Under section 24 of the Income Tax Act you are allowed to make certain deduction from the Net Annual Value of your House Property. Net Annual Value is Gross Annual Value less Municipal Taxes Paid. In case the property is let out, its rent received is your Gross Annual Value, whereas in case of a deemed to be let out property, a reasonable rent of a similar place is your Gross Annual Value. For a self occupied house property the Gross Annual Value is Nil.
2. Deductions Under House Property
a. Standard Deduction – Standard Deduction is 30% of the Net Annual Value calculated above. This 30% deduction is allowed even when your actual expenditure on the property is higher or lower.
Therefore this deduction is irrespective of the actual expenditure you may have incurred on insurance, repairs, electricity, water supply etc. For a self occupied house property, since the Annual Value is Nil, the standard deduction is also zero on such a property.
b.Deduction of Interest on Home Loan for the property –Homeowners can claim a deduction of up to Rs.2 lakhs (Rs. 1,50,000 if you are filing returns for FY 2013-14) on their home loan interest if the owner or his family reside in the house property. The same treatment applies when the house is vacant. If you have rented out the property, the entire interest on the home loan is allowed as a deduction.
Your deduction on interest is limited to Rs.30,000 if you fail to meet any of the conditions given below for the Rs.2 lakh rebate. See all the conditions to claim the Rs.2 lakhs rebate-
i. The home loan must be for purchase and construction of a property;
ii. The loan must be taken on or after 1 April 1999;
iii. The purchase or construction must be completed within 3 years from the end of the financial year in which the loan was taken