Rent, home loan, capital gains, losses: a simple guide to taxation on real estate

livemint.com:

NEW DELHI: The Union Budget 2024-24, presented on 23 July in Parliament, streamlined taxation of most financial assets—but not real estate. Taxation rules for real estate are still the most complex among all financial assets.

There are layers upon layers, from rent to the time of selling to home loans. For instance, most of the rules applicable to a house or commercial property are not applicable to land. If a land owner earns rent, lease, or any other form of income on vacant land (without any construction), such income is not treated as rental income. It must be declared as income from other sources or profit from business.

There are separate rules for even under-construction properties (see chart).

Further, ownership is divided into three categories: self-occupied, let-out and deemed to be let-out. Now, rules on the taxation of rent, the extent of interest allowed to be deducted and the setting off of losses differ across the categories (see the chart).

The rules vary further depending on whether you opt for the new or old tax regime. For instance, if an owner has a home loan on the house they live in, each year, they will have a loss of up to ₹2 lakh under the ‘income from house property’ head. This is because, in the income tax return, one has to declare the rent of the self-occupied property as zero and claim the interest paid on the loan as a deduction. This results in a net loss from the house property equivalent to the interest paid. This loss is allowed to be set off against all incomes, including salary. But only in the old regime. So, homeowners living in their own houses will lose this benefit by opting for the new regime. In fact, under the new regime, the loss set-off is not allowed even for let-out and