Untitled design (28)

Tax benefits of purchasing jointly – owned property

by with No Comment House PropertyIncome TaxTax

The Government has always promoted investments in the real estate sector. Thus, it always aims to provide various tax benefits to individuals in India for buying a house property under the ‘Housing for All’ initiative. Individuals can get additional benefits if they register the property jointly. You can buy a house jointly with anyone like your spouse, parent, friend, or a business partner.

When you avail a joint home loan, the tax benefits can be claimed by all the joint owners. However, each one who claims the tax benefits should have ownership in the property.

Also, the owners should be the co-borrowers of the home loan and should contribute to the EMI. Tax benefits are applicable only after the completion of construction of a property.

We have listed various tax benefits that are available to a taxpayer if he co- owns a property.

Residential house property

The Income Tax Act allows individuals to claim a tax deduction on interest payments of home loans. The upper limit for claiming a deduction on a self-occupied property is INR 2 lakhs for an individual per financial year after satisfying some conditions.

If it is a joint property, each property owner can claim a deduction up to INR 2 lakhs per financial year, separately. Thus, each co-owner can claim the tax benefit, provided they are co-borrowers of the home loan. This benefit is all the more beneficial if the interest payments for such home loan is more than INR 2 lakhs.

If rental income is earned out of the said property, it can also be divided between the co-owners.

Tax benefits under Section 80C

Section 80C of the Income Tax Act allows tax benefits on the principal repayment of the home loan. In case of joint ownership of property, each co-owner can claim deduction towards principal amount repayment. However, the maximum deduction limit under Section 80C is INR 1.5 lakhs.

Furthermore, stamp duty and registration charges can also be claimed by all co-owners in a jointly-owned property.

Tax exemption under Section 54

As per Section 54 of the Income Tax Act, individuals can avail tax exemption on long-term capital gains if it is invested in the purchase or construction of another residential property.

In the case of joint ownership, the capital gains can be divided between each of the owners. Thus, each co-owner can avail tax benefits as specified in Section 54. Each co-owner can invest in a new residential property and reduce the taxable capital gain.

An individual can claim tax exemption up to two residential houses if the capital gains is upto INR 2 cr.

Tax exemption under Section 54EC

Section 54EC allows individuals to claim a deduction of up to INR 50 lakhs on long-term capital gains on sale of a residential property. However, such an exemption can be availed only if the capital gains are invested in specified bonds. Rural Electrification Corporation (REC), Power Finance Corporation Ltd (PFC), Indian Railway Finance Corporation (IRFC) offer these bonds. The investment should be completed within six months of the date of sale/transfer. You can download the investments from here:

For jointly-owned properties, each co-owner can claim a deduction up to INR 50 lakhs. In total, owners can save a maximum of INR 1 cr on capital gains in joint ownership.

Please note that Section 54 and Section 54EC are applicable only if it is a long-term capital asset.

Available tax benefits on owning residential house property

by with No Comment House PropertyIncome TaxTax

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

Gross Annual Value

0
Less: Property Taxes

0
Net annual value

0
Less: Interest on money borrowed u/s 24(b)

(2,00,000)
(Loss) from house property

(2,00,000)

 

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.

Tax benefits against interest paid on home loan

by with No Comment House PropertyIncome TaxTax

The increasing rental costs have propelled people to look for viable alternatives such as purchasing their own houses. Since the property cost is also skyrocketing at a rapid pace, it has pushed the income tax department to provide some tax benefits to make owning a home a more feasible option.

Section 24

Section 24 covers two significant deductions:–

Section 24(a) – Standard Deduction

A taxpayer having income under the head ‘Income from House Property’ doesn’t get deductions for general repairs and maintenance charges. They instead get a standard deduction of 30 percent of the Net Annual Value. If you are self-occupying a property, the deduction does not apply to the same.

Section 24(b) – Interest on Loan

Section 24(b) of the Income Tax Act, 1961 allows a deduction of maximum INR 2 lakh as standard deduction against interest on the loan, in case the house is self-occupied. In case of let out properties, deduction for interest on home loans is not subjected to any limits. It includes interest income earned in pre-construction period which can be claimed in five equal instalments.

