Best Ways To Calculate and Save Income From House Property

Income From House Property
  • By definition by law, a ‘house property’ is any building or land owned by a taxpayer. Such buildings may used for commercial or residential purposes.
  • Income from house property includes Flats, shops, workplace areas, works sheds, business buildings, agricultural land, farmhouses, etc.

Meaning Of Income From House Property

  • The Income Tax Act divides the income received by an individual into various sections to simplify the tax calculation.
  • Income derived from a household property as rental income or through its transaction referred to as ‘income from the house property.
  • It should be an overhanging structure with occupancy capacity.

The building should be the most important part of the said property covering the land and the building.

Income from house property = Standard deduction (30% of NAV) – Interest on borrowed capital (if applicable).

Types of House Property

Self-Occupied House Property

Owned property is home property used by its owner. I.e. self-occupied property used and owned by the same person.

Fiscal Year (FY) -19-20 and thereafter, you can declare two houses as self-occupied property that once existed as a property.

Let-out house Property:

The house property is rented by its owner for a period (part or all). Income from such property is taxable under the Income Tax Act.

Inherent house property

If you are the heir of money or property, you will receive it from the deceased.

Important Terminologies Related To House property

Annual Value:

  • This is the annual value of property capable of earning income.
  • The term annual value is very important as the calculation of income from house property depends upon correctly calculated annual value

               Annual value = NAV Deductions.

Four Factors of Annual Value

1. Municipal value:

  • This is the value of your property dealer near valued by the municipal authorities in which they collect municipal taxes.
  • Before awarding municipal value, there are many factors that municipal officials need to consider.

2. Reasonable rental value:

Reasonable rental value is the value of a single property with similar features in the same (or similar) area.

3. Fixed rent:

  • Under the Rent Control Act, fixed rent is fixed and landlords cannot receive more rent than specified in the Rent Control Act.
  • This law ensures that landlords are paid fair rent, that tenants are not exploited, and that they are protected from eviction.

4. Actual Rent Received / Receivable:

This is the actual amount of rent received by the landlord from the tenant, depending on who pays the water, electricity, and other utility bills.

Gross Annual Value of Property

This is the highest among

Rent received or receivable

The rent receivable is the property account in the landlord’s public bargain, which reports the amount of rent received on the balance sheet date.

Fair Market Value

Fair market value is the price at which a property is sold in the open market when certain conditions are met.

Conditions

The parties involved are aware of all the facts, act in their own interest, are under no pressure to buy or sell, and have ample opportunity to make decisions.

Municipal Valuation

  • The municipal valuation of your property will be published by the municipal authority in that area as fees for different areas.
  • Property tax payable to local authorities will be calculated based on this estimate.
  • Today, many municipalities offer online facilities for calculating and paying property taxes.

Calculation of Gross Annual Value of Property

  • Gross periodic value (GAV) refers to the income that can be earned from the immovable property.
  • The GAV applies regardless of whether the property was released for commercial or residential purposes.
  • The Gross Annual Value (GAV) is used to calculate the tax or rent to be used on the property.
  • The total annual value should be higher than the expected rent or higher than the rent received for the lead-out period.

Gross Annual Value of House Property:

Example:

 

Fair Rent (Rs 75000 * 12)

90,00,000/-

Municipal Value (Rs 72,000 *12)

8,64,000/-

Standard Rent (Rs 80,000 * 12)

9,60,000/-

Actual Rent (Rs 5,00,000 * 8 and SOP for 4 months)

40,00,000/-

 

Particulars

Amount

Fair Rent 

A