How to Calculate Income from Partially Let-Out Property under Income Tax Act

Tax queries 148 views 2 replies

Donati

Self occupation

112 Points Joined March 2017

This is regarding the correct treatment of rental income under the Income Tax Act, for FY 2024–25. I seek guidance on how to report income from the following situation involving three residential flats:

Flat A:

Let Out: April 2024 to September 2024
Vacant: October 2024 to March 2025
Vacant due to renovation and listed for sale — no attempt was made to let it out during this period, as it was intended to be sold for indexation benefits and LTCG exemption; however, the sale did not go through. I'll be letting it out this year.
Rent Received: ₹10,000 × 6 months = ₹60,000

Flat B:

Self-Occupied: April 2024 to September 2024
Let Out: October 2024 to March 2025
(Let out to the same tenant who previously occupied Flat A)
Rent Received: ₹10,000 × 6 months = ₹60,000
Home Loan: Yes (Principal & Interest)

Flat C:

New Purchase: May 2024
Self-Occupied: From October 2024 onwards
Home Loan: Yes (Principal & Interest)

Common Points:

Property Tax is paid on all three properties.
Flats B and C have home loans; Flat A does not.
Only one property (Flat C) is self-occupied at a time.

My Questions:

How should rental income from Flat A and Flat B be reported?
- Should I show actual rent received for both?
- Or should Flat A be treated as “let out for the full year” despite being vacant for 6 months?
Is notional rent applicable for Flat A (Oct–Mar) even though it was under renovation and listed for sale with no intention to rent during that time?
How will interest deduction work for Flat B and Flat C — especially since only one can be treated as self-occupied?

Would appreciate your expert guidance on this.

Thank you!

Replies (2)

Rama chary Rachakonda

Master in Accounts & high court Advocate

8821 Points Joined December 2011

Reporting rental income: Rental income from both flats should be reported under the head "Income from House property" in the income tax return.
The actual rent received is typically reported. However, if a property is vacant for part of the year, the treatment an depend on whether it was let out for the full year or not. If Flat A was let out for part of the year and vacant for the rest, the actual rent received should be reported. Thr option of treating it as 'let out for the full year' espite being vacant for 6 months may not be applicable as per standard tax practices, but specific tax laws and rules should be consulted.
Notional rent is applicable when a property is deemed to be let out, even if it's not actually rented out. If Flat A was under renovation and listed for sale with no intention to rent, the applicablity of notional rent needs to be checked against the specific tax laws..Generally , notional rent is considered when a property is deemed to be let out or self-occupied. If it was not intended for rental during the renovation period, the notional rent might not be applicable.
Interest deduction: Interest deductio on home loans is allowed under Section 24(b) of the Income tax act for properties that are let out or deemed to be let out. For self-occupied properties, the deduction is limited to two lakhs per annum under Section 24(b), provided the property is self-occupied and not let out. If only one property can be treated as self-occupied, , the interest deduction for that property will be limited to two lakhs. For other properties that are let out, the entire interest paid can be claimed as a deduction.

Donati

Self occupation

112 Points Joined March 2017

Thank you, Mr. Rama Chary Rachakonda, for your valuable guidance. Your support is truly appreciated.

Please find below the rental income computation:

Flat A - Rental Income 10000 x 6 = 60000
Less - Municipal Taxes
Less - Standard Decutions u/s 24(a)

Flat B - Rental Income 10000 x 6 = 60000
Less - Municipal Taxes
Less - Standard Decutions u/s 24(a)
Less - Intersest on Borrowings u/s 24(b)

Flat C - Self Occupied
Less - Interest deductions limit u/s 24(b)

With sincere thanks and regards.