Do you have house property and have income by letting out the property? If yes, then you have to calculate income from house property under section 24 of income tax law.
Today in this article, I will discuss the steps to follow during calculation of income from house property. We have also online tax course where we have showed the tax calculation and return preparation in details using example. You will also get the soft excel copy of calculation and return form with the course.
By calculating the taxable income by renting house property, you find that tax free limit has been exceeded then you have to file tax return. If you have income from other sources, those income will also be added with this income.
Income from house property let out is first recognized as income for the house owner which fall income under the head house property.
Actually a house owner received income by letting out his flat to the tenant. So, this is the income received from your house property. And that’s why rental income of house property is considered for income tax calculation. So, how you will find your rental income?
Generally, we know the rental income which is received from tenant by letting out the house property. Yes, this is the one figure.
But you have to find out annual value which is determined from two figures. one is determined by the local government authority like, City Corporation or pourashava for particular areas and another figure is your rental income which you have received from your tenant.
The higher one between the above two figures will be the annual value which will be the income from house rent. and based on it, all your tax calculation will be done.
So, we have got the figure on which tax on rental income of house property will be calculated. But before that we have to deduct the allowable expenses and after that income tax on house rental income will be determined.
Allowable deduction for house rent
As a house property owner, when you have rented your house then at the same time you have to incur expenses for maintaining or repairing purpose. And these expenses are allowed to deduct from income from house rent.
For repair and maintenance purpose, you are allowable to deduct 25% of annual rental income if the house property is let out for residential purpose and 30% for commercial purpose. This percentage is considered who have no records of accounts and documents.
The above percentage will include the expenditure for repairs, collection of rent, water and sewerage, electricity and salary of darwan, salary of security guard, left man, pump-man and caretaker, and all others expenditure related to maintenance of house property.
Besides the above expenditure, city corporation tax, land tax, ground rent etc. also are allowable to calculate taxable income of house property.
House property income deductions also include the house loan interest for construction of let out house property.
Home loan interest deduction in income tax
You will get home loan benefit in income tax calculation but you have to keep in mind that only the interest portion paid to the bank during the year are allowable to deduct.
If the house loan is taken during the construction period then you will have no taxable rental income from house property and the accumulated interest amount will be eligible for deduction after generating house rental income.
But there is a ceiling to deduct the accumulated interest of house loan up to 03 years at equal amount. Suppose, during the construction period, total house building loan interest was BDT 300,000. Now divide it by 3 and the BDT 100,000 will be deducted for the current income year and the rest BDT 200,000 will be deducted for upcoming two income year at BDT 100,000 each year.
During computation of house property income, if any portion of house property is self-occupied then the income tax on house rental income will differ as above. As well as the taxability of rental income will also differ.
House property income tax calculation for self-occupied house property
In case of fully self-occupied house property there is no income tax issue as you are not getting any rental income by letting out the property. As you have no rental income, so you are not allowed to deduct any expenses as discussed in above.
So, you do not require to compute house renting income.
But there may be partly let out house property and in that situation the computation of house rental income will fully change as discussed above.
House rent income tax calculation for partly let out house property
House property rent calculation for income tax in case of partly let out house property, you have to find out the house rent received from tenant. And deduct the expenses on a proportionate basis.
Suppose, you have five flats and you live in one flat which is self-occupied means you have rental income received from other four flats. And this house rental income is considered as taxable income on which you will pay tax to the government treasury.
So, all the expenses divide by 5 and multiply by 04 which will be deducted from the taxable income of four flats. This is the difference.
And any more….
Yes, another most issue is vacancy allowance.
If your any flat remain vacant for any month during the year then it will be excluded. But generally, the tax authority does not consider it. So, you will not get benefit if any portion of your house property remain vacant for any month or for long time.
And another issue is deemed income.
As we have discussed in above, the repair and maintenance cost is allowable for 25% for residential purpose or 30% for commercial purpose if you do not maintain any records.
But the problem is that you have to submit the documents against your claims for 25% or 30% repair and maintenance for residential and commercial purpose respectively. If you could not attached the expenses bill/voucher then the remaining amount will be considered as deemed income. And it will increase your taxable income.
You may know about tax rebate on investment allowance which reduced tax liability significantly. We have another article about where to invest for tax rebate, you may read the article to know about areas of investment allowance.
Advance received from tenant by the house owner is also the normal situation. Any amount received from person to let out which is not adjustable against the rent payable then such amount shall be deemed to be the income in the year.
Provided that such received amount may be allocated for the assessment in equal proportion in that year and for the years next following.
If such amount is refunded by the assess in subsequent year then refunded amount shall be deducted in computing the income in respect of that income year
For computing the taxable income, allowable deductible expenses, tax liability etc. you have to maintain proper books and register as prescribed by the Income Tax Ordinance 1984. You have also to maintain bank account if your rental income exceeds BDT 25,000.
If the above compliance are not meet as stated above then you may face penalty as per tax law.