The “Tax- File” of House expenses

By Pallavii Pitale

As per the Income tax act, an income is taxable when earned from a house that is owned by the assesse and should consist of buildings or land adjacent to a building. The property shouldn’t be used for any commercial purposes but can possibly be rented out in order to derive a regular rental income out of it.

The annual value of the house is taxable and not the rent as actual. The annual value, i.e. The potential of the property to earn the income, can actually be more than the rent that the owner earns from that property. The determination of the annual value of any property is done by considering either the highest of municipal value or based on fair rental value of a similar property in the same locality.In case the higher of the two exceeds the standard rent of the property determined in accordance with the Rent Control Act, the standard rent is treated as taxable rental value of the property.

To arrive at the net annual value, following deductions are to be made from the Gross Annual Value.

Deduction of the Municipal Taxes paid by the owner. ( under Section 23 of Income Tax )
Deduction of the Repairs and collection charges ( under Section 24 of Income Tax ) 30 percent of the net adjusted annual rental value is allowed as a deduction. This amount is irrespective of the expenses whether actually incurred by or not by the assessee. However, in case of repairs borne by the tenant, the deduction is not allowed to the owner of the property.
Deduction of the Interest on borrowing for purchase,construction, repair, renewal or reconstruction of a house.
In case of a self-occupied property, the maximum deduction is up to
Rs. 30,000/-

In case of borrowing made for acquisition or construction of a house after
April 1,1999, the deduction is Rs.1,50,000 /-

In case of acquiring or constructing the house with borrowed money, the
interest is deducted in five equal annual installments starting from the year in
which the house was acquired or constructed.

Deduction against expenditure incurred towards rent payments for the house
occupied. ( For salaried and Self employed Individuals Under section 80 GG
of Income Tax. ) The following points are considered while deduction.
The house whether unfurnished or furnished , should be occupied by assesse
only.
The deduction is not applicable to the salaried individuals receiving HRA, the
Home Rent Allowance.
A declaration must be filed in Form 10BA regarding the expenditure incurred
by the assesse towards the payment of rent.