If one does not satisfy the following conditions, the limit is restricted to INR 30,000:

  • One uses the home loan only for purchasing or constructing the house.
  • The construction or the acquisition of a home is complete within five years from the end of the financial year in which the one got the loan.
  • It was borrowed after 1st April 1999.
  • The institution sanctioning the loan must certify that the purpose of loan is for construction or acquisition of the house or for refinancing an earlier loan for the same reason.

Example:

Abhishek works in Kolkata for an MNC. He recently bought a house in Delhi with the help of a home loan of INR 40 lakh in FY24. His spouse and parents occupy the property, and he is paying an interest of INR 15,000 per month currently in FY25. Compute his ‘Income from House Property’ for FY25, assuming that he owns only one house.

 Solution:

In the given case, Abhishek’s Gross Annual Value is NIL as the house is self-occupied. Further, he has paid INR 15,000 * 12, i.e. INR 1.80 lakhs for the FY25. So, he has made a net loss under the head ‘Income from House Property’ amounting to INR 1.80 lakhs.

If he has a positive balance under other heads of income, he can set off the entire loss in the current year. Otherwise, the tax department allows taxpayers to carry forward such loss for eight consecutive financial years. But to avail the deduction, he has to file his Income Tax Return for FY25.

Tax deductions available on house property income

by with No Comment House PropertyIncome TaxTax

Section 24 of the Income Tax Act, 1961

Buying a home is a need for some people, while many others consider it as an asset or investment. As you know, you can avail tax exemptions on specific investments and expenditures. Housing property is one among them. Section 24 talks about exemptions on the interests on home loans. In this blog, let us analyse Section 24 in detail.

How is income from house property determined?

Rental income generated from house property is chargeable under the head “Income from House Property” in the following cases:

  • If you are letting out your house property.
  • If you own multiple houses, the Net Annual Value of the properties, excluding two houses, is added to your income

The income under the head “House Property” is taxable after deductions made under Section 24. However, if you own two houses and you do not own any other property, the income from house property is NIL.

There are two permissible deductions under this section:

Standard deduction

As per standard deduction, a sum equal to 30% of the Net Annual Value of the property is exempted from tax. Any taxpayer can avail this exemption on income from house property.

Deductions on interest incurred against home loans

This deduction applies to the interest payable on the borrowed capital for the house property. You can avail exemption on interest on home loans taken for acquisition, construction, repair, renewal or reconstruction of the property.

The following conditions apply to avail deduction on interest of home loans under Section 24:

  • If you or your family resides in the property for which the loan has been taken, you can claim a deduction up to Rs 2 lakh on the interest.
  • If you have rented out the property or deemed to rent out the property, the whole interest amount is liable for a tax deduction.

To claim deductions under Section 24, you should have the interest certificate of the loan you have availed.

Points to remember

  • The maximum deduction limit on interest is Rs 30,000 if the purchase or construction of the property is not completed within five years, starting from the financial year in which the loan was taken.
  • You can claim a deduction for pre-construction loans for buying or constructing a property. You can avail deduction of such interest in five equal instalments from the year in which such construction is completed. The maximum limit for deduction on interest of pre-construction loan is Rs 2 lakh.

Note that the tax liability of income from house property is on the person who receives the financial benefit. It may or may not be the registered property owner.

Tax benefits on home loan taken as joint owners

by with No Comment House PropertyIncome TaxTax

The tax benefits, on a joint home loan, are extended only to the “owners” / “co-owners”. It means that the registered property document needs to bear the names of each of the “owners” explicitly. It is a normal practice in India that a property is co-owned by a parent or a spouse through a loan taken jointly by the parent and child or spouses or siblings. However, you should be aware that      tax benefits accrue only to the “owner(s)” mentioned in the title deeds.

Here are a few pointers that you must keep in mind while availing tax benefits on the property.

  • Be a co-owner in the property: The borrower of the loan should be an “owner” of the property for which the joint loan has been taken to claim tax benefits.
  • Be a co-borrower in the joint loan: The government provides tax benefits in the form of tax deduction on the principal as well as interest paid on home loans. Hence, the “owner” must be a loan “applicant” or “co-applicant” as well. Owners who are not borrowers and do not pay EMIs don’t get tax benefits.
  • Status of construction: Tax benefits are not available for an under-construction property. One can claim tax deductions from the financial year in which construction of the property is complete. But the expenses made prior to completion of the construction can be claimed in five equal instalments beginning from the year in which construction is complete.

