If you’ve recently bought a house and are looking to save a few bucks on your income tax, you may be wondering what is meant by self occupied house in income tax. Essentially, a self occupied house is one that is occupied by the owner for a minimum of 180 days in a financial year. This means that if you own a house but don’t live in it, it won’t count as a self occupied house for tax purposes.
The concept of self occupied houses is important in income tax because it determines the amount of deduction you can claim on the interest paid on your home loan. If you have taken a loan to buy a house and are repaying interest on it, you can claim a deduction of up to INR 2 lakhs per year under section 24B of the Income Tax Act, 1961. However, if your house is not considered self occupied, there is no limit to the amount you can claim as deduction.
If you are a first-time home buyer and are planning to buy a house, keep in mind that owning a self occupied house can not only provide tax benefits but also give you a sense of security and stability. So, make sure you understand the concept of self occupied houses and how it impacts your income tax before making any decision.
Definition of self-occupied house for income tax purposes
If you own a residential property, it can be considered as self-occupied if you use it for your own residence purpose. In simple terms, if you live in your own house, it is considered as self-occupied as per the Income Tax Act, 1961. On the other hand, if you own more than one residential property, only one of them can be treated as self-occupied.
It is important to note that even if you do not reside in your own house, but keep it vacant, it will still be regarded as self-occupied for income tax purposes. In other words, if you have two houses – one where you live and the other that you keep vacant, only the first one will be considered as self-occupied, and the other one will be deemed as a letting out property.
Features of a self-occupied house:
- Owned and occupied by the taxpayer for his/her own residence
- Not used for business or professional purposes
- No monetary income is derived from the property
- In case of a joint ownership, the ownership share should also be self-occupied
Calculation of income from a self-occupied house:
If you have only one self-occupied property, you are not required to pay any income tax on it. However, if you have more than one residential property, only one of them can be treated as self-occupied and the other one(s) will be deemed as ‘let out’ property and therefore subject to income tax. The deemed rental value of the let-out property is calculated based on the market rate prevailing in the area and is considered as taxable income for the concerned financial year.
Exemptions for self-occupied houses:
If you have taken a home loan for the construction/purchase of a self-occupied property, you can avail a tax exemption up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. In addition to this, under Section 24(b), you can claim a deduction up to Rs. 2 lakh on the interest paid towards your home loan in the same financial year. However, if the loan is for a let-out property, there is no upper limit for the interest deduction and you can claim the entire amount.
| Factors | Self-occupied property | Let-out property |
|---|---|---|
| Income tax payable | Nil (if there is only one such property) | Taxable |
| Income from property | Not considered as income | Deemed rental value is considered as income |
| Interest paid on home loan | Up to Rs. 2 lakh deduction can be claimed | Entire interest amount can be claimed |
It is important to declare your properties and their usage correctly to avoid any complications and penalties in the future. Consulting a tax expert can help you understand the nuances of taxation related to self-occupied properties and ensure that you are following the legal guidelines.
Advantages of owning a self-occupied house for tax purposes
When it comes to taxes, owning a self-occupied house has its advantages. Here are some of the benefits:
- Deduction on interest paid: The interest paid on a home loan is tax-deductible under Section 24 of the Income Tax Act. This deduction is available to both self-occupied and let-out properties, although the maximum limit of deduction is higher for self-occupied properties. For a self-occupied house, the deduction limit is up to Rs. 2,00,000 per year.
- Deduction on principal repayment: The principal repayment of a housing loan is also eligible for tax deduction under Section 80C of the Income Tax Act. The maximum limit for this deduction is Rs. 1,50,000 per year. This deduction is available only for self-occupied properties and not for let-out properties.
- No income tax on deemed rent: In case the property is not let-out, it is assumed to be self-occupied and there is no income tax on the deemed rent. This means that if you own a self-occupied house, you do not have to pay tax on the notional rent that you would have earned if you had rented out the property.
It is important to note that if you own more than one house, you can declare only one property as self-occupied and the others as let-out properties. In such a case, the deemed rent on the let-out properties will be taxable and you can claim deductions on the interest paid and principal repayment of the home loans for the let-out properties.
If you plan to buy a property for self-occupation, it is a good idea to factor in these tax benefits while making the decision. Not only can you save on taxes, but owning a house can also provide a sense of security and stability.
| Advantages | Disadvantages |
|---|---|
| Tax deductions on interest paid and principal repayment of home loan | Initial investment in buying the property |
| No income tax on deemed rent for self-occupied properties | Costs associated with maintenance, repairs, and property taxes |
| Long-term asset and sense of security | Illiquidity of the property |
Overall, owning a self-occupied house can provide multiple benefits and is a popular investment option among taxpayers in India.
