How to calculate taxable income on self occupied house property

A person’s gross total income is the sum of income under five different heads calculated based on the tax laws. One of these heads is ‘income from house property’. This head includes rent earned from building or land appurtenant thereto which is chargeable to tax.

Income is taxable under the head house property if conditions to section 22 is satisfied. As per this section, to get income taxed under the head house property, the assessee must be the owner of the property and income must be derived from building or land appurtenant thereto. However, if it’s used for assessee’s own business, then it will not be taxable under the head house property.

To calculate tax under the head house property, we first have to find out whether the house is self occupied or let out or to be treated as deemed to be let out. This classification is a must as calculation of taxable income under the head house property is based on it. In this article, we will discuss how to calculate taxable income under the head house property when the house is self occupied.

What is self occupied house property

As per the income tax act, self occupied house property is the one which is used for assessee’s own residence. It will also be treated as self occupied if its used for residential purpose of parents, spouse or children.

As per the provisions, if more than one house is self-occupied by the assessee, then only one according to the choice of the assessee will be considered as self occupied and all others will be considered as deemed to be let out. From financial year 2019-20 onward, the benefit of considering the houses as self-occupied has been extended to 2 houses. Therefore, for income tax purposes, from financial year 2019-20 onward, you can consider 2 houses as self-occupied and remaining as let-out.

Please note, if the property is used for own business or profession, income from such property is not chargeable to tax under the head house property.

Steps to calculate income from house property

Here are the steps to calculate income from a self occupied house property.

  1. Determine gross annual value
  2. From step 1 deduct municipal tax paid by the owner during the previous year to find out net annual value
  3. From the net annual value deduct tax deduction under section 24 to get income from house property.

In case the house is fully self occupied for the whole previous year and no other benefit is derived from it, then net annual value should be considered as Nil. This means you need not calculate step 1 and 2 as discussed above.

Annual value of the property shall not be considered as nil if such house or part of it is actually let out during the whole or any part of the previous year or any other benefit is derived from it.

When assessee self-occupied more than one house property

If assessee self occupied more than one house, then he may exercise an option to treat any one to be self-occupied. From financial year 2019-20 onward assessee has option to select any two houses as self occupied.

The annual value of the house selected by the assessee as self-occupied will be considered as nil. All other houses will be considered as deemed to be let out. Such option of selecting a house as self-occupied for income tax calculation can be changed every year based on assessee’s choice.

Tax deduction under Section 24 

As discussed in our earlier article, standard deduction under section 24 will be always considered as zero for house property which is considered as self occupied as its annual value is nil. However, assessee will be eligible for a tax deduction on interest on borrowed capital.

If assessee has acquired or constructed the property with capital borrowed on or after 1.4.1999 and such acquisition or construction is completed within a period of 5 years from the end of the financial year in which the capital is borrowed, then interest on borrowed capital or Rs 2,00,000, whichever is lower will be allowed as a tax deduction under section 24.

In any other case, tax deduction on interest on borrowed capital is available up to a maximum limit of Rs 30,000. This means interest on borrowed capital or Rs 30,000 whichever is lower will be allowed as a deduction.

In case of a joint home loan, both will be separately eligible for section 24 deduction. In this case Rs 2,00,000 and Rs 30, 000 as the case may be will be allowed as maximum limit of tax deduction for both individuals separately. This means, if you along with your spouse taken a joint home loan in proportion of 50:50, then both of you can claim up to a maximum limit of Rs 1,50,000 each (in total Rs 300000) u/s 80C for principal payments and up to Rs 2,00,000 or Rs 30,000 each (in total Rs 4,00,000 or Rs 60,000) as the case may be for interest on borrowed capital under section 24 as tax deductions.

To get the deduction of interest on borrowed capital, the assessee has to obtain a certificate from the person to whom such interest is payable.

Where the house property is self occupied for part of the year

If the house property is self occupied for part of the year and let out the other part of the year, then the annual value of such property is to be calculated as if its let out for the whole year. In such a case, the period of self occupied is irrelevant. This means, property will be treated as self occupied house property if its not let out even for a single day during the previous year.

While calculating annual value of the property, the expected rent as in section 23(1)(a),  shall be taken for full year but the actual rent received or receivable shall be taken only for the let out period.

Format to calculate income

Sr. No.ParticularsAmount in Rupees
1.Gross Annual ValueNil
2.Less: Municipal taxes paid during the yearNil
3.Net Annual Value (1-2)Nil
4.Less: Deduction under section 24 
4.1Standard deduction U/s 24 (30% on Sr. No. 3)Nil
4.2Interest on borrowed capital(XXX)
5Income from house property (Sr. No. 3- Sr. No. 4)(XXX)

From the above computation format, it can be observed that for a self occupied house property, income will always be nil or negative based on the interest payable on borrowed capital. However loss cannot exceed Rs 2, 00,000 or Rs 30,000 as the case may be.

Loss from house property

Loss from one house property can be set off against income from other house property for the same financial year. If its not sufficient to set off the whole loss, then the unadjusted loss is allowed to be set off from income chargeable under the head salaries, business or profession, capital gains or other sources subject to a maximum limit of Rs 2,00,000. If any unclaimed loss left out, then it can be carried forward to subsequent years to adjust it against income from house property.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.