Tax benefits on home loan

  • For a self-occupied property: Each co-owner, who has a home loan under his name, can claim a maximum deduction of INR 2,00,000 for interest on the home loan in their Income Tax Return. The total interest paid on the loan is assigned as deduction to the owners in the ratio of their ownership.
  • For a property out on rent: Each co-owner / borrower can claim the actually paid interest amount. There is no limit. One can claim any amount actually spent as interest, whether it is completed or not.
  • For property under construction: INR 2 lakhs deduction applies only for a property that has been constructed within 5 years of taking the home loan. Moreover. the loan in such case should have been sanctioned after April 01, 1999. In case, the construction is not completed within this period, one is entitled only up to Rs 30,000 as deduction for such property.
  • For second self-occupied property: As per the Finance Act, 2019, the second self-occupied home can also be claimed as a self-occupied one. However, prior to the amendment, the self-occupied second property was considered deemed to be let out.

 

Tax Benefits on Home Loan (FY21 onwards)

The following table illustrates the tax benefits available to a property owner who has a home loan

Income Tax Act Maximum Deductible Amount
Section 24 INR 2 lakh (for self-occupied house)
No limit (for let-out property)
Section 80C INR 1.5 lakh from Principal (including stamp duty and registration fee)
Section 80EEA INR 1.50 lakhs of additional interest deduction (for first-time buyers, provided conditions specified in section 80EEA are met)

 

Taxability of rental income from house property in India

by with No Comment House PropertyIncome TaxTax

If you own a house or flat which is rented or vacant, you need to understand the chargeability of tax on your rental income since you will be required to provide a detailed break-up of your rental income earned.

Let’s understand how you should report such income in your tax returns:

Basics of house property

Properties including your home, office, shop, any building or land attached to such a building will be considered as a house property for the purpose of income tax computation. There is no differentiation between commercial and residential property under the Income Tax Act. Rental income from all such properties is taxed under Income from House Property. However, it is important to note that rental income from vacant land is chargeable under the head “Income from Other Sources”,

An owner is a person who is the legal beneficiary of the property and who exercises the rights of the owner.

There are two types of house properties separated for the purpose of income tax:

Self-occupied house property

A house property occupied by you or your family for residential purposes is considered as a self-occupied house property. A vacant house property will also be considered as self-occupied, in case such house property cannot be occupied by the owner for reasons owing to his employment, business carried out at any other place. This beneficial provision is available to you only in respect of two residential houses owned by you.

Let-out/deemed to be let out house property

A house property which has been rented out for the whole year or part of the year is considered as a let-out house property. Even in cases where no property has been let out, a house property, in excess of two properties owned by you, shall be deemed to be let out as per the provisions of the Income Tax Act.

This development has come from an amendment, before FY20, if you owned two house properties, then only one was considered as self-occupied for the income tax purposes and the other one was assumed to be let-out. The option to choose the self-occupied was given to the taxpayer. However, from FY20 onwards, you can consider 2 houses as self-occupied and others (if any) will be assumed to be let-out for income tax purposes.

Definition of income from house property

Income from house property is charged when any rental income is received/ deemed to be received from the house property owned by you.

The income from house property will be added to your gross total income if the following conditions are fulfilled:

  1. You are the beneficial owner of that property.
  2. Your property must consist of a house, buildings or land.
  3. You do not use the property for the purpose of business or profession.

 

How to compute the value of rental income

For the income tax purposes, there are two types of value of house property:

Gross annual value (“GAV”)

GAV is the value of the property at which you might let out from year to year. It is more likely the notional rent that you could have earned if the property was rented out.

Do note that even if your property is not let out, the notional rent or deemed rent receivable will be taxable wherein the property is considered to be deemed to be let out.

The annual value is calculated after taking the following 4 factors into consideration:

  • Actual rent received or receivable
  • Municipal value
  • Fair rent
  • Standard rent

Net annual value (“NAV”)

NAV of the property is calculated after deducting municipal taxes paid from the gross annual value. It is important to note that municipal taxes can be deducted from the GAV only if they have been paid. You cannot claim deduction of municipal taxes on an accrual basis.

