Introduction: Under the Income Tax Act of 1961, the income derived from owning a property, including buildings and the associated land, is charged under the head “Income from house property.” This article aims to provide a clear understanding of what income falls under this category and the provisions surrounding self-occupied properties.
Taxation of Rental Income: As per Section 22 of the Income Tax Act, the rental income generated from property, of which the taxpayer is the owner, is chargeable to income tax under the head “Income from house property.” This includes income from buildings and lands appurtenant to the property.
Exclusion of Business or Profession-Related Income: However, income earned from portions of a property used for the taxpayer’s business or profession, where the profits are chargeable to income tax under a different head, is not taxable under the head “Income from house property.” This ensures that only the rental income from properties used solely for residential purposes is considered for taxation.
Self-Occupied Property: A self-occupied property refers to a property that is occupied by the taxpayer for their own residence and is not used for commercial purposes. Until the assessment year 2019-20, taxpayers could consider only one property as self-occupied, while the remaining properties were treated as let-out or deemed let-out.
Changes from Assessment Year 2020-21: From Assessment Year 2020-21 onwards, taxpayers can claim up to two properties as self-occupied house properties, subject to certain conditions. These conditions must be met to avail the benefits associated with self-occupied properties.
Calculation of Income from Self-Occupied Property: For a self-occupied property, the income chargeable to tax under the head “Income from house property” is calculated as follows:
- Gross Annual Value: Nil
- Municipal Taxes Paid during the Year: Nil
- Net Annual Value (NAV): Nil
- Deduction under Section 24:
- Deduction under Section 24(a): 30% of NAV
- Deduction under Section 24(b): Interest on borrowed capital
By following the mentioned calculations, the resulting income from a self-occupied property will be negative, indicating a loss for taxation purposes.
Exception: Non-Residence of the Taxpayer: A property not used for residence by the taxpayer can still be treated as a self-occupied property if the following conditions are met:
a) The taxpayer owns the property.
b) The property cannot be occupied by the taxpayer due to employment, business, or profession carried out at another location where they reside in a non-owned building.
c) The property (or part of it) is not let out during the year.
d) No other benefits are derived from the property.
Ineligibility for Partnership Firms, Companies, and Trusts: It’s important to note that the benefit of self-occupied property is only available to individuals and Hindu Undivided Families (HUF). Partnership firms, companies, trusts, and other types of assesses are not eligible to claim the benefit of self-occupied properties.
Conclusion: Understanding the taxation rules related to “Income from house property” is essential for property owners. Rental income from residential properties is chargeable to income tax, while certain conditions determine the eligibility and calculation of income from self-occupied properties. Taxpayers should consult with tax professionals or refer to the Income Tax Act for specific details and provisions related to their situation.