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How to calculate Income or Loss on House Property ? – GConnect Calculator revised to give effect to recent change in calculation of Income or loss on House property in Finance Bill 2013-14
Update : After Budget 2014, Income Tax Exemption / Deduction allowed from Income in respect of Interest payable on Housing Loan has been increased to Rs. 2 lakh. Click here to get Revised GConnect Calculator for Exemption for Interest paid on Housing Loan
Method of calculating income or loss on house property has been changed subsequent on introduction of additional interest rebate of Rs. 1 lakh for new housing loans received in the year 2013-2014. Over and above the standard interest rebate Rs. 1.5 lakh this additional interest rebate will be applicable only if the housing loan amount did not exceed Rs. 25 lakhs; that total cost of house did not exceed Rs. 40 lakhs and that the housing loan is disbursed in the year 2013-14 (assessment year 2014-15).
The extract of Finance Bill 2013-14 which has made change in the Rebate on Interest paid on Housing Loan for certain categories is given below.
Interest on loans taken to buy a house is deductible under the Income Tax Act while computing income under the head ‘Income from House Property’. The relevant provisions for this are contained under Section 24 of the Income Tax Act. The interest is allowed as a deduction on accrual basis – on due basis, even if it has not actually been paid during the year.
The money can be borrowed for construction, acquisition, repair or reconstruction of property.
|Formula to Calculate Income or Loss on House Property (negative value implies loss)|
|Income or Loss on House Property||= (Annual Rental Value of House property – Property Tax) – 30% of (Annual Rental Value-property tax)-Interest paid on Housing Loan|
Detailed discussion of each term involved in the above calculation is as follows
Maximum Limit of Interest that could be deducted : Under the Income Tax Act, for the purpose of computing income or loss under the head ‘Income from House Property’ in respect of a self-occupied house, a deduction of Rs 30,000 is allowed against interest on borrowed capital. However, a deduction on account of interest up to a maximum limit of Rs 1.5 lakhs is available if the loan has been taken on or after April 1, 1999 for constructing or acquiring the house, and the construction or acquisition has been completed within three years from the end of the financial year in which capital was borrowed. In case the property is let out, the entire amount of interest accrued during the year is deductible. Over and above the standard interest rebate Rs. 1.5 lakh this additional interest rebate will be applicable only if the housing loan amount did not exceed Rs. 25 lakhs; that total cost of house did not exceed Rs. 40 lakhs and that the housing loan is disbursed in the year 2013-14 (assessment year 2014-15).
Annual Rental Value : The basis of calculating Income from House property is the “annual value”. It is not necessary, as we have seen earlier, that the property should actually be let. Where the actual rent received is more than the reasonable return, it has been specifically provided that the actual rent will be the annual value. Where, however, the actual rent is less than the reasonable rent , the latter will be the annual value. The municipal value of the property, the cost of construction, the standard rent, if any, under the Rent Control Act, the rent of similar properties in the same locality are all pointers to the determination of annual value. From the said annual value tax paid, From the annual value as determined above, municipal taxes are to be deducted. Also, deduction equal to 30% of the annual value (Rental value-Tax paid), irrespective of any expenditure incurred by the taxpayer (S.24(a)).
Determination of Annual Value of Self Occupied Property : Having understood the concept of Annual Value, we can now go into the details of its actual determination. Self-occupied house property does not generate any rent. Presently, a preferential treatment is given to one self-occupied house property which has not been actually let out at any time in which case, the annual value is taken as ‘Nil’. If, one is fortunate enough to own more than one house property using all of them for self-occupation, he is entitled to exercise an option in terms of which, the annual value of one house property as specified by him will be taken at Nil.
The annual value of the other self occupied house property/ies will be determined on notional basis as if it had been let out. To analyse this let us consider two situations. A person may own a house property, in Bangalore, which he normally uses for his residence. He is transferred to Chennai, where he does not own any house property and stays in a rental accommodation.
In such a case, the house property in Bangalore cannot be used for self-occupation and notional income, therefore, would normally have been chargeable although he derives no benefit from the property. To save the tax payer from hardship in such situations, it has been specifically provided that the annual value of such a property would be taken to be nil subject to the following conditions:
- The assessee must be the owner of only one house property.
- He is not able to occupy the house property because of his employment, business etc., away from the place where the property is situated.
- The property should not have been actually let or any benefit is derived therefrom.
- He has to reside at the place of employment in a building not belonging to him.
Other Deductions : From the annual value as determined above, further deductions Tax paid on House Property and Repairs & Collection Charges subject to maximum of 30% of the Annual Value are deductible.
GConnect Calculator to calculate Income or Loss on House property
To give effect to the recent changes in the calculation of Income or loss on House property we have revised the GConnect Calculator for Income or Loss on House Property