For example, let us compute the NAV of a house property with the following information:

Municipal Value: Rs.6,00,000

Fair Rent: Rs. 5,00,000

Standard Rent: Rs. 8,00,000

Actua Rent: Rs. 9,00,000

Municipal Taxes Paid: Rs. 1,80,000

Computation of NAV should be carried out as per the table below:

 

Particulars

In INR
 Municipal Value

    600,000
 Fair Rent

    500,000
 whichever is higher

    600,000
 Standard Rent

    800,000
 whichever is lower

    600,000
Expected Rent

600,000
 Actual Rent

    900,000
 whichever is higher

    900,000
 Gross Annual Value

    900,000
 Municipal Taxes Paid

  (180,000)
 Net Annual Value

720,000

 

Income tax on rental income

by with No Comment House PropertyIncome TaxTax

As per the provisions of the Income Tax Act, 1961, the rent received by the owner is taxable under the head ‘Income from House Property’. In most cases, rent from let-out property is taken into consideration, but if the individual has multiple self-occupied properties, deemed income can also come under the tax scanner.

When is Income from House Property added to the individual’s income?

Income from House Property is added if the following conditions are satisfied –

  • You must be the owner of the property.
  • The property must comprise of land and/ or building.
  • The property must not be used for business or professional purposes.

How do we calculate the Gross Annual Value of a property?

In case of a rented property, the GAV or Gross Annual Value is the higher of Expected Rent and the Actual Rent received by the owner. Expected Rent is the higher of Municipal Value and Fair Rent, but not exceeding Standard Rent in any case.

For example, Mr X has let-out a property on rent. He is earning Rs 2.40 lakh annually as rental income from it. The Municipal Value of the same is Rs 2.60 lakh, but the Fair Rent is Rs 2.20 lakh. The Property has a Standard Rent of Rs 2.50 lakh.

He paid Rs 30,000 as municipal taxes for it in the previous year and spent Rs 12,000 on general repairs. He has funded the purchase by a home loan, the interest of which was Rs 1.20 lakh for the year. Calculate the Income from House Property for Mr X in the previous year.

 

Expected Rent (Higher of Municipal Value and Fair Rent, not exceeding Standard Rent) 2,50,000
Actual Rent 2,40,000
Gross Annual Value (Higher of Expected Rent and Actual Rent) 2,50,000
Less: Property Taxes 30,000
Net annual value 2,20,000
Less: Standard Deduction at 30% 66,000
Less: Interest on money borrowed (capped to ₹ 1.50 lakh) 1,20,000
Income from house property 34,000

Note: The tax department allows a flat standard deduction of 30 percent of Net Annual Value to the owner. The main intention for the Government to provide this deduction was to subsume all miscellaneous expenses incurred on general repairs and otherwise.

Deductions available on pre-construction interest

by with No Comment House PropertyIncome TaxTax

Meaning of pre-construction interest

Most people prefer to take a home loan while constructing their dream home. But the tax department doesn’t allow its deduction while the house is under construction. Pre-construction interest refers to that interest component of a loan which is paid before the place is ready-to-use.

What is the span of deduction?

For taxation purposes, the total pre-construction interest is divided into five equal parts. It is then allowed as deduction starting from the year in which the construction is complete. Taxpayer cannot choose the years in which he will avail the benefit since it is available for five consecutive years.

What is the maximum limit of deduction?

As per Section 24 of the Income Tax Act, 1961, the maximum deduction for the interest on housing loan is Rs 2 lakh for a financial year, in case the property is self-occupied. It includes both current and pre-construction interests.  If the property is under joint ownership, each owner gets the same limit and can claim it in their Income Tax Returns.

Example

Mr X took a home loan of Rs 10 lakh to initiate the construction of a house in Kolkata in January 2023. The interest amounted to Rs 10,000 per month, and the construction began in February 2023. He received the completion certificate of the same in May 2025.

It has been given out on rent beginning August 2025. What would be the tax treatment of the interest on the loan for the FY26?

Solution

Mr X can consider pre-construction interest from the period when the construction started. In the given case, the same began in February 2023, even though he got the loan in January 2023.

Further, he will only get the same till 31st March of 2025, i.e. 26 months. Since interest was Rs 10,000 per month, the total pre-construction interest was 26 * Rs 10,000, i.e. Rs 2.60 lakhs. Therefore, the maximum deduction is Rs 52,000 for five consecutive years.

Since the property is let out, he is eligible to claim deduction of the actual amount of interest paid on home loan without any maximum limit. He has paid 10,000 * 12, i.e. Rs 1.20 lakh as interest in FY26 and the pre-construction interest is Rs 52,000. The total deduction available is Rs 1.72 lakh for the FY26.