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How is income from house property calculated for tax purposes under the Income Tax Act?

Income from house property is one of the sources of taxable income under the Income Tax Act. In India, the Income Tax Act provides specific rules for computing taxable income from house property. The method of calculating taxable income from house property is based on the concept of “annual value”.

The annual value of the property is the notional rent that the property is expected to earn if let out for the entire year. However, if the property cannot be let for the whole year, the actual rent received or receivable for the period during which the property is let shall be taken as the annual value.

Calculation of income from house property involves four main steps:

Calculation of Gross Annual Value: Gross Annual Value is the annual value of the property. It is calculated as the notional rent expected to be earned by the property or the actual rent received or likely to be received by the owner of the property during the year.

Deductions Allowed: Certain deductions are allowed from the gross annual value to arrive at the net annual value. These deductions include a standard deduction of 30% of the net annual value for municipal taxes paid during the year and repair and maintenance expenses.

Calculation of annual value after deductions: After deductions are made, the resulting figure is the net annual value.

Calculation of Income from House Property: Income from house property is the income earned by the owner of the property after allowing for the above mentioned deductions. The deductions allowed under Section 24 of the Income Tax Act are calculated as the net annual value, which includes the interest paid on the home loan and the principal amount repaid during the year.

It is important to note that the above mentioned rules apply to both residential and commercial properties. Additionally, if an individual owns more than one home property, only one property may be considered self-occupied and the other properties are deemed omitted. In such cases, the annual value of the deemed let-out property shall be calculated as mentioned above.

Calculating taxable income from home property involves determining the annual value of the property and making deductions for municipal taxes and repair and maintenance costs. It is important to understand the rules and regulations governing taxation of income from house property to ensure compliance with relevant tax laws.

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