Income earned from a house is taxable under the Income Tax Act. In order to qualify for tax, the assessee must be the owner of the property. Further, the property should consist of buildings or land adjacent to a building. The property must not be used for the purpose of any business or profession by the assessee. Also, the property must either be used or capable of being used for renting out and deriving a rental income.
In case of a house, it is the annual value of the property and not the actual rent that is taxable. Annual value means the potential of the property to earn income, which may be more than the actual rent received by the owner of the property. In order to determine the annual value, the highest of municipal value or fair rental value of a similar property in a similar locality is taken. In case the higher of the two exceeds the standard rent of the property determined in accordance with the Rent Control Act, the standard rent will be treated as taxable rental value of the property.
From the gross annual value, certain deductions are to be made to arrive at the net annual value.
These include:
Under Section 23
The municipal taxes paid by the owner of a property are allowed as a deduction from the annual value.
Under Section 24
Repairs and collection charges - 30 percent of the net adjusted annual rental value is allowed as a deduction. This amount is irrespective of whether the assessee has actually incurred the expenses or not. However, if the repairs are borne by the tenant, this deduction is not allowed to the owner of the property.
Interest on borrowings
Interest paid or payable on funds borrowed for purchase, construction, repair, renewal or reconstruction of a house is allowed as a deduction. In case of a self-occupied property treated as such, the maximum deduction is restricted to Rs 30,000. If the borrowing was made for acquisition or construction of a house after April 1, 1999, Rs 1.50 lakhs will be deductible and not Rs 30,000.
In case the house has been acquired or constructed with borrowed money, the interest for the period prior to the previous year in which the property had been acquired or constructed is deductible in five equal annual instalments starting from the previous year in which the house has been acquired or constructed.
Apart from these, no other deductions are available.
