Property tax paid on a property in India is not directly deductible from your total income for income tax purposes.
However, property tax plays a significant role in reducing the taxable income from house property, especially when the asset is rented out or deemed to be let out property.
How Property Tax Deduction Works
When you own a property that is rented out (or deemed let out), the income from that property is taxed under the head Income from House Property.
The calculation for taxable income from such property follows these steps:
- Calculate Gross Annual Value (GAV).
- Deduct Property Tax Paid.
- Apply Standard Deduction at 30%.
- Deduct Interest on Home Loan (if applicable).
- Taxable Income from House Property.
Key Points on Property Tax Deductibility
- Self-Occupied Property: If you own only one house and live in it, the GAV is considered zero, so property tax deduction does not arise as there is no taxable income from house property
- Rented or Deemed Let Out Property: Property tax paid is deductible from the rental income, reducing your taxable income
- Documentation: You must retain receipts for property tax paid to claim the deduction
Example Calculation:
Assuming that, Suppose you own a property that is rented out, and you receive Rs. 5,00,000 as annual rent. You pay Rs. 20,000 as property tax to the municipal authority.
- Gross Annual Value (GAV): Rs. 5,00,000
- Less: Property Tax Paid: Rs. 20,000
- Net Annual Value (NAV): Rs. 4,80,000
- Less: Standard Deduction (30% of NAV): Rs. 1,44,000
- Taxable Income from House Property: Rs. 3,36,000 (before considering any home loan interest deduction).
Additional Scenarios of Property Tax Deductions
- Multiple Properties: If you own more than one property, only one can be treated as self-occupied (GAV = 0). The others are considered let out, and property tax deduction applies to those
- Business Use: If the property is used for business purposes, property tax can be claimed as a business expense.
| Scenario | Property Tax Deductible? | Section Applicable |
|---|---|---|
| Self-occupied property | Not applicable (GAV is zero) | – |
| Rented/let-out property | Yes, from rental income | Section 23, 24 |
| Business property | As business expense | Business Income |
In conclusion: Property tax is deductible from rental income, not directly from total income, under Indian income tax law. To reduce your taxable income from house property, always deduct property tax paid before applying other deductions as per Section 24 of the Income Tax Act.
