Income tax returns: How to calculate income from house property

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The deadline for filing income tax returns for FY2016-17 is round the corner : July 31. It is the right time to chalk out the deductions that may be claimed in the tax return. Here are some insights on applicable deductions while computing the income from let out house property. Property taxes Actual property taxes as levied by any local authority paid during a FY can be claimed as a deduction. It is essential that the property tax has been paid before March 31 to claim a deduction. It is pertinent to note that the property tax paid for earlier years is eligible for a deduction in the year in which the payment is made.

For instance, if a taxpayer has paid the property taxes for two earlier years in March 2017, the deduction can be claimed in FY 2016-17. Standard deduction Flat 30% deduction is available on the annual value (rental income less any property taxes paid) of the house property. The deduction is available irrespective of the expenditure incurred towards repairs and maintenance of the house property. Accordingly, no documentation is required to claim the deduction.

Interest payments on home loan

Interest payable on the housing loan is available as a deduction from the rental income. Key points that require careful consideration are—nature of housing loan (whether it is for purchase, construction, repair or renovation of the house property) would be crucial in determining the available deduction. If the loan is borrowed for any other purpose, but utilised for purchase or construction of the house property, then, no deduction is available. However, interest on any fresh loan availed for repaying the existing loan would qualify for a deduction.

Obtain the final interest certificate from the financial institution to claim the correct deduction. Many times, taxpayers proceed to claim the deduction on the basis of provisional interest certificate issued at the beginning of the tax year. The actual interest amount may vary, especially in cases where there have been pre-payments of loans / interest resets during the year.

The interest relating to pre-construction period can be claimed in five equal instalments from the year in which the taxpayer purchases or completes the construction of the house property. Suitable documentation supporting the pre-construction interest payments are to be obtained to ensure that the deduction is availed in full.

Carry forward of loss from house property

Where the unabsorbed house property loss is carried forward from the earlier years, it is essential that the same is set off against any income under the head house property. From FY 2017-18, there is a limit of Rs 2,00,000 for setting off the loss from house property against any other income. Loss beyond Rs 200,000 has to be carried forward to the subsequent eight years for future set off against income from house property.
Tax withheld at source on rental payments

Where the tenant is withholding the tax at source on rental payments, taxpayer has to periodically check and ensure credit for the taxes so withheld are reflected in his Form 26AS. Effective June 1, 2017, individuals who are paying a monthly rent of more than Rs 50,000 have to withhold tax at source at 5% of the rent payments. Taxpayers should ensure that their tenants are withholding the taxes during March or in the last month of tenancy, and are depositing the same using simplified 1 page challan cum return.

Multiple let-out house properties

The deductions that are available are the same even if the taxpayer owns multiple let out properties. If there is any loss from any of the house properties, the same can be set off against any income from other house properties. If there is a net loss under house property, then the same can be adjusted against other income.

From FY 2017-18, this amount is restricted to Rs 2 lakh. Given the tax return filing deadline is fast approaching, get the required information and documentation in place to avail full deduction.
The writer is partner Deloitte Haskins and Sells LLP. With inputs from Sowmya P, manager, Deloitte Haskins and Sells LLP