Tax on House Property: What Every Buyer, Seller & Owner Should Know
When you invest in real estate, understanding the tax on house property is crucial. Whether you’re buying a flat, selling a property, earning rent, or waiting for possession of an under-construction house—different tax rules apply. This blog simplifies all provisions with official sources and tips for Indian taxpayers.
What is Tax on House Property?
Under the Income Tax Act, ‘Income from House Property’ is a separate head of income. It applies even if the property is not let out, as long as it is eligible to earn rent (except for self-occupied ones).
- Governed by Sections 22 to 27 of the Income Tax Act, 1961
- Applies to buildings and lands appurtenant thereto (not vacant land alone)
- Tax is levied on the ‘Annual Value’ of the property
🔸 Tax Rules for Property Buyers
Buying a house involves not just price negotiations, but tax compliance too. Here’s what you must keep in mind:
1. TDS under Section 194-IA
- If purchase value exceeds ₹50 lakh
- Buyer must deduct 1% TDS from the payment to seller
- TDS to be deposited with the government within 30 days (via Form 26QB)
- PAN of both buyer and seller is mandatory
👉 Tip: Even if property is jointly held, consider aggregate value for TDS calculation.
2. Stamp Duty Valuation (Section 56(2)(x))
- If stamp duty value exceeds actual consideration by more than 10%, difference is taxable as ‘income from other sources’ for buyer
- Applicable only if buyer is an individual/HUF purchasing from a non-relative
🔸 Tax Impact When Selling a Property
Selling a property can trigger capital gains tax. Let’s break it down:
1. Short-Term vs Long-Term Capital Gains (STCG vs LTCG)
| Holding Period | Tax Type | Tax Rate |
|---|---|---|
| < 24 months | Short-Term Capital Gain | As per slab |
| ≥ 24 months | Long-Term Capital Gain | 20% with indexation |
2. Key Deductions and Exemptions
- Section 54: LTCG exemption if gains invested in another residential house
- Section 54EC: Up to ₹50 lakh exemption via NHAI/REC bonds
- Section 54F: Exemption on sale of any asset (other than house) if entire sale proceeds are reinvested
🔍 CBDT Circular No. 2/2021 clarified time limits for Section 54 reinvestments in case of capital gains account scheme usage.
🔸 Tax on Rental Income
Rental income is fully taxable under the head “Income from House Property”, after allowing standard deductions:
1. How to Compute
- Gross Annual Value (GAV) = Higher of actual rent received or expected rent
- Less: Municipal Taxes Paid
- Net Annual Value (NAV) = GAV – Municipal taxes
- Less: 30% Standard Deduction (Sec 24a)
- Less: Interest on Home Loan (Sec 24b)
2. Important Notes
- Up to ₹2 lakh interest deduction allowed for self-occupied house
- No upper limit for let-out property interest deduction
- Co-owners can claim proportionate share of interest and principal
💡 Expert View: If you’ve taken a joint loan, both owners can claim full deductions individually as long as they co-own and co-borrow.
🔸 Under-Construction Property: What to Know
Many Indians invest early in real estate projects. But under-construction properties attract specific tax rules.
1. No Deduction Before Possession (Section 24b)
- Interest paid during construction is not allowed in the year of payment
- Instead, it can be claimed in 5 equal instalments post-possession
2. GST on Under-Construction Flats
- As per CBIC Notification No. 3/2019-CT (Rate) dated 29.03.2019
- 5% GST (without ITC) on non-affordable housing
- 1% GST on affordable housing
- No GST on ready-to-move-in flats with completion certificate
👉 Practical Tip: To claim full home loan benefits, possession must be taken within 5 years—or else deduction limit reduces to ₹30,000.
FAQs on Tax on House Property
Q1. Is notional rent taxable for second home?
Yes, if you own more than two houses, the third and subsequent properties are treated as deemed let out.
Q2. Can I claim deductions on two self-occupied houses?
Yes, since FY 2019-20, up to 2 self-occupied homes are allowed without deemed rent.
Q3. What happens if I sell under-construction property before possession?
Capital gain is treated as short-term (if held < 24 months), and taxed at slab rate.
Summary
Tax on house property covers rental income, capital gains, TDS for buyers, and GST on under-construction flats. Know exemptions, deductions, and practical tips to save tax legally.
Final Words
Real estate is a powerful wealth builder—but without proper tax planning, it can also lead to legal and financial headaches. Whether you’re buying, renting, or selling, understanding the tax on house property helps you take smarter decisions.
Need help with TDS, capital gains, or GST on your property deal?
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