Learn How Much Tax to Pay for Your New House

Understanding house property tax

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When you own a property, be it a house, a store/ shop, or an office, you become liable to paying property tax. As per the Income Tax Act, there is no difference when it comes to residential/ commercial property. All properties are taxed under the category of ‘income from house property’. However, for income tax, the properties are classified as:

1. Self-occupied house property

   
   This is the property that you, the taxpayer, use for residential purposes. Your spouse, parents and children can use it. Keep in mind that for income tax, a vacant house property will be taken as self-occupied property.

2. Let out house property

   
   

   When a house property is rented out for a year or a certain part of the year, it is taken as a let-out property. I If you have over two self occupied house properties, then they are deemed as let-out property, even if they are kept vacant.

Things to note:

• Before the financial year 2019-20, only one self-occupied house was allowed; others were considered let out. From 2019-20, taxpayers can claim up to two houses as self-occupied for tax purposes, while the remaining will be taken as let-outs.
• If you have inherited any property, based its usage, it can be self-occupied or let out.
• The income that you receive from letting out the vacant land is to be taxed under the category ‘profits from business’ or ‘income from other sources’.

Calculation of house property

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To calculate income from house property, you can follow the following steps:

1. Calculate the Gross Annual Value (GAV):

   
   
   • Zero for self-occupied houses
   • For let-out properties, the GAV is the rent;
   • For deemed let-out properties, GAV is the market rent.

2. Deduct Property Tax

   
   

   Only taxes paid in the previous year can be deducted from GAV.

3. Calculate Net Annual Value (NAV)

   
   

   NAV = GAV – Property Tax.

4. Apply Standard Deduction

   
   

   30% of NAV under Section 24; no additional deductions for repairs.

5. Deduct Home Loan Interest

   
   

   Allowed under Section 24, post-construction for new properties.

6. Taxation

   
   

   Final income is taxed as per your applicable income tax slab; interest deduction is only for let-out properties under the new regime.

7. Loss from House Property

   
   

   A self-occupied house with a loan interest deduction would result in a loss. However, it is adjustable against other income.

    

In March 2019, the tax rates on residential properties were cut back by the Good And Services Tax Council to 5% from the earlier 12%. Tax rates for properties under the affordable housing category were changed to 1% from 8% earlier. ²

From April 2019, the following tax rates are applicable to housing projects (without ITC): ²

Conclusion

A clear understanding of the tax rules will help you understand your taxability. If you find the calculations too tedious, you have the option of using an income from house property calculator. Available on the Income Tax Department’s official website3, the online calculator can help you get a fair estimate of the tax you need to pay. Just keep the required details handy and calculate your tax implications correctly and quickly.

FAQs

1. If I have one residential house, do I have to pay GST?

   
   

   If you purchase a single residential house before the authority issues you a completion certificate, Good And Services Tax will be applicable. However, if the seller has already obtained the completion certificate before the sale agreement, no GST is required. ²

    

2. What is the GST rate for a single residential house?

   
   

   The GST rate that will be applicable to your house depends on the type of project. If the house is part of an affordable residential housing project, the GST rate is 1%, whereas for non-affordable housing projects, the rate would be 5%.²