July is the crucial month for all taxpayers, as people file their Income Tax return during this time of the year. The procedure to file a return is required to carry out safely as the small mistake in this process can lead to several issues and the person is required to say alert especially if you earn rental income which is essential to declare in ITR [Income Tax Return].
According to a tax expert, all properties including the residential and the commercial ones are taxed under the title income from house property of the Income Tax Act, 1961 (the IT Act). Hence, the rent earned from properties is taxable under the same. In fact, the rent received by renting out the factory building or a piece of land is also taxable under Income Tax.
The property is taxed according to the annual value of the same during the financial year. The cost of a property is valued by calculating the rent received of the asset during the past one year if rented else the cost is estimated by assuming the rent value of the same in the market in case the property is not occupied by the tenants.
The landlord is eligible for the tax deduction on the basis of the rent received. But, the rent is non-taxable on receipts and is taxed on the accrual basis.
- Rebate from Rent Received
The gross rental amount is not taxable rather the rebate is allowed on the account of municipal taxes. Also, the taxpayers who are the landlord are eligible for a standard deduction of 30 percent of the annual value of the property in order to cover the repair expenses. This is a flat rebate is offered to all landlords irrespective of the fact that any repair or renovation work was carried out in their property or not.
The person is also eligible for deduction in case he/she has borrowed money for the purpose of construction/renovation/repair/purchase of a property. Similarly, the person is allowed to claim a rebate for the interest to be paid on this borrowed money under the IT return.
- Carry Forward
The loss of more than Rs. 2 lakhs can be carry forward for set off which has the tenure of eight successive years. The people who borrow money for the purpose of purchasing a property and then rent it are widely impacted by this clause as the rental cost is usually 3-4 percent of the capital value while the Rate of Interest on such amount is nearly 9 percent.
- Rebate in Budget
The budget for the financial year 2017-18 has proposed a maximum limit up to Rs. 2 Lakhs for loss incurred under the title Income from House Property. This can is raised against:
- Salary Incomes
- Business Income
- Capital Gains
- Income from Second Home
In case, the person owns more than one property for his/her personal use then the property is taxable as NIL under the Income Tax provision. Although, the second property is assumed as let-out and the person is accountable to pay a notional rent according to the Income Tax provisions of the IT Act.
- Home Loans and Deductions under Income Tax
A person is not eligible for any rebate on the home loan interest during the construction of the property. But he/she can claim the pre-construction interest soon after the completion of property construction.
The home loan borrower can claim IT rebate on interest amount up to Rs.’2 lakh and Rs.1.5 lakh under Section 80 C for the principal repayment of the self-occupied property.
Under Section 24 of the IT Act, a taxpayer is not eligible for rebate under Income Tax on the interest amount for all the previous years, if the property owned by him/her awaits construction states that if a property is still to be constructed, there will not be any tax deduction on the interest payment for all of those years.
A person can avail tax deduction on the interest for the pre-constructed tenure in five equal installments from the financial year when the construction was completed.