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Income Tax on Vacant Property

Posted by iremn on August 30, 2017
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If you own a house or a flat, which is either on rent or kept vacantly, read on to know how the `income from house property’ is taxed across the world, property ownership is seen as an in vestment. A majority, however, don’t realize that this ownership comes at a price–that is, in the form of taxes and levies that a property-owner pays the government.
Thus, if you own more than one built-up premise, you are expected to pay income tax on all your properties except on the self-occupied one.


Property Tax in Indian Real estate Market

Credit : Times Property

Taxation on a vacant property:

Under the Income Tax Act, 1961, a person’s gross income is calculated on the basis of salary income',income from house property’, business income',capital gain’, and `income from other sources’.

Under the head `income from house property’, the tax is levied not on the rent but on the potential of the premises to yield income for the owner. Here taxation is on a national basis, which is based on the annual value of the property-the sum the property could have generated if it was let out in a year.

If the let-out property is vacant for a part of the year, the actual rent received or receivable will be the gross annual value of the property.

Thereafter, the calculation of `income from house property’ is made in the same way as in the case of let-out property. That means interest is deductible without any limit.

In the case of self-occupied property, no tax is charged on a notional basis. That is, if you own one house and live in it, you are not liable to pay any tax on it but if you own more than one built-up premises (not land), you can choose which property should be considered for nil value for taxation.

Even stamp duty, registration fee, and other expenses for the purpose of transfer of such property are also eligible for deduction under Income Tax Act’s Section 80C.

Under the provisions of the Income Tax Act, a taxpayer can choose the property he wishes to show as self-occupied'. A smart move is to first determine the net value of all the properties you own and then choose the one with the highest annual value asself-occupied’. This will help you save on your tax outflow.

One of the significant points in this year’s Budget is the restriction placed on the set-off of losses under the head, `Income from house property’, against any other head of income in the same year being restricted to Rs 2 lakh.

This restriction of Rs 2 lakh is not applicable on set-off of losses in relation to one house property against income from another house property in the same year.Also, this restriction is not applicable while adjusting the brought forward house property losses against `income from house property’ in the following 8 assessment years for which carry forward is allowed.


Under the Income Tax Act, ownership also means deemed ownership.

Section 27 of the I-T Act defines deemed ownership of the house property for the purpose of levying a Income Tax on Property when the property ownership is transferred to a spouse or minor child, property held by a member of a co-operative society, under power of attorney, or the person is a holder of an impartible estate. Impartible estate means the property is not legally divisible, like dividing a flat with 2 rooms among 7 heirs.

If a spouse transfers one house property to his wife for any inadequate consideration, for the purpose of computing income from house property, the transferor will continue to be deemed as the owner of the property. Accordingly, the rental income from the gifted property will continue to be the income of the transferor (husband).

However, no clubbing provision will apply where husband gives a loan to his wife for the purchase of a house property and the wife has an independent source of income.

Conversely, a property owner can cut his tax on property liability by buying a property in a joint ownership with one of the family members, so that the income from the house property can be split among the co-owners, thereby, trimming the overall tax outgo. “If you already own a property, it will be better to buy a new property in your spouse’s name. Both of you would have only one house in your names, which will help trim your tax liability.

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