The Income Tax Act, 1961 decides how income is taxed in India, including money earned from owning a house or building. Some income from house property, however, is called exempted income from house property, which means it’s free from income tax. Knowing about these exemptions is very important for people, especially those working in law or finance, to follow the rules and plan their taxes wisely. This article explains exempted income from house property under Income Tax Act, 1961 along with practical considerations while claiming these exemptions.
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What is Income from House Property?
The Income Tax Act, 1961 taxes income from house property under Section 22. This includes money you earn from renting out a house, apartment, or commercial property, as long as you own it and don’t use it for your own business or job. The tax is calculated after subtracting certain allowances under Section 24, like a standard deduction or interest paid on a home loan. However, some types of income from house property don’t have to be taxed and these are known as exempted income from house property. These exemptions are listed in different parts of the Act, mainly Section 10, and they help specific people or properties avoid paying tax.
Under Section 22 of the Income Tax Act, 1961, income from house property is chargeable to tax if the following conditions are met:
Ownership: The taxpayer must be the legal owner of the property. Ownership includes not just absolute title but also deemed ownership in certain cases, such as when a property is transferred to a spouse (other than in connection with an agreement to live apart) or a minor child (except a married daughter) without adequate consideration, or when a person holds possession under a part-performance contract as per Section 53A of the Transfer of Property Act, 1882. Members of cooperative societies or companies allotted properties under house-building schemes are also deemed owners.
Nature of the Property: The property must consist of any building or land appurtenant thereto (e.g., a house, apartment, commercial building, or even open land attached to a building). However, if the land is not appurtenant to a building, its income may fall under "income from other sources" instead.
Non-Business Use: The property should not be occupied by the owner for the purposes of any business or profession carried on by them, the profits of which are chargeable to income tax. If it is used for business, the income shifts to the "profits and gains from business or profession" head.
The charge is based on the "annual value" of the property, which represents its earning potential, rather than just the actual income received. This ensures taxation even if the property is not rented out, though specific reliefs apply for self-occupied properties. For instance, if a taxpayer owns a building and rents it out for residential or commercial purposes, the rental income (after adjustments) is taxed under this head.
In the proposed Income Tax Bill, 2025 (Clause 20), the basis of charge remains largely unchanged, taxing the annual value of owned properties not used for business, but with clearer language to simplify compliance.
Also, Learn about Deductions under Section 80C of Income Tax Act, 1961.
Key Exemptions under the Income Tax Act, 1961
Below are the main types of exempted income from house property as described in the Income Tax Act. Each exemption is based on clear legal rules, explained here in a way that’s easy for everyone to follow, including those familiar with the law.
1. Income from a Self-Occupied Property
One of the most common types of exempted income from house property comes from a home you live in yourself. According to the Income Tax Act, a self-occupied property is one where the owner lives for the entire year. The law says this property has a “nil” annual value, which means it doesn’t count as taxable income.
If you took a home loan to buy this property, you can also reduce your taxes by claiming a deduction for the interest you pay on the loan, up to ₹2,00,000 per year (based on the latest rules). This makes owning a home you live in a great way to save on taxes. For lawyers, it’s good to know that if someone owns more than two homes, only two can be counted as self-occupied. Any extra properties are treated as rented out or empty, which might mean paying taxes on them.
2. Income from Property Used for Charitable or Religious Purposes
Another key type of exempted income from house property is money earned from properties used only for charitable or religious purposes. Under Section 11 of the Income Tax Act, if a charitable or religious trust owns a property, the income from it (like rent) is tax-free, as long as the money is used for things like education, medical help, or helping the public. The trust must be registered under Section 12AA, and the income can’t be used for personal gain.
For example, if a charitable trust rents out a building to pay for school programs, that rental income is exempted income from house property. Lawyers advising charities should make sure the trust follows Section 11 rules, like keeping proper records and using the money correctly, to keep this tax benefit.
3. Income from Property Held by Educational or Medical Institutions
Properties owned by schools, colleges, or hospitals also produce exempted income from house property under Section 10(23C). This applies to institutions that exist only to provide education or medical care and don’t aim to make a profit. The income from the property, whether it’s rent or the value of the property if it’s not rented, is tax-free if it’s used for the institution’s main goals.
