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Property Tax Deduction in Income Tax: Everything That You Need to Know

by Ashiana / / 5869 views/ Reading Time: 3 minutes

Managing property tax obligations is a crucial aspect of financial planning for property owners in India. The Indian Income Tax Act offers several provisions for deductions related to property tax that can help individuals save money. In this blog, we’ll explore the concept of property tax and dive deep into the deductions available under various sections of the Income Tax Act.

Property Tax Deduction in Income Tax: Everything That You Need to Know

What is Property Tax?


Property tax is a tax levied by local authorities or municipal bodies on property owners. This tax is collected annually or semi-annually and is based on the property’s assessed value. The revenue generated from property tax funds public services like road maintenance, garbage collection, and water supply.

Property tax typically applies to:

    1. Residential properties.
    2. Commercial buildings.
    3. Industrial establishments.

Property Tax Deductions in Income Tax


The Indian Income Tax Act relieves property owners by allowing deductions on the property tax paid. These deductions are applicable under the “Income from House Property” head. Taxonomies can reduce their taxable income by claiming property tax deductions, effectively lowering their tax liability.

The deductions are primarily aimed at homeowners earning income through rental or owning more than one property.

Also read: Income Tax Deductions List

Computation of the Income Tax from House Property


Income from house property is calculated as follows:

    1. Gross Annual Value (GAV): This is the annual rental income for rented properties. For self-occupied properties, the GAV is zero.
    2. Less: Municipal Taxes Paid: Deduct property or municipal tax paid during the financial year.
    3. Net Annual Value (NAV): GAV minus property tax.
    4. Standard Deduction (30% of NAV): A fixed deduction of 30% is allowed for maintenance and other costs.
    5. Interest on Home Loan: Deductible under Section 24 (explained below).
Income from house property = NAV – 30% standard deduction – Interest on home loan.

Tax Deductions Under Section 24


Section 24 of the Income Tax Act provides deductions for:

    1. Standard Deduction (30% of NAV): Applicable to all taxpayers with rental income.
    2. Interest on Home Loan: A deduction of up to ₹2,00,000 is allowed for self-occupied properties. For rented properties, the deduction is based on the actual interest paid.

Key Points to Note:

  • The loan must be for the property’s purchase, construction, or renovation to claim the interest deduction.
  • Construction or purchase must be completed within five years from the end of the financial year in which the loan was taken.

Tax Deductions Under Section 80C


Section 80C offers a deduction for principal repayment on home loans. This deduction is part of the broader ₹1,50,000 limit under Section 80C and is applicable only if:

    1. The property is not sold within five years of possession.
    2. The loan is taken from approved financial institutions..

Additionally, registration charges and stamp duty can be claimed under Section 80C, provided they fall within the ₹1,50,000 cap.

Also read: Best Ways to Save Income Tax for FY 2024-25

Conclusion


Understanding property tax and related deductions is crucial for effective tax planning. Sections 24 and 80C of the Income Tax Act allow property owners to claim significant deductions, reducing their overall tax burden.

By staying informed about these provisions and maintaining accurate records of property tax payments and home loan details, taxpayers can ensure they optimize their financial benefits. Consult a tax professional or use trusted online tax filing tools to make the most of these deductions.

Save smartly, and let your property investment work to your advantage!
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Q1. Can I claim tax relief on local property tax?

Section 23 of the Indian Income Tax Act, of 1961, deals with calculating the annual value of rental income to calculate total income for income tax. It states that taxes levied by any local authority on the property are allowed to be deducted.

Individuals owning a residential property that generates rental income or is self-occupied are eligible to claim deductions under Section 24. Types of deductions: Standard deduction: A flat 30% deduction is allowed on the gross annual value of the let-out property, regardless of any expenses incurred.

If you can satisfy the conditions of both Section 24 and Section 80EE of the Income Tax Act, immediately claim the benefits. First, exhaust your deductible limit under Section 24, Rs 2 lakh. Then go on to claim the additional benefits under Section 80EE.

About The Author

Ashiana, Ashiana Housing build homes. Homes surrounded by vast green spaces and fresh breeze. Homes cocooned in secured gated complexes. Homes where futures are forged and there are opportunities to grow. And Homes in environments brimming with healthy activity, trust and respect. At heart, we build communities with care.

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