New tax regime: Under the new tax regime, calculate income from house property in this way, see details

How to calculate income from house property under the new tax regime and what deductions and benefits can be claimed under house property…….

New tax regime: If you have a house property which is either let-out or vacant or is self-occupied and want to opt for the new tax regime in a financial year, then there are certain calculations and important aspects you need to be aware of.

The new tax regime

From FY 2023-24 (AY 2024-25) onwards, the new tax regime will be the default tax regime for all taxpayers. This means that when you will file your income tax return next year, the new tax regime will be selected automatically. If you want to continue for the old tax regime, then you will have to specifically opt for it.

Further under the new tax regime, a taxpayer will have to forgo many deductions which are available under the old tax regime. Hence, barring a few deductions like deduction of employer’s contribution to NPS, standard deduction for salaried employees, you will not be able to claim any of the other deductions. For instance, the popular section 80C deduction, which can be claimed by making certain investments and transactions, is not available under the new tax regime.

Tax laws for different types of properties

The Income Tax Act classifies house properties into three categories which are: self-occupied, vacant (deemed to be let-out) and let-out.

Self-occupied: As per the income tax law, a self-occupied house property is one which is occupied by the individual or his family members. Up to two houses are considered as self-occupied as per the income tax law.

Under the new tax regime, no deduction is allowed for self-occupied houses. This means that if the house was bought on home loan, then the deduction for interest paid on such home loan cannot be claimed in the new tax regime.

Let-out house: If you are earning a rental income from house property, then you can claim certain deductions in the new tax regime under income tax laws. So, for these houses the interest on home loan, municipal taxes paid, and the standard deduction of 30% both are available in the new tax regime.

Vacant house: An individual having more than two houses (say 3 or more) and if there was no rental income from them, then it will be considered as ‘deemed to be let out property’. The tax treatment for deemed to be let out house properties is same as let-out property.

“The taxpayer can claim the benefit of Nil annual value (i.e., Self-occupied property) for up to two house properties. Consequently, any further properties shall be considered as deemed let out property and chargeable to tax accordingly based on notional NAV computed,” said Dr. Suresh Surana, Founder, RSM India, a tax, audit and consulting company.

“In case of deemed to be let out and let-out house properties, one can claim the standard deduction of 30% of NAV, municipal taxes paid, and home loan’s interest amount limited to the rental income, while calculating the income from house property under the new tax regime,” said Abhishek Y. Bhavsar, an Ahmedabad based chartered accountant.

Deductions that can be claimed from house property in the new tax regime

Home loan interest deduction: A homeowner can claim deduction for interest paid on his/her home loan in the new tax regime from their rental income. “Under the new tax regime, the only instance where one can claim any deduction for home loan interest amount u/s 24 is when the said house is put on rent. In the case of self-occupied property, the deduction for interest on home loan’s interest amount is restricted to Rs 2 lakh and is only available under the old tax regime and not new tax regime,” said Neeraj Agarwala, Partner, Nangia Andersen India.

Setting of Loss from house property: “No loss from house property is allowed to be set off against other income under this new tax regime. This means that although the interest deduction for home loan for rental property can be claimed, but any loss under the head income from house property cannot be set-off against any other heads of income,” said CA Abhinit Singh, Founder, Ready Accountant, a Kolkata based educational institution.

Set-off of losses from multiple house properties: If an individual have multiple house properties on rent, then loss from one house property can be set-off with another house property. This means that if any of the house has loss from a let-out house property but there exists income from other let-out house properties, “then the loss arising out of this particular property can be set-off with that income from other house properties,” Singh added.

Carry forward of house property loss: There are no scope for carry forward of losses in the new tax regime. In the old tax regime, house property losses could be carried forward for up to eight financial years.

Calculation of income from let-out house property under new tax regime

To calculate income from house property, one needs to calculate the gross annual value (GAV) of a house property. This GAV is needed only if you have either deemed rental from vacant house or actual rental income from house property and you are opting for the new tax regime. If you have self-occupied property, then such calculations are not needed in the new tax regime. The GAV calculation is same for both the new and old tax regimes.

Once GAV is calculated, municipal taxes which were paid should be deducted. The value arrived after deducting municipal taxes is called net annual value (NAV).

From this NAV, one must deduct 30% amount as standard deduction. “This 30% standard deduction is the flat deduction allowed for all maintenance and other house upkeep expenses, irrespective of actual expenses incurred. If the said house is bought on home loan, then the home loan’s interest paid should be deducted from the NAV.

The figure arrived after deducting standard deduction of 30% and interest paid on home loan is the income from house property under the new tax regime. If there is a loss, then it cannot be set-off against other heads of income. This means that there will be no impact on your tax liability. However, if there is an actual income then it will be added to your gross total income. Here you will pay tax as per the income tax slab applicable to your gross total income.

Calculation of income/loss from house property under both old and new tax regime

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