Apart from providing general information and break-up of salary income in the ITR-1, if an individual has only one house property, then he/she is also required to provide a detailed break-up of income from it.
Before you start calculating income from house property to be filled in ITR-1, you must ensure that you are eligible to file your return using ITR-1 and have the all the required documents to do the same.
There are certain things you must know to calculate the income from house property.
Naveen Wadhwa, DGM, taxmann.com says, “One house property means that there should be only one house property registered under the name of individual whose income is chargeable to tax. Income tax laws define house property as any building and land appurtenant thereto of which an individual is owner.”
The calculation of income from that house property and all tax-related deductions that you are eligible to claim depend on whether the house is self-occupied or let-out. However, one must remember that if the property is used for carrying out any business or profession then provisions of ‘Income from house property’ will not be applicable.
In order to claim deductions from income from house property, one is required to calculate annual value of the property.
How to calculate income from house property
To start computing income from house property, one first needs to choose the type of house property in the ITR e-filing form. From the drop down menu, you will have choose between ‘Self-occupied’ and ‘Let-out’ property.
Wadhwa says, “Following properties shall be deemed as self-occupied property:
A) A property used by the owner or his family members (i.e., parents, spouse or children) for his/her/their residential purposes, or
B) If you own a house but it is empty throughout the year because of your employment at any other place, or
C) If you own a house but live with your parents, in that case, you may treat the said house as your self-occupied property if it is not let out during the year.”
Therefore, according to income tax laws, the annual value in the above mentioned cases will be automatically taken as nil, i.e., zero.
In the above cases, you can claim deduction only for the interest paid on the borrowed capital, i.e., interest paid by you during the financial year (for which the return is being filed, i.e., 2017-18 in this case) on the home loan you have taken, if any. You can find this information in the home loan statement which you can get from your bank.
The maximum amount you can fill in the (v) column (which is ‘Interest paid on borrowed capital’) under the head income from house property is Rs 2 lakh. Therefore, if the interest paid by you exceeds Rs 2 lakh in a year, the maximum amount that can be entered by you here shall be Rs 2 lakh. If you have paid Rs 2.5 lakh as interest, then form will allow you to claim a maximum of Rs 2 lakh as a deduction from the income from house property. As the annual value of the house is zero (explained above) therefore, the deduction claimed of Rs 2 lakh will result in a negative figure or loss of Rs 2 lakh under the head ‘income from house property’.
This loss will be adjusted against other heads of incomes such as income from salary or from other sources which in turn will bring down your gross income chargeable to tax. If you don’t have any other income and you want to carry forward the losses, then you will have to your file return in other ITR forms because ITR-1 has no column to show the losses to be carried forward, explains Wadhwa.
If you have chosen the option of ‘Let-out’ property from the drop down menu, then you will be required to fill three additional cells in the income from house property section of the ITR form. To fill these cells, you will be required to make some calculations.
(i) Gross rent received/receivable/let-able value
Cell number (i) under the head ‘Type of house property’ requires you to enter gross rent received/receivable/ let-able value of the house property. To calculate this figure, you will require two values, namely:
a) Actual rent received/receivable, b) Expected rent.
The higher value from the above two values will be selected as ‘Gross rent received/receivable’, adds Wadhwa.
Actual rent received/receivable
This is the actual amount received by you from your tenant during the year. If there are any arrears that are to be received, then that amount will also be added to compute this figure.
As the name suggests, it is the amount which is expected to be received as rent. To determine this value, one is required to take higher of a) Municipal valuation or, b) Fair rent provided this higher value does not exceed standard rent in cases where standard rent is applicable.
To determine the taxes to be paid by the house owner, the local authority conducts a survey. The survey determines the gross rental valuations of all the buildings within the area and thereby calculates the taxes to be levied.
The gross rental value determined by the local authority is the municipal valuation you will use to determine the annual value of that house. One can find this valuation in the form you fill to pay or receipt of payment of your property taxes. These taxes vary from one local authority to another and, from one location to another, say Wadhwa.
