Understanding Taxes: Your Guide to Property Taxes and Tax Deductions

Becoming a homeowner is a significant milestone, but it comes with financial responsibilities. Apart from property taxes, your income tax liabilities may also increase if you're earning from your property. As a responsible property owner, it's crucial to understand tax laws, obligations, exemptions, and deductions that can reduce your overall tax burden. 

What is Property Tax? 

Property tax is an annual levy imposed by state governments or local Municipal Corporations on tangible real estate assets like residential apartments and commercial premises. Its calculation considers factors such as the property's base value, built-up area, age of the owner, type and construction of the property, and its usage category. 

Different Methods of Property Tax Calculation 

• Capital Value System (CVS) 
• Unit Area Value System (UAVS) 
• Rateable Value System (RVS) 

Property Tax Deductions in Income Tax 

Under Section 24 of the Income Tax Act, both residential and commercial properties attract income tax under the head "Income from House Property" in the Income Tax Return (ITR). Here are key points to remember: 

• Tax applies to the Net Annual Value (NAV) of the property, calculated by subtracting property taxes paid from the Gross Annual Value (GAV). 
• The GAV depends on the property's use – self-occupied properties have a zero GAV, while rented properties use total annual rent collected. 
• A 30% deduction is allowed on the NAV as standard house property deduction. 
• Interest paid towards home loans is eligible for tax exemption under Section 24, subject to prescribed limits and conditions. 

Computation of Income Tax from House Property 

• Scenario 1: No income tax applies if you own and reside in one house. 
• Scenario 2: Rent received from a single property is taxable income after property tax deductions. 
• Scenario 3: Income tax applies to the NAV of all properties, except the one you occupy, if you own multiple houses. 

Tax Deductions Under Section 24 

• Standard Deduction: A 30% deduction from NAV is available for existing taxpayers, except for self-occupied properties. 
• Interest on Home Loan: Deductions for interest paid towards home loans, subject to specified conditions and limits. 

Understanding these aspects helps property owners make informed decisions, optimize tax planning, and maximize savings on tax liabilities. 

Reduce your taxes with CredyFi. Utilize CredyFi's insights to identify tax-saving opportunities like deductions under Section 80C and property tax exemptions. With user-friendly tools, manage expenses, investments, and ensure timely compliance, resulting in reduced tax liabilities and increased returns. 

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