How to compute Income from Self occupied property under the income tax act

If you are using house property for own residential purpose or business purpose, then this article will definitely help you in determining taxable income under the head ‘’Income from House Property’’. It is generally presumed that self-occupied property is not an income generating property hence no income tax liability will arise, but statement is not correct.

In order to determine the taxable income under the head “Income from house Property’’, First it is important to understand the meaning of Self-occupied property.

A Self-occupied property means a property which is owned by a taxpayer and occupied for his own residential purpose throughout the year, and which is not let out during the whole or any part of the year. Thus, a property which is not occupied by taxpayer for his residential purpose will not be treated as Self-occupied property. Annual value of self-occupied property shall be treated as ‘Nil’ if following conditions are satisfied:

  1. taxpayer owns a property;
  2. Self-occupied property cannot actually be occupied by him owing to his employment, business or profession carried on at any other place and he has to reside at that other place in a building not owned to him;
  3. Property is not let out at any time during the previous year;
  4.  No other benefits are derived from such property.

Taxable income, in case of self-occupied is computed in the following manner:

Determination of Income from House Property

Gross Annual Value                                                   ********

Less: Municipal Taxes                                               ********

Net Annual Value                                                        ********

Less Deduction under section 24           

          Standard Deduction (30%)                           ********

          Interest on borrowed capital                        ********

          Income from House Property                   ********

Tax treatment of residential property, when property is used for own residential purpose.

When One house property is used for own residential purpose It will be treated as Self-occupied property
When Two house properties are used for own residential purpose Two will be treated as Self-occupied property
When More than Two house properties are used for own residential purpose Only One house will be treated as self-occupied at the choice of the taxpayer and rest all houses will be treated as deemed let out

WHEN ONE HOUSE PROPERTY IS USED FOR OWN RESIDENTIAL PURPOSE: In case house property is used by taxpayer for his own residential purpose, the annual value shall be taken to be ‘Nil’.

WHEN TWO HOUSE PROPERTY IS USED FOR OWN RESIDENTIAL PURPOSE: Where the property consists of two houses and owner uses it for own residence, annual value shall be taken to be ‘Nil if the following conditions are satisfied:

  1. Property (or any part) is not let out during the whole (of any part) of the previous year;
  2. No other benefit is derived by the owner of house property

WHEN PART OF HOUSE PROPERTY IS SELF-OCCUPIED AND PART OF IT LET OUT: If a house consists of two or more units, of which one unit is self-occupied and rest units are let out during the year, then income should be calculated as follows-

  • Unit self-occupied (which is not let out): The annual value of self-occupied unit will be ‘’Nil’’.
  • Units Let-Out: Annual value shall be determined as per the method prescribed under the Income tax act.
  • Unit Self-occupied for part of the year and lying vacant for remaining part of the year because of business or profession is situated at some other place: Annual Value shall be ‘’Nil’’ where he has to reside at any other place because of business, profession or employment and the house is not belonging to him.

Important point to be taken care of:

  1. Benefit of Nil annual value is available to Natural person. i.e. it should not be available to company, firm, club, association as they cannot use house for residential purpose.
  2. Karta of HUF is a natural person and he is entitled to take aforesaid benefit.
  3. It is important to note that only two house property can be used for own residence, remaining properties are deemed to be let out. Care should be taken while choosing the self-occupied property since tax exemptions are available only for self-occupied property.

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