Deductions Applicable on Income from House Property

Income from house property means the income that is earned from a property by the assessee. House property includes the building as well as any land attached to the building.


The Income Tax Act stipulates different types of taxes that the assessee has to pay for a property and also offers certain tax benefits. Let’s have a look:


Basis of Taxation

If you own two residential properties, the law treats one house as self-occupied and the other one as a let-out property. The annual income for the property which you use as your own residence is taken as nil. The tax will be charged on the second property’s potential income i.e. the income it is capable of yielding.


If the property is let out, the rent received on such a property is taxable.



Two types of deductions are available while computing the taxable income from house property.


If the property is let out, then you can claim a tax deduction of 30% of the annual income. This deduction is available whether any expenditure on repairs, etc., has been incurred or not. If the property is self-occupied, you cannot claim any tax deduction for the repairs, etc. as the annual income of such a property is nil.


The second type of deduction pertains to the interest on the home loan that is used for the purchase or construction of a property. For one self-occupied property, the amount of deduction available is capped at Rs.2 Lac per year. However, for a property that is let out or any self-occupied property that is treated as let out, the entire interest on the home loan can be claimed.


Deduction Available under Section 80C for Repayment of Principal Home Loan

An individual and a Hindu undivided family (HUF) can claim tax benefits on the repayment of the principal component of a home loan that is availed from specific institutions. This benefit is restricted to Rs.1.5 Lac per annum and includes stamp duty and registration charges, life insurance premiums and investments in NSCs, EPF, ELSS, etc. This deduction is available only for the purchase or construction of a residential property.


If the residential property bought with a home loan is sold within 5 years since its possession, all the deductions allowed for the principal repayment shall be reversed and taxed as income of the year in which such property is sold. Furthermore, no deduction will be available for principal repayment made during the year under Sec 80C.


Authored by Goel Ganga Developments, one of the premium real estate builders and developers in Pune


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