Complete guide for income from House property and HRA

POSTED BY Muthu ON August 6, 2012 1:22 am COMMENTS (7)

I have tried to summarize the three most prevalent cases while claiming HRA and entering details under income from house property.
1. I own only one house and it is in city A, I stay in rented Accommodation in city B.
a) House in A is rented:
I can claim Principal and Interest of home loan (if any, taken for the construction of house in A). There is no cap on interest to be claimed u/s 24.
Principal cap- Subject to other 80C benefits claimed, to a maximum of 1 lakh.
I have to consider the Annual Value of my rented house in city A
Annual value= Rental income- Municipal Taxes
Income from house property= Annual value- 30% annual value- Housing Loan interest.
I can claim HRA for my stay in city B
b)House in A is vacant / my parents stay:
House in A is considered as Self-occupied and Annual value=0.
Cap on claiming interest on loan= 1.5 lakh
I can claim HRA for my stay in city B
2) I own only one house and it is in city B, I stay in rented Accommodation in city B (because my own house is far from workplace)
I can claim HRA for my stay in city B.
I can claim Principal and Interest of home loan.
a)if it is rented out:
I need to consider the rental income and compute Annual value while deciding the income from house property
b)if it is lying vacant/my parents stay:
I need to consider the Notional Rental Income and consider the property deemed to be let out (Even if I don’t receive income from it as rent) while deciding the income from house property.
This house is considered as self occupied property and i can claim max. 1.5 lakh interest on housing loan.

If so, how can I declare a property as self occupied and still show notional rental income. It isn’t logical right?

The basic underlying fact is if a house is said to be self occupied, There is a cap imposed on Interest on housing loan-1.5 lakh.
if it is rented out/ deemed to be let out(If the 2nd property is in same city as of the 1st property), there is no cap on interest on housing loan.
Please correct me if i am wrong in any of the above areas.
Let me pose a small situation as example.
My first house is in city A. There is no outstanding loan taken for this and it is acquired many years before. It is rented out.
I stay in city B.
My second house is in city C. I have taken a loan for this and construction is completed just now.
My parents are going to stay there and i will leave it vacant in future.
So, I can do the following:
Claim HRA for my stay in city B.
Show rental income and compute income from house property in city A according to things discussed above. Eg: Income from this property is 70000 this year
Show my house in city C as self-occupied. annual value=0 and claim interest for housing loan subject to max of 1.5 lakh. Eg: income from this property is -1.5 lakh this year
I can set off income from both the properties (70000-150000= -80000) and report a total loss of 80000 from these two house properties.
Please let me know if my calculation is right.

7 replies on this article “Complete guide for income from House property and HRA”

  1. Hanumanth says:

    Hello,
    I have couple of questions around income from house property (w.e.f changes from 2017) and need your valuable advise.

    Here is my question :
    I have two flats on my name, For the 1st one home loan is closed and which is self-occupied where I am staying with my spouse and parents. 2nd flat is on rent for which SBI Maxgain home loan is going on. Since last year I am unable to take the tax benefit 2nd flat home loan as much as I wanted because the yearly rent I receive is more than the home-loan interest(even after deducting munciple taxes and std. deductions from rent). Hence my income from house property is coming as +ve. I have parked my surplus money (50% of the outstanding loan amount) in my SBI Maxgain loan account which I have kept as contingency fund, or for any new investments and to also reduces the interest out go from monthly EMI. What options I have to save/avoid tax on rental income in this case?? Can I show the 2nd Flat as Self-Occupied and take the benefit of Home Loan Interest component? and transfer 1st flat on my spouse name (who doesn’t have any other source of income) paying agreement cost, society charges etc.? Please advise what is feasible and beneficial in this case.

  2. Muthu says:

    Hi Srinivas,
    The 30% deduction signifies the expenditure towards Repairs and maintenance charges for the financial year. Even if you have not spent it, this can be applied without showing any proof as the Government believes you would incur 30% of the income towards maintenance on an AVERAGE every year.
    I.e, one year you might incur more than that and the other year you might not incur anything. To bring uniformity, this is applied.
    Hope you are clear now.

  3. Srinivas Narayanan says:

    First of all Thanks to Ashal and Muthu for this post and conversation. I had a few questions on top of this.
    I fall under the 1 a category of what Muthu describes above and I could not follow some parts of how Income from house property is calculated

    1. What does the 30% annual income stuff which is deducted from annual income to get income signify? Why is it 30%?
    2. What about any maintenance expenditure I have incurred – like repainting, repairs etc.)? Can that be deducted from the annual income as well to get the income from house property?

    Please let me know.

    Thanks in advance,
    Srinivas

  4. Soms says:

    Hi Ashal,

    I too have a similar query. But am bit confused with Muthu’s case. In my case, I am in Home-A, Own house in chennai and I am residing. And I have another Home-B in chennai. Currenty it is vacant.

    I am not claiming HRA part. How to claim the full interest component while the flat is vacant?What is the minimum Notional Rental Income I can show to get the IT benefit?

    Thanks,
    Soms

  5. Dear Muthu, Yes is the answer.

    By the way, if you want to claim higher interest amount under section 24(b) of income tax for the property in City C, you may do so by declaring the deemed rent. This Deemed rent ‘ll be added to your income as per the calculation & net income from this property ‘ll be negative in all probability.

    Thanks

    Ashal

    1. Muthu says:

      Ashal,
      So, you mean to say that if the house in city C is shown as self occupied(parents stay there)/vacant and that I don’t receive any income from it and show Annual value=0, then the maximum deduction available in terms of Loan is 30000.
      If I show the house as deemed to be rented out, then i can claim a max. of 1.5 lakh?

      Is my understanding right?

      Is there any cap on any loan for second property? I got to know that I can claim whatever interest I pay for my second property without any cap on it.

      1. Dear Muthu, The house in City C – if occupied by parents/self occupied, the maximum interest benefit ‘ll be 1.5L Rs. To claim a higher amount, you w’d have to report a deemed rental income from this house.

        Regarding 2nd or 3rd or 4th or as many house as you want to, you can claim interest benefit unlimited but rental income from each of these house should be added to your income from all other sources. Yes that 30% deduction from rental income ‘ll be there to avail.

        Thanks

        Ashal

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