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House property is a very attractive avenue from the point of view of Investment. 
As investing in house property brings in many changes in your income tax calculation, it becomes even more interesting and cause of attention too. There are many points to be kept in mind while owning a house property. Generally at the time of investing in a house property we have to resort to loans from our employer/banks/any other financial institutions/others. In Income Tax deductions are allowed on such loans and their interest component. Lets have complete understanding of this important issue in different scenarios.

Owned House Property:

Click here to download Income/loss from House Property Calculator

When we invest in a House Property with support of a loan it can reduce our tax burden to a great extent. Now a house property owned by us can be let out or self occupied. Lets discuss both the possibilities separately:

Self Occupied House Property:

Living in our own house is a pleasure. Tax implication in case of a self occupied house property are:
  • Interest on loan taken for the House Property can be claimed as loss from house property upto a maximum of Rs. 150000/-.
  • Principle repayment of loan can be claimed as deduction under Section 80C upto a maximum of Rs. 100000/-.
  • If any pre construction period interest is paid, a deduction for the preconstruction period interest can also be claimed in five equal installments from the year of possession of property/completion of construction. This deduction of preconstruction period interest is available with in the limit of Rs. 150000/-. 
One important point is that benefits of house loan interest are available from the year of possession/acquisition of the property.

Let Out House Property (House Property given on rent):

Letting out of house property is very common. It brings us an additional income in the form of rent. Tax implications in case of house property given on rent are:
  • Rent received will be included in total income as income from house property. 
  • Out of the rent income we get 30% of rent as deduction for repairs & maintenance
  • Interest on loan taken for the House Property given on rent can be claimed as loss from house property. There is no maximum limit for claiming interest in such cases. We are allowed a full deduction of interest  component of the loan.
  • Principle repayment of loan can be claimed as deduction under Section 80C upto a maximum of Rs. 100000/-.
  • Exemption of House Rent Allowance(HRA) if applicable can also be availed (HRA provisions are further discussed in detail).
For example if I have rented my house at Rs. 10000/- per month and my total loan repayment for the year is Rs. 600000/- (Rs. 400000/- interest and 200000/- the principle part). In this situation my claim for loss on house property in the Income tax return will be:
Rent Income 120000
Less 30% for repairs-36000
Less Interest on Loan for the year-400000
Net loss from House Property-316000

In total I'll get a deduction on account of Loss from House property of Rs. 3,16,000 and Rs. 1,00,000 under section 80C for the pricipal part of loan repayment. We must understand that the limit of Rs. 100000 under section 80C  is inclusive of other investments like PPF, PF, LIC etc. So this limit of Rs. 100000 applies to all of them taken together.

Further these benefits are not restricted to one house, you can get these benefits for more than one house.  If you own two houses, benefits of both self occupied house property and let out house property can be claimed.

Jointly owned property:

In case of jointly owned property, all  the purchaser are entitled for tax benefits as explained above. In case of double income group it is advisable that property should be bought in joint name of husband and wife. Both husband and wife will be able to claim the above explained tax benefits individually. However, following points need to be taken care in case of jointly owned property:
  • Property should be registered in joint names.
  • Share of each owner in property should be clearly defined in registration documents.
  • Loan should be taken by all the owners.
  • Repayment of loan should be done by all the owners out of their income.  
HRA (House Rent Allowance) and Home Loan

A very common question asked about HRA is- Can we claim HRA and house loan benefits together? Answer to this is Yes. From Income Tax point of view HRA & Home Loan provisions are separate. Both can be claimed simultaneously. One can take benefit of HRA as well as avail the tax benefits of Home Loan on Let out House Property. We have already discussed the provisions of Home Loan above, now lets have clear idea of HRA provisions.
You can get the exemption for HRA to the least of following:
  • HRA received during the year
  • Excess of Rent paid over 10% of Salary (Basic+DA)
  • 50% of Salary if residing in a Metro City (Delhi, Mumbai, Chennai, Kolkatta) and 40% of Salary if residing in a non metro city
Least of the above three will be allowed to you as HRA exemption.

For claiming HRA exemption you need the Rent receipts and now from the financial year 2013-14 onwards, if the Rent paid is more than Rs. 100000 annually, Land Lord's PAN is also mandatory. If the Land Lord does not have PAN, a self declaration by the Land Lord (containing his name and address) regarding this will also solve the purpose.

Click here to download HRA Calculator

FAQs on House Property

Can interest on loan taken from friends & relatives for house property be also claimed as deduction like interest on home loans from banks/employers is claimed?
Yes, if you ar paying interest to your friends/relatives on the loan taken for hoouse you can claim deduction of the same as any other house loan. However you must get an interest certificate from the friend/relative from whom loan is taken.

Am I entitled to deduction of Interest on House Loan along with HRA exemption?
Yes. Read the article above to understand in detail.


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You may also like to see: TDS on purchase of property


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