Written by : Rajiv Singh

A Chartered Accountant in UK with 15+ years of experience in FinTech Consulting, Accounting & International Taxation. I enjoy being a Social, Foodie and Father of two young children, reachable at linktr.ee/RajivSingh.

What Is Income from House Property & How It's Calculated?

Rajiv Singh
Rajiv Singh, CA, FAIA

Sep 1, 2021 02:03

Real estate is seen as one of the safest investments globally when purchased with common sense, paid in whole, and managed with reasonable care. If you own a home/flat that is either rented out or left unoccupied, you must be aware of the revenue from house property for income tax reasons. It is also significant for tax purposes if you wish to deduct the interest you pay on any home loan for the same house from your income from house property. All revenue produced by the assessee from a property is included in income from home property. The home property includes the building and all of the land that is linked to it. Different forms of residential property are taxed differently.

Deduction for interest paid or due on borrowed capital will be permitted for two self-occupied dwelling properties beginning with Assessment Year 2020-21. The aggregate amount of deduction under this section, however, will remain the same, namely Rs. 30,000 or Rs. 2,00,000, in line with the relevant situations.

Tax on rental income from house property may not necessarily be taxed. If the property is not rented, the Tax will be levied on the potential revenue the property can generate. Tax on Rental income from house property gets taxed in the hands of the owner. This revenue comes under the head "Income from house property."

Tax on rental income from house property owned by the assessee, such as a building, land, or apartment, is subject to income tax under the heading "Income from home property."

Two deductions are permitted under Section 24 of the Income Tax Act to arrive at the actual taxable income from house property.

  • Deduction Standard
  • Interest on a mortgage is deductible.
If the Rent Control Act applies, the GAV is the highest of:
  • Standard Rent
Net Annual Value (NAV): NAV = GAV Municipal Taxes Paid
  • Rent
  • Deductions
  • Statutory Deduction

Regardless of the actual expense made, a standard deduction of 30% of the NAV is permitted. This expense is assumed as those related to repairs, rent collection, and so on for the house property. If the Annual Value is zero, this deduction is not permitted.

Borrowed capital Interest

If one borrows the money to buy/build their house, it is allowable as an accrual deduction. The deduction is permitted on the lesser of the two.

Annual value

Up to the value of NAV deductions

Owner/deemed owner:

Income from a residence is taxed to the owner of the house.


Talking about the latest provisions in her Budget 2021 address, Finance Minister Nirmala Sitharaman proposed extending the deadline for obtaining a house loan by another year to claim an extra deduction on interest payments on such loans until March 31, 2022. The current timeframe was March 31, 2021. The Finance Minister extended the advantage of extra interest deduction of Rs 1.5 lakh for small taxpayers to acquire an affordable home by one year, with the main goal of 'Housing for All'.

Section 80EEA of the Income-tax Act of 1961 provides a deduction of Rs 1.5 lakh in a fiscal year. Budget 2019 included a deduction for interest paid on a home loan. Subject to certain criteria, this deduction is available in addition to the Rs 2 lakh deduction payable on home loan interest payments.

Certain conditions necessary to receive the tax advantage under this provision are as follows:
  • You may purchase a residential house property using a housing loan. Such a loan should be from a financial institution such as a bank or a housing financing business.
  • You should have reimbursed the mortgage payments between April 1, 2021, and March 31, 2022.
  • The stamp duty worth of the house property cannot be more than Rs 45 lakhs.
  • Individual taxpayers ought not to be able to claim a deduction under Section 80EE as it now stands.
  • The taxpayer must not own any residential real estate as of the loan's application period.

This interest payment deduction is available from the taxpayer's gross total income, lowering the individual taxpayer's tax obligation.

Income from home property includes income earned by an individual's owned property.

Assume you own a home and receive a monthly rent of Rs. 20,000. Imagine you pay Rs. 15,000 in municipal taxes that year and had Rs.60,000 in interest on borrowed capital.

Income from House Property
Amount (Rs.)
Total rental income from house property
20,000*12 = 2,40,000

(-) Municipal Tax

Net Annual Value (NAV)
SECTIONS 24 Deductions
Standard Deduction (NAV 30%)
2,25,000-67,500= 1,57,500
Borrowed capital interest (if applicable)

When a property is rented, its gross yearly value equals the rental value of the property. Tax on rental income from house property must be greater than or equal to the fair rent of the property as established by the municipality.

How Can I Reduce My Taxes on House Property Income?

With careful planning, you may save a significant amount of money on taxes. Some of the things you may do to save money on taxes include the following:

Loan for a Joint Home

When you and your partner jointly own a property and apply for a combined home loan, you would both be entitled to tax deductions on interest up to Rs. 1,50,000.


Taxation of revenue from the residential property can be split among co-owners, therefore reducing the burden.

What happens if you buy a second home?

If you currently have one self-occupied property registered in your name and would like to avoid paying taxes on a new house, register the second property in the name of your spouse/relatives.

Vacant Houses

Tax on rental income from house property will be charged on vacant residences that you own; thus, renting out any empty properties to generate revenue while avoiding taxation is advisable.

Possession of more than one piece of real estate

It is critical to assess the tax liabilities on all of your homes and pick the one with the greatest tax responsibility to call home while renting out the others. You can also update the SOP every year. If a person owns several properties, only one of them can be registered as his residence and come under self-occupied property (SOP).

Home Loan Tax Deduction

Some parts of the Income Tax Act that offer deductions for home loans are listed below:

Section 24 - Tax Deduction for Mortgage Interest
Section 80C - Tax Reduction for Principal Repayment
Section 80EE - Tax Deduction for First-Time Homebuyers

Downsize your tax burden on "Income from House Property" within the nexus of tax laws with Gotaxfile!

While income tax rules levies taxes on a taxpayer who gets rent from a property, the taxpayer is also entitled to certain deductions from such income. We at GoTaxfile investigate the legal provisions related to property issues, most commonly Tax on rental income from house property. If you do not implement adequate planning, you may lose a significant portion of your rental revenue due to taxation. With our expertise, you might reduce your tax burden by taking advantage of the deductions provided by the income tax legislation.

Call us right away to take advantage of our services!!

Rajiv Singh
Rajiv Singh, CA, FAIA

Sep 1, 2021 02:03

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