Available tax benefits if you own a residential house property

A self-occupied house owned by the taxpayer doesn’t generate any income for him, but it requires disclosure in his tax returns. It falls under the head ‘Income from House Property’, and the tax department also allows some deductions concerning the same for reducing your overall tax liability.

In this article, we discuss the tax benefits that you can avail from your self-occupied house.

When is a property termed ‘self-occupied’?

A self-occupied property refers to a house where the owner or/and his family members reside and use it for residential purposes. Even if the taxpayer doesn’t occupy the house for the entire year due to him living in some other city, the Income Tax Act assumes the house to be self-occupied for the whole year.

What is the Gross Annual Value of a self-occupied property?

As per the income tax provisions, the Gross Annual Value (GAV) of a self-occupied property is considered NIL for Income from House Property calculations. The concepts of Fair Rent, Municipal Value, and Standard Rent are not applicable in such cases.

I paid municipal tax for my residential property. Is it allowed as a deduction?

The income tax department takes the GAV of such property as NIL. Therefore, they don’t allow a deduction for the municipal value paid by the assessee for the same. Even the concept of Standard Deduction under Section 24(a) does not apply here, which means general repair expenses aren’t covered too.

I paid interest on a home loan of INR 2.40 lakhs. Will I get the entire amount as a deduction for my self-occupied property?

The tax department allows interest on the loan as an eligible deduction under ‘Income from House Property’. For self-occupied houses, the maximum limit of deduction is INR 2 lakhs in a financial year even if you have paid a higher amount of interest. This deduction is treated as a “Loss under the head House Property” which can be set off against other allowable heads of income. However, it is important to bear in mind that such loss that can be set off is subject to a limit of INR 2 Lakhs. If the taxpayer doesn’t have any income against which such loss can be set off, it can be carried forward for eight consecutive years.

Illustration for better understanding:

Parker brought a house in FY24 by taking a home loan amounting to INR 35 lakhs. He has been living there with his spouse since then. The family made a principal repayment of INR 12 lakhs and interest to the tune of INR 2.50 lakhs in the FY24. He also paid INR 50,000 as municipal taxes for the same period. Calculate his ‘Income from House Property’ for the FY24

Such loss from House Property can be set off against income from different heads only to the extent of INR 2 Lakhs or can be carried forward for 8 years, accordingly.