Owning a house is often seen as a sign of financial stability and success. However, it can sometimes result in a financial loss, especially if the property is rented out or remains unoccupied.
The Income Tax Act of 1961 provides various provisions that allow homeowners to offset these losses against their income, thereby reducing their overall tax liability.
How to save tax on losses from house property in India? Setting off losses The
Income Tax Act allows you to set off losses from house property against other heads of income.
Here’s how it works: Income from other sources: You can set off the loss against income from other sources such as salary, business profits, or capital gains.
For instance, if you have a rental income of ₹3 lakh and the interest paid on a home loan is ₹4 lakh, you incur a loss of ₹1 lakh. This loss can be adjusted against your salary or any other income.
Carry forward losses: If the loss cannot be entirely set off in the same year, it can be carried forward for up to eight consecutive years.
"If the loss exceeds ₹2 lakh in a year, it can be carried forward for eight years. However, in the subsequent years it could be only set off under the same head Income Under Head House property," according to ClearTax.
When a property is let out, its gross annual value is the rental value of the property.
The rental value must be higher than or equal to the reasonable rent of the property as determined by the municipality.
Interest on home loan The interest paid on a home loan for a property can be claimed as a deduction under Section 24(B) of the Income Tax Act:
Self-occupied property: For self-occupied properties, the maximum deduction for interest paid on the home loan is ₹2 lakh per annum.
If the property is under construction, this deduction is allowed only after the construction is complete, and the interest paid during the pre-construction period can be claimed in five equal instalments.
Let-out property: For let-out or rented properties, there is no upper limit for the interest deduction. However, the overall loss from
house property that can be set off against other income heads is capped at ₹2 lakh per annum.
Standard deduction A
standard deduction of 30% of the net annual value (NAV) is available to all property owners.
The NAV is calculated as the gross annual value (GAV) of the property minus municipal taxes paid.
This deduction is allowed irrespective of the actual expenditure incurred by the homeowner.
Practical example Consider a scenario where you own a house property and have taken a home loan. Here's how you can save tax:
Gross annual value (GAV): ₹6 lakh (rental income).
Municipal taxes paid: ₹50,000.
Interest on home loan: ₹4 lakh.
The NAV will be ₹5.5 lakh (GAV: Municipal taxes). The standard deduction at 30% of NAV is ₹1.65 lakh. The total expenses (interest on home loan + standard deduction) amount to ₹5.65 lakh.
Thus, the loss from house property is ₹6 lakh - ₹5.65 lakh = ₹0.35 lakh.
This loss of ₹0.35 lakh can be set off against other income heads or carried forward for up to eight years