Some of the local authorities allow a deduction on account of repairs and use only the net municipal value to determine the tax. In that case, one must adjust net municipal value to find out the gross value.
Rent payable for similar and similarly situated properties is also taken into consideration to determine the annual value. Wadhwa says, “You can find these values from online property websites to know the rent in your locality for properties similar to yours.”
If your state is governed under the Rent Control Act, then rules of this Act apply and as per these rules a landlord cannot receive anything more than the standard rent fixed under it.
Wadhwa says, “It is the rent fixed under the State Rent Control Act for encouraging fair return to the landlords and preventing undue harassments of tenants. This Act prevents the indiscriminate increase in the rent of the property as per the desire of the landlord. The standard rent is fixed by the Controller when either landlord or tenant files an application with him.”
Therefore, to enter the value in cell (i) corresponding to the gross rent received/receivable, you can follow these steps:
Step 1: Take the higher value from (A) Municipal valuation or (B) Fair rent. If the Rent Control Act is applicable and standard rent is lower than the higher value, then the standard rent amount will be taken. This is the expected rent.
Step 2: Compare the expected rent with the actual rent received by you. Higher value from the expected rent and actual rent will be your answer for the cell (i).
(ii) Taxes paid
In the cell number (ii), you will be required to enter the amount of taxes paid by you to the municipal authority. If you have paid taxes in the FY for which the return is being filed (FY2017-18 in this case), then you would have received a challan from the municipal authority.
(iii) 30% of annual value
Once you input the gross rent received and taxes paid, the form will automatically calculate the annual value of your house property. In addition to that, the form will also calculate a deduction of 30 percent from the annual value.
This is a straight deduction of 30 percent allowed from the annual value of let-out house property for the expenses incurred in the maintenance of the house. The amount of this deduction can be seen in the cell number (iv).
(iv) Interest paid on home loan
In the cell number (v) you will be required to enter the interest paid by you on the home loan taken to buy that property. Unlike self-occupied property where the maximum amount you could enter is Rs 2 lakh, here you can enter the actual amount as shown in your home loan statement even if it exceeds Rs 2 lakh. However, the maximum loss you can claim under this head is Rs 2 lakh. The residual amount can be carried forward. However, to carry forward the loss, the return has to be filed in other ITR forms because there is no column in ITR-1 to show the losses to be carried forward, adds Wadhwa.
Suppose your rental income is Rs 2 lakh, whereas the interest paid by you in FY 2017-18 is Rs 5 lakh. Therefore, Rs 3 lakh is your loss. Out of this, only Rs 2 lakh will be available for adjusting against the other heads, i.e., income from salary and income from other sources. The residual amount of Rs 1 lakh can be carried forward to next year subject to filing of return in other ITR Forms.
“If any pre-construction interest is paid by the individual to buy or construct that property, then a deduction is allowed in five equal instalments from the year in which that house property is acquired or construction is completed,” says Wadhwa. This means that your total pre-construction interest will be divided into five equal instalments and one-fifth of that interest is added to your total interest paid each year for five consecutive years.
However, for self-occupied property, the maximum deduction on pre-construction period and total interest paid during the year cannot exceed Rs 2 lakh. Any amount exceeding Rs 2 lakh will lapse. For let-out properties, there is no limit on maximum amount of interest paid including pre-construction period. However, the maximum loss will be of Rs 2 lakh only. The residual amount can be carried forward to the next year if return is filed in other ITR Forms.
Wadhwa says, “Pre-construction period benefit will be restricted to Rs 30,000 if any of these conditions are satisfied.” These conditions are:
a) When loan is taken on or after April 1, 1999 for acquiring or constructing a property but the acquisition or construction of that property is not completed with five years (3 years up to Assessment Year 2016-17) from the end of the financial year in which loan was taken.
b) If loan is taken for repairs or renovation of the house.
Once all the required values are entered, the form will automatically calculate the ‘Income chargeable under the head house property’.
Once income from house property is calculated, you will be required to calculate and enter income from other sources.