Generating income through property ownership is a significant revenue stream for individuals in India. As per the Indian Income Tax Act, 1961, it is classified as one of the five types of income. This refers to the earnings derived by an individual from a property they own, either through renting it out or utilizing it for business or professional purposes.
To compute the income from property ownership, individuals need to determine the annual value of the property and subtract the expenses that are permissible under the Income Tax Act. The annual value is the amount for which the property could reasonably be expected to be leased out annually. It is determined based on either the actual rent received or the municipal value of the property, whichever is higher. If the property is self-occupied, the annual value is considered to be zero.
There are various deductions that individuals can claim while calculating their income from property ownership. These deductions include a standard deduction of 30% of the annual value to cover repair and maintenance costs, municipal taxes paid during the year, interest paid on a home loan if the property was bought through a loan, and unrealized rent if the property is leased but the rent remains unpaid.
The income from property ownership is added to an individual’s total income and is subject to taxation at the applicable income tax rates. If the property is self-occupied, the income is considered to be zero, and no tax is payable. If the property is leased, the net annual value after deductions is added to the total income and taxed accordingly. Moreover, if the annual rent received is more than Rs. 1,20,000, the property owner must deduct TDS at the rate of 10% from the rent paid to the tenant.
In conclusion, comprehending the different aspects of income from property ownership, such as its calculation, permissible deductions, and taxation, is essential for property owners. This can aid them in minimizing their tax liability and ensuring compliance with the Income Tax Act.
section 22 of Income Tax Act, 1961
The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him the profits of which are chargeable to income-tax, shall be chargeable to income-tax under the head “Income from house property”.
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