Income from House Property

Section numbers here are from the Income tax Act, 1961, the operative law for the current filing cycle. This article is for general information and does not constitute tax advice.

The exact computation order

1. Start with gross annual value (actual rent, or notional rent for a vacant second property)
2. Subtract municipal taxes actually paid by you during the year, giving the net annual value
3. Take 30% of that net figure as your standard deduction, not 30% of the original gross rent
4. Subtract home loan interest under Section 24 (home loan interest deduction), capped at 2 lakh rupees for self occupied, uncapped for a rented out property

Big eligibility change this year: ITR-1 and ITR-4 now allow up to two self occupied properties and still count as simplified filing, previously a second property alone would have pushed you to ITR-2.

Co owned property is taxed per owner, not as one lump figure. If you and your spouse jointly own a flat, each of you reports your own share of the rental income, or notional rent, according to your actual ownership percentage, and each of you separately claims your own home loan interest deduction, subject to your own 2 lakh rupee cap if self occupied.

How a couple can reach 4 lakh rupees on one loan

Section 24(b)’s 2 lakh rupee interest deduction on a self occupied property applies per person, not per loan. When a property is both jointly owned and jointly borrowed, both names on the title and both co-borrowers, each co-owner claims their own 2 lakh rupees separately, based on their share of ownership and their share of interest actually paid. A couple who jointly own and jointly borrow can collectively reach 4 lakh rupees in deduction on a single loan, this is two people each using their own limit, not the property getting a bigger limit.

This is a genuinely separate mechanism from the two-property rule below. The 2 lakh rupee interest cap itself stays combined across however many self occupied properties one person owns, it is the co-ownership point above that lets a couple reach 4 lakh rupees, not owning two houses.

Up to two self occupied properties, nil annual value

Since Budget 2019, an individual can treat up to two properties as self occupied with nil annual value. Before that, only one qualified, and a second home not rented out, a hometown house, for instance, was taxed on notional rent it never earned. A third property onward, if not let out, is still deemed let out and taxed on notional rent.

If you are not the owner but you sublet a property, different rules apply entirely. Income from subletting is taxed as other sources, not house property, since you never owned it in the first place. This is a genuinely common confusion for tenants who sublet a room.

Unrealised rent you recover later is taxed when you receive it, not before. If a tenant owed you rent you could not collect and you excluded it earlier, recovering it years later, even after you have sold the property, still makes it taxable in the year you actually receive it.

The detail most people miss: interest paid before your home was ready to move into, pre construction interest, is not lost, claim it in five equal yearly instalments starting the year construction finishes, on top of your regular annual claim.

House property loss set off works very differently depending on your regime. Under the old regime, a loss, common when interest exceeds rent, can offset other income like salary, up to 2 lakh rupees in the same year, with the excess carried forward eight years. Under the new regime, this cross head set off against other income is blocked entirely, though the loss itself can still be carried forward against future house property income.