How to calculate the income tax on a self-occupied house
As a homeowner, understanding how to calculate the income tax on your self-occupied house is crucial for effective financial planning. The income tax on self-occupied house is determined by taking into account various factors such as the annual value of the property, deductions, and exemptions applicable, among others.
Here are some key things to keep in mind when calculating income tax on a self-occupied house:
- Calculate the annual value: In order to calculate the income tax on a self-occupied house, the first step is to determine the annual value of the property. This is the amount for which the property can be let out annually, and is calculated using a specific formula as provided by the Income Tax Act.
- Determine the deductions: After the annual value has been calculated, the next step is to determine the deductions applicable. These include deductions for repairs and maintenance of the property and interest paid on a housing loan, among others.
- Claim exemptions: As a homeowner, you are also entitled to claim certain exemptions from taxes. The most common exemption that is claimed is on the interest paid on a housing loan. This can be claimed up to a certain limit, as specified by the Income Tax Act.
It is also worth noting that if you own more than one property, only one property can be treated as self-occupied and the others will be considered as let out. This means that you will be required to pay tax on notional rent for such properties.
Finally, here is a table summarizing the key components of calculating income tax on a self-occupied house:
| Component | Description |
|---|---|
| Annual Value | The amount for which the property can be let out annually |
| Deductions | Deductions allowed under the Income Tax Act, such as repairs and maintenance of the property |
| Exemptions | Exemptions allowed under the Income Tax Act, such as interest paid on a housing loan |
By keeping these considerations in mind and understanding the intricacies of calculating income tax on a self-occupied house, you will be better equipped to make informed financial decisions and minimize your tax liability.
Tax benefits of a home loan for self-occupied house
Buying a home is a significant investment for most people, and a home loan can help ease the burden of paying for it. However, did you know that a home loan for a self-occupied house comes with tax benefits? In this article, we’ll explore the various tax benefits of a home loan for a self-occupied house.
- Deductions on Interest Paid:
- Deductions on Principal Repaid:
- Joint Home Loan:
One of the most significant tax benefits of a home loan is that you can claim a deduction on the interest paid. The maximum amount of deduction allowed is Rs. 2 lakh per financial year under section 24 of the Income Tax Act. Additionally, if you are a first-time home buyer, you can claim an additional deduction under section 80EEA of up to Rs. 1.5 lakh.
In addition to the interest paid, you can also claim a deduction on the principal amount repaid. This deduction can be claimed under Section 80C of the Income Tax Act and is subject to a maximum limit of Rs. 1.5 lakh per financial year.
If you are taking a joint home loan, each co-borrower can claim a deduction on the interest paid and the principal amount repaid. However, the maximum limit remains the same as for a single borrower.
Apart from these, there are a few other tax benefits you should be aware of. Under Section 80EE, if you availed of a home loan between April 1, 2016, and March 31, 2017, you can claim an additional deduction of R.s 50,000 on the interest paid. Additionally, if you have taken a home loan for renovation or repairs, you can claim a deduction of up to Rs. 30,000 under Section 24B.
To sum up, a home loan for a self-occupied house can be an excellent way to save on taxes and invest in your future at the same time. Do keep in mind, however, that the tax benefits are subject to change, so it’s always best to consult a financial expert for the latest regulations and guidance.
| Tax Benefits | Section | Maximum Deduction |
|---|---|---|
| Interest Paid | Section 24 | Rs. 2 lakh per financial year |
| Principal Repaid | Section 80C | Rs. 1.5 lakh per financial year |
| First-time Home Buyer | Section 80EEA | Up to Rs. 1.5 lakh |
| Home Loan for Repairs/Renovation | Section 24B | Up to Rs. 30,000 |
Note: The information provided here is for general informational purposes only and should not be considered as tax advice. Please consult a tax expert before making any financial decisions.
Documents required to claim tax benefits for a self-occupied house
If you own a house and are living in it, you are entitled to several tax benefits. Income Tax Act allows you to claim a deduction for the interest paid on a home loan, which qualifies as a tax-deductible expense. To claim the tax benefits, you need to have the following documents:
- Loan certificate from the lender, which shows the interest and principal repayment details for the financial year;
- Receipts for the payment of interest and principal amount;
- Proof of ownership and occupancy of the property;
- Completion certificate from the builder if the property is newly constructed;
- Occupancy certificate from the local authority;
It is important to note that the tax benefit on the interest paid towards your home loan for a self-occupied house is limited to INR 2 lakhs in a financial year. Besides, the principal repayment, including the stamp duty and registration fees, is also eligible for a deduction under Section 80C of the Income Tax Act up to a maximum limit of INR 1.5 lakhs.
Additionally, if you have taken a loan for renovation or repair of your existing house, you can claim a deduction on the interest paid up to Rs 30,000 per financial year under Section 24 of the Income Tax Act.
