Income from house property is an income from residential and commercial property both. Annual Value is the rent received from the property, but there are certain deductions here. There are two deductions allowed according to the Income Tax Act- standard deductions and deduction of interest. Standard deduction is allowed at the rate of 30% of annual value for any repairs, insurance, water supply etc. Deduction of interest is for purchase, construction, renovation of commercial or residential property available on interest paid on loan. There is no standard limit on deduction of interest for a commercial property loan.
To calculate taxable income from house property, the Gross annual value is deducted from municipal taxes. Then standard deduction and deduction of interest is made. The assessee gross annual income is added to the taxable income from house property and is taxed according to the income tax slab. If the taxable income from house property is negative then the loss is set off against other income. If this cannot be done and the loss is more than Rs 2 Lakh then the left over loss is moved forward to the following years, also it is then set off against other income for the following 8 years.
But there are various conditions to be kept in mind. The money borrowed from relatives or friends is considered for deduction of interest. There is no restriction on the amount of interest on loan for the commercial property which is either let out or used for business. Loan taken for repairs, construction is allowed no deduction for interest before its completed.