Property Tax in India

Whether it is planning for investment, retirement, tax, marriage or wealth creation, property is on everyone’s mind. If you thought that investing in property was only meant for people in business who have a lot of spare cash and money earned from not-so-legal ways, get with the times! Property prices are booming and even small investments are yielding big returns. Here is what you should know about how you will be taxed if you have property.

Income head: Income from House Property

‘Income from house property’ is, like we all know a ‘Head of Income’ in your total assessable income for the year. If you decide to buy property, all rental or other income will accrue under this head, in the process of computation of your total income.

How is annual income from property calculated?

If you have a let-out property, the annual income will be the greatest of the following 3.

  • Actual rent received
  • Municipal value of the property
  • Fair rent which is the rent of similar properties within your locality. This value is determined by the Income Tax department.

Which property is subject to tax?

There can be various scenarios when it comes to taxing income from property. Let’s take a look at a few common situations.

  • You own a single property which is self-occupied

If this property is fully utilized for residential stay throughout the year, it will be exempt from the hands of the taxman.

  • You own multiple properties, some of which are let out and some are not.

In this case, you will have to select a property which will is not let-out and is wholly self-occupied. There will be nil income generated from the sole self-occupied house. The income from property on others will be included in your total income.

  • After keeping in mind relevant laws u/s 56(2) of Income Tax Act, 1962), you have gifted a property to your spouse.

In this case, the property is not taxable in the hands of your spouse. However any income from the property will be taxable in your hands.

  • You have a long term lease of a property.

If the lease exceeds 12 years, any income generated from the property will be treated as taxable income from property in your hands.

Property Tax: What deductions can you expect?

All hope is not lost, as you can avail deductions against the total (gross) annual income from property. To arrive at the ‘net annual value’, municipal tax is subtracted from the gross annual value. To compute the net annual value, the following deductions are available.

  • Interest paid or payable in the relevant financial year on any monies borrowed to buy, build or repair the property, if it is not a self occupied property.
  • For a self-occupied property, deduction in regards to interest paid on monies borrowed to buy or construct the property is limited to a maximum of Rs. 1,50,000 if the construction was done after 1 April 1999 and completed within 3 years. Rs. 30,000 if the monies were borrowed before 1 April 1999.
  • 30% of the net annual value in relation to maintenance repair and rent collection expenses for the property in question.

Property has been a favourite for many investors. If you are planning to buy/construct property, know your tax laws well to derive maximum benefit.

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