Summary
| Documents required | Loan certificate, receipts, ownership and occupancy proof, completion certificate, occupancy certificate |
|---|---|
| Eligible deductions | Interest on loan up to INR 2 lakhs, principal repayment and stamp duty up to INR 1.5 lakhs, interest on loan for renovation or repair up to Rs 30,000 per financial year |
Make sure you have the necessary documents before filing your income tax returns to avoid any penalty or legal trouble. You can consult a tax professional to help you in this regard.
Tax implications of renting out a self-occupied house
Suppose you bought a house, and you decided to rent it out. However, what if you rented out a house that you were already living in? This is called a self-occupied house, and there are tax implications that come with renting it out.
- If you rent out your self-occupied house, you will have to pay taxes on the rental income. However, since this is a self-occupied house, you can claim a deduction on the municipal taxes paid on the property.
- You can also claim a deduction on the interest paid on the home loan that you may have availed to purchase this property. However, the amount of deduction you can claim will depend on the amount of rent you receive. If you receive rent that is less than or equal to the annual interest paid on the home loan, you can claim the entire amount as a deduction. If the rent received is greater than the annual interest paid, you can only claim a deduction of up to Rs.2 lakh.
- If there is any loss from the rental income, you can carry it forward and set it off against rental income in future years. This can be done for a period of up to 8 years.
Here is a table that summarizes the tax implications of renting out a self-occupied house:
| Taxability | Deductions |
|---|---|
| Tax on Rental Income | Deduction on municipal taxes paid |
| Interest on Home Loan | Deduction on actual interest paid |
| Loss from Rental Income | Carry forward and set off against rental income in future years |
It is important to keep in mind that these tax implications may vary depending on the specific circumstances of the property and the owner. Consulting with a tax expert can provide more specific advice.
Common mistakes to avoid while filing income tax returns for a self-occupied house
When filing your income tax returns, there are several common mistakes that can lead to penalties and unnecessary expenses. Here are some of the most common mistakes that people make while filing income tax returns for a self-occupied house.
- Not calculating the correct income: One of the most common mistakes people make while filing income tax returns for a self-occupied house is not calculating the correct income. Many people only consider the rent they receive on their property, but fail to include the potential rental income that the property could generate.
- Not claiming all deductions: Another common mistake is not claiming all deductions that you are eligible for. Homeowners are eligible for deductions like interest on home loan and property taxes paid. These deductions can reduce your taxable income and save you money on taxes.
- Not reporting the correct ownership: If two or more people jointly own a property, it is important to report the correct ownership percentage while filing income tax returns. Failing to do so can lead to tax notices and penalties.
While avoiding these common mistakes can save you money and time, it is also important to understand what qualifies as a self-occupied house according to the income tax laws in India. According to the Income Tax Act, a self-occupied house is a property that is owned and occupied by the taxpayer for residential purposes. The property cannot be rented out and must be used for the taxpayer’s own residence.
Here is a table that summarizes the tax treatment of a self-occupied house:
| Type of Property | Owner’s Status | Tax Deduction for Interest on Home Loan | Tax Deduction for Property Taxes Paid |
|---|---|---|---|
| Self-occupied house | Owner-occupied | Up to Rs. 2 lakhs | Up to Rs. 1.5 lakhs |
| Rented property | Owner does not live in property | Actual amount paid as interest | No limit |
| Vacant property | Owner does not live in property and not rented out | Actual amount paid as interest | No limit |
By understanding the tax treatment of a self-occupied house and avoiding common mistakes while filing income tax returns, you can save money and avoid unnecessary penalties.
FAQs About Self Occupied House in Income Tax
1. What is a self occupied house in income tax?
A self occupied house refers to a residential property that is occupied by the owner and is used for their own residential purposes.
2. Is there any tax benefit on a self occupied house?
Yes, there is a tax benefit on a self occupied house. The owner can claim tax benefits on the interest paid on home loan under section 24(b) of the Income Tax Act.
3. Can I let out my self occupied house?
Yes, you can let out your self occupied house but you will not be eligible for the tax benefits that are specific to self occupied houses. Instead, you will have to pay tax on the rental income.
4. Do I need to pay tax on the notional rent of my self occupied house?
No, you do not need to pay tax on the notional rent of your self occupied house. The Income Tax Act exempts the self occupied property from any tax on the notional rent.
5. Can I claim deductions for repairs and maintenance on my self occupied house?
Yes, you can claim deductions for repairs and maintenance on your self occupied house under section 24(a) of the Income Tax Act.
6. What is the benefit of owning a self occupied house under capital gains?
If you sell a self occupied house, you are eligible for a capital gain tax exemption up to Rs. 2 crore as per section 54 of the Income Tax Act.
Closing
Thank you for reading our article on what is meant by self occupied house in income tax. We hope this has provided you with a better understanding of the topic. If you have any further questions or concerns, please feel free to visit our website again in the future.