Did you Know Even a Vacant Property is Taxable?
May 24, 2017 Legal Guidance
Although buying a property seems to be the most coveted investment in India, but most of the time people forget about the taxes and levies that are associated with each one of the property investments.
How is a vacant property taxed?
Under the section where ‘income from house property’ is stated, it is clearly mentioned that tax would be levied on the basis of the premises to yield income for the owner and not only on the fact that whether it is put on rent. This means even a vacant house is taxable which is charged on the basis of the annual value of the property which is the sum of money the property can reasonably earn when it is rented out in a year.
On the other hand, for the self-occupied property, the annual value of the property is considered to be ‘nil’. The simple logic behind this is that a person cannot rent out the property in which one is living. So it can be inferred that, if you are the owner of the house and residing in it, you are not liable to pay any tax on it. But in case you own more than one built-up premises (not land), you can choose which one among all the properties would be considered for nil value for taxation purposes. That is why; the annual value of your other self-occupied properties is calculated notionally if they had been rented out.
Four factors are taken into consideration while calculating the annual value of a property:
Firstly, it is verified if the actual rent was received on the property. However, this is not applicable if the property remains vacant throughout the year.
Secondly, the municipal value of the property is evaluated. This is determined by the local civic body.
Thirdly, the value of fair rent of the property is calculated. This is done by comparing the rent that is fetched by similar properties in the same location with the particular house under consideration.
And lastly, if the property in question falls under the ambit of the Rent Control Act, the standard rent of the house is also calculated.
However, few claims for the tax deduction can be made before you have totalled the net annual value of your property. This can be done especially on municipal taxes. The standard permissible deduction limit for municipal taxes is set at 30 percent of the annual value of the property, which goes towards repairs and maintenance of the house. Above all, the municipal taxes are to be borne by the landlord and not the tenant.
Some moves to save your tax:
As we have already discussed, the income tax law allows you to choose the property you want to show as 'self-occupied'. In order to save on taxes, you can first determine the net value of all the properties you own and then choose the one with the highest annual value as self-occupied.
To reduce tax liabilities it is advisable to buy a property in joint ownership with one of the family as the income from the house property can be split among the co-owners.
How is a vacant property taxed?
Under the section where ‘income from house property’ is stated, it is clearly mentioned that tax would be levied on the basis of the premises to yield income for the owner and not only on the fact that whether it is put on rent. This means even a vacant house is taxable which is charged on the basis of the annual value of the property which is the sum of money the property can reasonably earn when it is rented out in a year.
On the other hand, for the self-occupied property, the annual value of the property is considered to be ‘nil’. The simple logic behind this is that a person cannot rent out the property in which one is living. So it can be inferred that, if you are the owner of the house and residing in it, you are not liable to pay any tax on it. But in case you own more than one built-up premises (not land), you can choose which one among all the properties would be considered for nil value for taxation purposes. That is why; the annual value of your other self-occupied properties is calculated notionally if they had been rented out.
Four factors are taken into consideration while calculating the annual value of a property:
Firstly, it is verified if the actual rent was received on the property. However, this is not applicable if the property remains vacant throughout the year.
Secondly, the municipal value of the property is evaluated. This is determined by the local civic body.
Thirdly, the value of fair rent of the property is calculated. This is done by comparing the rent that is fetched by similar properties in the same location with the particular house under consideration.
And lastly, if the property in question falls under the ambit of the Rent Control Act, the standard rent of the house is also calculated.
However, few claims for the tax deduction can be made before you have totalled the net annual value of your property. This can be done especially on municipal taxes. The standard permissible deduction limit for municipal taxes is set at 30 percent of the annual value of the property, which goes towards repairs and maintenance of the house. Above all, the municipal taxes are to be borne by the landlord and not the tenant.
Some moves to save your tax:
As we have already discussed, the income tax law allows you to choose the property you want to show as 'self-occupied'. In order to save on taxes, you can first determine the net value of all the properties you own and then choose the one with the highest annual value as self-occupied.
To reduce tax liabilities it is advisable to buy a property in joint ownership with one of the family as the income from the house property can be split among the co-owners.
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