Income Tax Return: An Overview
 

What is Income Tax Return?

An Income tax return (ITR) is a form used to file information about your income and tax to the Income Tax Department. The tax liability of a taxpayer is calculated based on his or her income. In case the return shows that excess tax has been paid during a year, then the individual will be eligible to receive an income tax refund from the Income Tax Department.

As per the income tax laws, the return must be filed every year by an individual or business that earns any income during a financial year. The income could be in the form of a salary, business profits, income from house property or earned through dividends, capital gains, interests or other sources.

Tax returns have to be filed by an individual or a business before a specified date. If a taxpayer fails to abide by the deadline, he or she has to pay a penalty. 

Basics of House Property Tax

A house property could be your home, an office, a shop, a building or some land attached to the building like a parking lot. The Income Tax Act does not differentiate between commercial and residential property. All types of properties are taxed under the head's income from house property in the income tax return. An owner for the purpose of income tax is its legal owner, someone who can exercise the rights of the owner in his own right and not on someone else’s behalf.

When a property is used for the purpose of business or profession or for carrying out freelancing work – it is taxed under the ‘income from business and profession’ head. Expenses on its repair and maintenance are allowed as business expenditures.

a. Self-Occupied House Property

Self-occupied house property is used for one’s own residential purposes. This may be occupied by the taxpayer’s family – parents and/or spouse and children. A vacant house property is considered self-occupied for the purpose of Income Tax.

Prior to FY 2019-20, if more than one self-occupied house property is owned by the taxpayer, only one is considered and treated as a self-occupied property and the remaining are assumed to be let out. The choice of which property to choose as self-occupied is up to the taxpayer.

For the FY 2019-20 and onwards, the benefit of considering the houses as self-occupied has been extended to 2 houses. Now, a homeowner can claim his 2 properties as self-occupied and the remaining house as let out for Income tax purposes.

b.  Let Out House Property

A house property which is rented for the whole or a part of the year is considered a let-out house property for income tax purposes

c. Inherited Property

An inherited property i.e. one bequeathed from parents, grandparents etc again, can either be a self-occupied one or a let-out one based on its usage as discussed above.

How to calculate Income From House Property?

Here is how you compute your income from house property:

a. Determine the Gross Annual Value (GAV) of the property: The gross annual value of a self-occupied house is zero. For a let-out property, it is the rent collected for a house on rent.

b. Reduce Property Tax: Property tax, when paid, is allowed as a deduction from the GAV of property.

c. Determine Net Annual Value(NAV) : Net Annual Value = Gross Annual Value – Property Tax

d. Reduce 30% of NAV towards standard deduction: 30% on NAV is allowed as a deduction from the NAV under Section 24 of the Income Tax Act. No other expenses such as painting and repairs can be claimed as tax relief beyond the 30% cap under this section.

e. Reduce home loan interest: Deduction under Section 24 is also available for interest paid during the year on the housing loans availed.

f. Determine Income from house property: The resulting value is your income from house property. This is taxed at the slab rate applicable to you.

g. Loss from house property: When you own a self-occupied house, since its GAV is Nil, claiming the deduction on home loan interest will result in a loss from house property. This loss can be adjusted against income from other heads.

Note: When a property is let out, its gross annual value is the rental value of the property. The rental value must be higher than or equal to the reasonable rent of the property determined by the municipality.