Navigating the Complex World of Real Estate Taxation in India
Understanding the intricacies of real estate taxation in India, including rent, home loan, and capital gains.
Real EstateTaxationIndiaHome LoanCapital GainsReal Estate NewsAug 26, 2024
For instance, most of the rules applicable to a house or commercial property are not applicable to land. If a land owner earns rent, lease, or any other form of income on vacant land (without any construction), such income is not treated as rental income. It must be declared as income from other sources or profit from business.
There are separate rules for even under-construction properties. Further, ownership is divided into three categories self-occupied, let-out, and deemed to be let-out. Now, rules on the taxation of rent, the extent of interest allowed to be deducted, and the setting off of losses differ across the categories.
The rules vary further depending on whether you opt for the new or old tax regime. For instance, if an owner has a home loan on the house they live in, each year, they will have a loss of up to ₹2 lakh under the ‘income from house property’ head. This is because, in the income tax return, one has to declare the rent of the self-occupied property as zero and claim the interest paid on the loan as a deduction.
Mint has compiled a handy Q&A guide to help you navigate the real estate tax maze. The guide includes questions and answers on topics such as
I have two houses in the same city. I live in one house, while the second one is vacant. Will the second classify as self-occupied or deemed to be let out?
I live on rent but own a house in the same city. Can I claim both HRA and deduction on home loan interest?
The Union budget has disallowed the setting off of losses incurred in selling a property bought before 23 July. Does this also mean I can’t claim the ₹2 lakh loss made on a self-occupied house by claiming home loan interest?
I have carried forward loss under ‘house property’. If I opt for the new regime, can I set it off against other incomes?
I took a home loan on an under-construction house. Builder gave possession after seven years. How can I claim interest for the under-construction years?
We hope this guide helps you navigate the complex world of real estate taxation in India.
TaxAaram India is a tax consulting firm that provides expert advice on taxation matters.
Acer Tax & Corporate Services Llp is a chartered accountancy firm that provides taxation and corporate services.
KPMG India is a global network of professional firms providing audit, tax, and advisory services.
Frequently Asked Questions
I have two houses in the same city. I live in one house, while the second one is vacant. Will the second classify as self-occupied or deemed to be let out?
The second house will classify as self-occupied, as long as it is not rented out even partially during the year.
I live on rent but own a house in the same city. Can I claim both HRA and deduction on home loan interest?
If your property is in a different city, you can straightway claim both HRA on the rent you’re paying and interest on your property. However, when your property is in the same city, in most cases, claiming the HRA exemption won’t be allowed.
The Union budget has disallowed the setting off of losses incurred in selling a property bought before 23 July. Does this also mean I can’t claim the ₹2 lakh loss made on a self-occupied house by claiming home loan interest?
Loss set-off is disallowed on capital loss incurred on selling a house. Whereas ₹2 lakh loss that arises on a self-occupied property by claiming interest on a home loan is loss under ‘income from house property’ head. Loss set-off disallowance is only applicable to the former.
I have carried forward loss under ‘house property’. If I opt for the new regime, can I set it off against other incomes?
Loss under ‘income from house property’ cannot be offset against any other income except rental income under the new regime. Loss that is not set off is not allowed to be carried forward to subsequent years either.
I took a home loan on an under-construction house. Builder gave possession after seven years. How can I claim interest for the under-construction years?
Interest paid during the construction years is accumulated and can be claimed only after the construction is over. The total interest can be claimed in five equal instalments over five years after the construction is completed.
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