For example, if a university rents out a hostel to students and uses the money for teaching, that income is exempted income from house property. Lawyers should check that the institution is approved by the government and keeps separate financial records to qualify for this exemption.
4. Income from Property Owned by Registered Trade Unions
Under Section 10(24), income from a property owned by a registered trade union is exempted income from house property. This applies to trade unions registered under the Trade Unions Act, 1926, and the income must be used for things like helping workers or supporting union activities. For instance, if a trade union owns a building and earns rent from it, that money is tax-free.
Lawyers working with trade unions should ensure the union’s activities match its official goals and that the income isn’t used for anything else, as this could risk losing the tax exemption.
5. Income from Property Owned by Political Parties
Income from house property owned by a political party is another type of exempted income from house property, covered under Section 13A. This applies to political parties registered under Section 29A of the Representation of the People Act, 1951. The income, like rent from a party-owned building, is tax-free if it’s used for the party’s political work.
For example, if a political party rents out office space in a building it owns, that rent is exempt. Lawyers should remind political parties to keep accurate records and file tax returns to maintain this exemption, as mistakes could lead to problems with tax authorities.
6. Income from Farmhouses
Income from a farmhouse used for farming is also exempted income from house property under Section 2(1A), because it’s considered agricultural income. To qualify, the farmhouse must be in a rural area and used for farming activities or as a home for someone working in agriculture. This exemption is useful for people who own land in rural areas.
Lawyers advising farmers should make sure the farmhouse is actually used for farming purposes. If it’s used for something else, like a business, the income might be taxed as house property income.
7. Income from Property Confined to Local Authorities
Income from house property owned by local authorities, like municipalities or village panchayats, is exempted income from house property under Section 10(20). This applies to properties used for public services, such as community centers or government offices. The income must be used for the authority’s official duties to qualify.
Lawyers should confirm that the local authority is recognized under the Income Tax Act and that the property isn’t used for commercial purposes, as this could cancel the tax exemption.
Learn about more Income Tax Rules.
Practical Considerations for Claiming Exemptions
For taxpayers and their lawyers, claiming exempted income from house property requires careful attention to the rules. Here are some key points to keep in mind like having ownership proof, purpose verification, compliance with filing requirements and load deductions:
Ownership Proof: You need to prove you legally own the property to claim any exemption.
Purpose Verification: For exemptions under Sections 11, 10(23C), or 10(24), the income must be used for the specific purpose, like charity, education, or union activities.
Compliance with Filing Requirements: Trusts, institutions, and political parties must file tax returns and keep detailed records to support their exemption claims“
Loan Interest Deductions: For self-occupied homes, make sure the interest deduction stays within the ₹2,00,000 limit and is backed by loan documents.
Summary
The concept of exempted income from house property under the Income Tax Act, 1961, offers important tax relief to many groups, including homeowners, trusts, schools, and local authorities. By using exemptions under Sections 10, 11 and 13A, people can lower their taxes while following the law. For lawyers, understanding these rules is key to helping clients avoid mistakes and make the most of these benefits. Whether it’s a home you live in, rent from a charitable trust, or a farmhouse used for farming, exempted income from house property is a vital part of tax planning in India. By knowing these exemptions and their requirements, taxpayers and their lawyers can save money while staying within the rules of the Income Tax Act. This balance of following the law and reducing taxes highlights why exempted income from house property matters so much in India’s tax system.
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Exempted Income from House Property: FAQs
Q1. What is exempted income from house property?
Exempted income from house property is money earned from a property that you don’t have to pay tax on, like income from a home you live in or property used for charity.
Q2. What is Section 22 income from house property?
Section 22 taxes money you earn from renting out a property you own, as long as it’s not used for your business or job.
Q3. What are the deductions for income from house property?
You can deduct 30% of the rent as a standard deduction and interest paid on a home loan (up to ₹2,00,000 for self-occupied homes) under Section 24.
Q4. Is property tax exempted from income tax?
Property tax paid to local authorities can be deducted from the rental income before calculating tax, but it’s not fully exempt.
Q5. How much rental income is tax-free?
Rental income is tax-free if it’s from a self-occupied home (deemed nil) or qualifies as exempted income, like from charitable properties; otherwise, it depends on deductions and your tax slab.
