- Income from salary
- Income from house property
- Income from capital gains
- Income from business or profession
- Income from other sources.
From the all above heads of income, calculating the income from house property is complex as income from house property means increase in the value of property in an assessment year. So this is calculated on notional basis and not on real basis. Thus the tax is based on the potential of the property to generate income for the assesee which is also called annual value (AV).
How the annual value is calculated: - the annual value is calculated at notional basis. The income from house property is only takes into consideration if the assesse has more than one property. If the assesse has one house to live, he is not liable to pay any tax for it. However if the assesse has more than one property, it is his choice to pay tax on any of its property. He also can change the property for tax consideration every year.
If the property is rented out:- if the property is rented out the annual value will be the higher of actual rent received or the sum of which the property might to be expected to earn every year.
How to decide property might to be expected to earn every year: - to decide the property might to be expected to earn on rented every year, two things takes into consideration.
1- The valuation of municipality of the property.
2- Fair rent value
The higher of those will be taken as property expected to earn every year depending on the property size and locality.
If the property comes into the rent control act, the rent fixed by the act will be taken as AV.
So Annual value is decided higher the value of actual rent received, Valuation of rent by municipality, fair rent value or if the property is come in rent control act, rent fixed by act will only be taken as annual value.
The municipality taxes can be deducted from the annual value of rent as a deduction if they are paid in past or present assessment year. But if the taxes are due and not paid, they are not allowed for deduction.
Annual value minus municipality taxes will be NAV (Net annual value) and these need to show in the income tax return and pay income tax on it.
Section 24 of income tax act: - Section 24 of income tax act gives two deductions from income from house property.
1- Statutory deduction on 30% on NAV. This deduction is just like the 30% deduction on salary income.
2- The second deduction is on interest. If the assesse has taken some loan for the property and the property is rented, the whole interest is allowed for deduction. (In case of having more than one property).
In case of having one property which is residing house, the standard deduction is 1, 50,000 on the loan taken after 01-04-1999 and 30,000 on the loan taken before the date. If the house has co-owner, each owner is entitled to claim 1, 50,000 as deduction.
Under construction property deduction: - the deduction is only available to an assesse when the house property is eligible for chargeable to tax, the construction should be complete and there should be NAV of the property. Any interest paid during the construction of the property can be write off in 5 installments from the year in which property is ready and there is a NAV present for the property.
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