Let out Properties
let out property is a form of property that provides you with a fixed income, i.e. rented property. To calculate the annual value of the property you must-
- Find out expected rate of rent in similar properties through different areas.
- Calculate the actual annual rent
- Take the higher amount from steps 1 and 2
- Take into account the amount lost due to vacant place.
- The Gross Annual Value is received by subtracting 3 & 4
- To find the Net Annual Value you just need to subtract the municipal tax from GAV.
If a taxpayer owns multiple residential properties then only one will be deemed as self-occupied and the other will be let out properties. The taxpayer is supposed to pay tax on these properties after calculation the GAV which is calculated as shown above. The rent calculated should be standard rent, and must be similar to the municipal laws. If the taxpayer owns 4 properties then they should prefer the property with the highest GAV as self-occupied and the rest should be DLOPs.
Self-occupied properties
a property which is used as a residential property by the owner is known for self-occupied properties. Although a property is not taxable under House property tax if it’s used for commercial purposes. The NAV on the property will be zero if the property is occupied throughout the year, if not then the LOP will be calculated for the time it’s been let out.
A taxpayer can claim the following deductions from NAV under Section 24(a)
- Standard Deduction under Section 24(a)
- Having a residential property gives the owner a claim for a flat exemption of 30% on the NAV of the property. In the case of self-occupied property, the taxpayer cannot claim for such an exemption.
- Interest on borrowed Capital
It is important in these scenarios to understand and research about tax implications and come out with a solution that’s convenient and profitable for a taxpayer.