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Tax on House Property in India

Published On: Nov. 27, 2017 By:
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Tax on House Property in India

What is income from house property?

Income from House Property comprises of the rent received from the House property. This income is chargeable as per tax rules. In case, the property is not on the lease, then the owner may have to pay tax on 'deemed rent’. In order to include the income from house property in the assessor’s aggregate total income, three essential conditions need to be fulfilled. These are as follows:

  1. Firstly, the assessee must be the owner of that property.
  2. The property must be a house, a building and/or a land.
  3. The purpose of using the property can be anything other than for any activity by the owner for the purpose of conducting his or her business.

What is deemed ownership?

  1. As mentioned in Section 27 of the Income Tax Act, deemed ownership of the house property is introduced in order to impose a tax for the following reasons:
  2. When ownership is transferred to a spouse or minor child
  3. In case the holder owns an impartible Any property which is not legally dividable, for instance when a single story house with 3 rooms is divided among 7 inheritors.
  4. In case a property is owned by a member of a co-operative society
  5. When a property is acquired by an entity under Power of Attorney transaction.

Modification of the clauses related to house Property

Earlier, as allowed in deduction Sec 24, there were no restrictions on interest applicable on house loans or on rented accommodation. However, from the financial year, 2017 -18 onwards, the total interest imposed on house loan or on the leased house is constrained to the degree so that the shortfall from such a house property is less than Rs 2 lakhs. Tax deductions applicable to home loans as per Section 24, proprietors are eligible to claim a deduction equal to Rs.2 lakhs. However, only Rs. 1,50,000 can be claimed when an individual is filing returns for FY 2013-14. This deduction is applicable on the home loan interest, in case the owner or his or her kin reside on the house property. Similarly, the clause is applicable when the house is unoccupied. When a property is leased, thereafter, the entire interest on the home loan is acceptable as a deduction. Furthermore, the deduction on interest is restricted to Rs.30,000.

The following are the clauses to claim the Rs.2 lakhs rebate-

  1. The home loan sought should be for procurement and erection of a new property.
  2. The loan should be sought on or post 1 April 1999.
  3. The procurement and erection must be finished within 3 years from the date when the loan was sought.

Procedure to claim tax deduction on a loan taken prior to the construction of the property

As far deduction on home loan interest is concerned, the deduction cannot be claimed when the construction of the house is not complete. Only after the completion of the construction, the deduction can be claimed. The duration starting from seeking a loan until construction of the house is known as the pre-construction period. In addition, the interest compensated for this interval of time can be claimed as a tax deduction, which is acquired in five equal installments. This starts from the year in which the property construction is considered finished.

How to claim a tax deduction on principal repayment?

As per Section 80C, the deduction in order to claim principal repayment is obtainable for up to Rs. 1,50,000 within the inclusive limit for the Financial Year 2014-15. However, for the previous year, the limit was Rs. 1,00,000.

The following conditions should be fulfilled to claim this deduction : As far as stamp duty and registration charges, as well as other expenses, are concerned, these are also brought under the deduction as mentioned in Section 80C. A maximum deduction amount of Rs.1,50,000 can be claimed. These expenses or any other expenses related to the transmission can be claimed in the same year when payment on them is made.

Section 80EE : The above-mentioned section provided a deduction on the home loan interest paid for Financial Year 2013-14 and Financial Year 2014-15. The deduction is offered to individuals who purchased their first house worth Rs 40 lakh or less. The loan taken for the house should be Rs 25 lakh or less. The total deduction allowed as per the section cannot be beyond Rs 1, 00,000. However; this deduction is no longer available for the financial year 2015-16. The deduction for the Financial Year 2016-17 is available only to first-time homeowners. The value of the purchased house should not be beyond Rs 50 lakh .Additionally, the home loan should not exceed Rs 35 lakh. Furthermore, an additional deduction of Rs 50,000 may be acquired as applicable on home loan interest. This is an additional benefit to deduction of Rs 2, 00,000 acceptable under section 24 of the Income Tax Act intended for a personally owned.

  1. The home loan sought should be for procurement and erection of a new property.
  2. The property must not be put on the market for the next five years starting from the period of possession. This will, in turn, add the deduction to the income yet again in the year of the transaction.

Tax deductions on home loans

  1. In order to claim an amount of deduction, the ownership share an individual has acted as the deciding factor.
  2. The home loan sought must be in the owner’s name. In addition, a co-borrower is eligible to claim these deductions as well.
  3. Only when the construction is complete, the home loan deduction can be claimed from the financial year in which the construction is finished.
  4. The entity is required to submit the home loan interest certificate to his or her employer in order to adjust tax deductions at source accordingly. The document comprises details of ownership share, borrower details, and EMI payments split into interest and principal.
  5. In the absence of such a document, the individual is required to compute the tax on the claim the refund on their own. This has to be done during the time of tax filing.

Thus, “Tax imposed on House Property”, provides valuable information to people who own house property or properties.

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