calculated from the end of the financial year in which loan was taken. So if the loan was taken on 30th April 2015. The construction of the property should be completed by 31st March 2019. (This period has been extended to 5 years in Budget 2016 which is applicable from the financial year 2016-17). Also, where the loan has been taken for reconstruction, repairs or renewal, only Rs.30,000 shall be allowed as deduction. Note: The deduction can only be claimed, starting in the financial year in which the construction of the property is completed.

II. How do I claim a tax deduction on a loan taken before the construction of the property is complete?

Deduction on home loan interest cannot be claimed when the house is under construction. It can be claimed only after the construction is finished. The period from borrowing money until construction of the house is completed is called pre-construction period. Interest paid during this time can be claimed as a tax deduction in five equal installments starting from the year in which the construction of the property is completed. Note that a house doesn’t have to necessarily be occupied by the taxpayer for it to be considered a self-occupied house. Members of the family – spouse, parents, and children – may also be living there. If you own more than one house property, the I-T Department only counts one property as a self-occupied house. It treats all other houses as rented properties even if they are not rented at all. Rental income calculation is based on what rent a similar property in the area would earn.

2. Tax Deduction on Principal Repayment:

The deduction to claim principal repayment is available for up to Rs. 1,50,000 within the overall limit of Section 80C from FY 2014-15 onwards (Rs. 1,00,000 if you are filing returns for last financial year). Check the principal repayment amount with your lender or look at your loan installment details.

Conditions to claim this deduction

To qualify for this deduction:

  • The home loan must be for purchase or construction of a new house property.
  • The property must not be sold in five years from the time you took possession. Doing so will add back the deduction to your income again in the year you sell.

Stamp duty and registration charges

Stamp duty and registration charges and other expenses related directly to the transfer are also allowed as a deduction under Section 80C, subject to a maximum deduction amount of Rs.1,50,000. Claim these expenses in the same year you make the payment on them.

3. Tax Deduction for First-Time Homeowners

Section 80EE recently added to the Income Tax Act, provides a first-time homeowners tax benefit of up to Rs.1,00,000.

How to claim tax deductions on home loans?

  • The amount of deduction you can claim depends on the ownership share you have on the property.
  • The home loan must also be in your name. A co-borrower can claim these deductions too.
  • The home loan deduction can only be claimed from the financial year in which the construction is completed.
  • Submit your home loan interest certificate to your employer for him to adjust tax deductions at source accordingly. This document contains information on your ownership share, borrower details and EMI payments split into interest and principal.
  • Otherwise, you may have to calculate the taxes on your own and claim the refund, if any, at the time of tax filing. It’s also possible that you may have to deposit the dues on your own if there is a tax payable.

If you are self-employed or a freelancer, you don’t have to submit these documents anywhere, not even to the I-T Department. You’ll need them to calculate your advance tax liability for every quarter. You must keep them safely to answer queries that may arise from the I-T Department and for your own records.

Tax benefits on home loan for joint owners

The joint owners, who are also co-borrowers of a self-occupied house property can claim – a deduction on interest on the home loan up to Rs 2,00,000 each. And deduction on principal repayments, including a deduction for stamp duty and registration charges under Section 80C within the overall limit of Rs 1,50,000 for each of the joint owners. These deductions are allowed to be claimed in the same ratio as that of the ownership share in the property. You may have taken the loan jointly, but unless you are an owner in the property – you are not entitled to the tax benefits. There have been situations where the property is owned by a parent and the parent and child together take up a loan which is paid off only by the child. In such a case the child, who is not a co-owner is devoid of the tax benefits on the home loan.

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