How to Calculate Income From House Property?

Income from house property is an important income category under the Indian Income Tax Act. This applies to individuals who own properties and earn income by renting them out. Understanding how to compute it and it is crucial for tax compliance and financial planning. In this article, we will detail what income from house property means, who needs to declare it, how to calculate it, and the correct format to use. We will also address common questions to help property owners understand their responsibilities better.

Who is Eligible to Declare This Income From House Property?

In India, anyone who owns a house property must declare under the Income Tax Act. Those eligible to declare this income include:

1. Individual property owners who rent out their residential or commercial buildings.
2. Co-owners who share ownership and declare their share of rental income.
3. Hindu Undivided Families (HUFs), firms, companies, trusts, and other entities owning property.
4. Non-Resident Indians (NRIs) who own house property in India must also disclose this income under Indian tax laws.

Even if a property is self-occupied and does not earn rental income, a notional income may still need to be declared. When multiple properties are owned, usually one is self-occupied, and the others are treated as deemed let out for tax purposes.

What Is Income From House Property?

It refers to the earnings an individual or entity receives from letting out their house property. This includes both residential and commercial properties. The Income Tax Act defines this income under a separate category called “Income From House Property.”

The main sources of this income are:

1. Rental Income: Rent received from tenants is the most common type of income from house property.
2. Deemed Rent: If the property isn’t rented out but could be rented, tax laws assume a deemed rent that is taxable.
3. Self-Occupied Property: If an owner occupies their property, they do not earn rental income, but the law allows interest deductions on home loans.

This classification ensures that income from property ownership is taxed fairly, as owning property is seen as an investment that can generate returns.

How to Calculate Income From House Property

This is systematic and follows rules set by the Indian Income Tax Department. There are two primary scenarios to consider:

1. Self-Occupied Property

• Annual Value (AV): Zero, because there is no rental income.
• Deductions: Interest on home loans up to ₹2 lakh per year is allowed as a deduction.
• Calculation Formula:
  a. Income From House Property = Annual Value Municipal Taxes Paid Interest on Home Loan
  b. Since the Annual Value is zero, the formula becomes:
  c. Income From House Property = Interest on Home Loan

This loss can offset other income or be carried forward under tax regulations, giving tax benefits.

2. Let-Out Property

• Annual Value (AV): The actual rent received or expected rent, whichever is lower (based on municipal valuation or fair market rate).
• Deductions:
  a. Municipal taxes paid by the owner.
  b. Standard deduction: 30% of the Annual Value for maintenance and other expenses.
  c. Interest on the home loan is fully deductible.
• Calculation Formula:
  a. Income From House Property = Annual Value Municipal Taxes Paid 30% Standard Deduction Interest on Home Loan

This method helps determine the taxable amount under the income from house property category.

Computation of Income From House Property

Let’s see an example to illustrate the computation process:

1. Rent Received Annually: ₹5,00,000
2. Municipal Taxes Paid: ₹50,000
3. Home Loan Interest Paid: ₹1,50,000

Step 1: Calculate Net Annual Value (NAV)

NAV = Annual Rent Received Municipal Taxes Paid
NAV = ₹5,00,000 ₹50,000 = ₹4,50,000

Step 2: Deduct Standard Deduction

Standard Deduction (30% of NAV) = 0.30 × ₹4,50,000 = ₹1,35,000

Step 3: Deduct Home Loan Interest

Interest on Home Loan = ₹1,50,000

Step 4: Final Income From House Property

Income From House Property = NAV Standard Deduction Interest on Home Loan
Income From House Property = ₹4,50,000 ₹1,35,000 ₹1,50,000 = ₹1,65,000

This amount of ₹1,65,000 is included in total taxable income and taxed based on applicable income tax slabs.

For a self-occupied property with no rental income and a home loan:

• Interest on Home Loan: ₹1,80,000
• Maximum Allowable Deduction: ₹2,00,000

Income From House Property = -₹1,80,000 (a loss that can be adjusted against other income sources or carried forward).

Income From House Property Format

Having a structured format for calculating and declaring income from house property makes tax filing and record-keeping easier. Here is a sample format:

This format helps property owners prepare accurate Income Tax Returns and keep organized records, which is especially important during audits or tax assessments.

Important supporting documents to keep include:

• Rent agreements.
• Municipal tax receipts.
• Bank statements showing interest payments on home loans.

For individuals investing in luxury residential projects in India, careful documentation is even more vital due to high property values and complex financial transactions. Although tax rules stay consistent, proper records help manage financial transactions and tax filings.

FAQs

What is included under income from house property?

Income from house property consists of rent received from residential or commercial properties, deemed rental income when the property is not rented but treated as let out for tax purposes, and self-occupied properties where a deduction for home loan interest applies. The components of this income type are:

• Actual rental income received.
• Imputed or deemed rent according to tax law.
• Deductions such as municipal taxes, standard deduction of 30%, and home loan interest.

Is rental income taxable under Income From House Property?

Yes, rental income earned from renting residential or commercial property is fully taxable of the Income Tax Act. Every property owner must declare this income in their annual Income Tax Return. However, tax laws allow deductions to reduce taxable income, which include:

• Municipal taxes paid by the owner.
• A standard deduction of 30% of the annual value.
• Interest paid on home loans.

These deductions lower the overall tax liability.

What is the standard deduction for income from house property?

The standard deduction is 30% of the Net Annual Value (NAV), which covers property maintenance, repairs, and other related expenses.