Income from house property

BASIS OF CHARGE [SECTION 22]

 Property should consist of any BUILDING* or land
appurtenant (means land connected with the building like
garden, garage etc.) thereto.
 Assessee must be the owner of the property.
 The property should not be used by the owner for the
purpose of any business or profession carried on by him, the
profit of which is chargeable to tax.
 INCOME FROM HOUSE PROPERTY IS
EXEMPT FROM TAX
1 10(1) Income from any farm house forming part of
agricultural income.
2 10(19A) Annual value of any one palace in the occupation of an ex-
ruler.
3 10(20) Income from house property of a local authority.
4 10(21) Income from house property of an approved scientific
research association.
5 10(23B) Institution for development of khadi and village industries.
6 10(23BB) Khadi and Village Industries Board.
7 10(23BBA) A body or Authority for administering religious or charitable
trusts or endowments
8 10(23C) Property income of universities, educational institutions, etc.
9 10(24) Property income of any registered trade union.
10 10(26B) Statutory Corporation or an institution/ Association
financed by the government for promoting the interest of
members of SC or ST
11 10(27) Co-operative Society for promoting the interest of the
members of SC or ST
12 11 Income from house property held for charitable or
religious purpose.
13 13A Property income of any political party.
14 22 Property used for own business or profession
15 23(2) One self-occupied property of an individual/HUF
 DEEMED OWNER [SECTION 27]
1. An individual who transfers otherwise than for adequate
consideration any house property;
a. to his or her spouse (not being a transfer in connection with an
agreement to live apart) or
b. to a minor child (not being a married daughter);
2. The holder of an impartible estate( property which is not legally
divisble)
3. A member of a Co-operative society, Company or other Association
of persons to whom a building or a part or leased under a house
building scheme of the society, company or association;
4. A person who is allowed to take or retain possession of any building or
part thereof in part performance of nature referred to in section 53A of
theTransfer of Property Act, 1882;
This would include cases where the –
(i) possession of property has been handed over to the buyer
(ii) sale consideration has been paid or promised to be paid to the seller
by the buyer sale deed has not been executed in favour of the buyer,
although certain other documents like power of attorney/agreement to
sell/will etc. have been executed.
5. A person who acquires any rights (excluding any rights by way of lease
from month to month or for a period of one year) in or with respect to
any building or part thereof by virtue of any transaction as is referred to
in section 269UA(f) i.e. transfer by way of lease for not less than 12
years shall be deemed to be owner of that building or part thereof.
TREATMENT OF COMPOSITE RENT
 Composite rent means the rent charged not only for the property
to be let out but also for the other facilities like furniture, Lift,
Security, Power Back-up etc.
 Rent attributable to letting of premises shall be assessable as
income from House Property; other portion for rendering
facilities as income from other sources.
 Composite letting separable: Where composite rent is rent of
letting out of building and letting out of other assets and two
letting are separable i.e. letting out of one is acceptable to the
other party without letting out of the other, the sum which is
attributable to property is to be assessed in form of annual value
u/s 22 and the sum which is attributable to other charges is
assessed under Profits and Gains of Business or Profession or
Other sources.
 COMPUTE INCOME FROM HOUSE
PROPERTY
Particulars Let Out/Deemed to be let out
Gross Annual Value (GAV) xxxx
Less: Property taxes paid to local authority xx
Net Annual Value (NAV) xxxx
Less: Deductions u/s. 24 -
a) 30% of the net annual value xxx
b) Interest on capital borrowed (loans) paid or payable xxx
Income from house property(computed) Xxxx
What is Annual Value?
 As per section 23(1)(a), the annual value of any
property shall be the sum for which the property
might reasonably be expected to be let from year to
year.
 It may neither be the actual rent derived nor the
municipal valuation of the property. It is something
like notional rent which could have been derived,
had the property been let.
DETERMINATION OF ANNUAL VALUE
[SECTION 23]
In determining the annual value there are four factors which are
normally taken into consideration. These are:
 Actual rent received or receivable
 Fair Rent: It can be determined on the basis of rent fetched by
similar property in the same or similar locality.
 Municipal Valuation: For collecting municipal taxes, local
authorities make a periodical survey of all building in their
jurisdiction. Such valuation may be taken as a strong evidence
representing the earning capacity of a building.
 Standard Rent under Rent Control Acts: Standard rent is
the maximum rent which a person can legally recover from his
tenant under Rent Control Act.
Computation of annual value of a
property [Section 23(1)]
 As per Income tax, annual value is the value after
deduction of municipal taxes, if any, paid by the
owner. Annual value may be determined in the
following two steps:
1) Determine gross annual value
2) From gross annual value, deduct municipal taxes
paid by the owner during previous year.

The balance shall be the net annual value which, as

per the Income tax Act, is the annual value.
Different categories of properties
 The annual value has to be determined for different
categories of properties. These are:
(A) House property which is let throughout the previous
year
(B) House property which is let and was vacant during
whole or any part of previous year.
(C) House property which is part of the year let and part
of the year self occupied.
(D) House property which is self –occupied for
residential purposes or could not actually be self
occupied owing to employment in any other place.
 (A)House property which is let
throughout the previous year
The annual value of any such property shall be
deemed to be:
(a) The sum for which the property might reasonably
be expected to let from year to year, or
(b) where the property or any part of the property is
let and the actual rent received or receivable by the
owner in respect thereof is in excess of the sum
referred to in clause (a), the amount so received or
receivable
 Determination of Gross Annual Value
As per clause (a) above, the first step for determining the
gross annual value is to calculate the sum for which the
property might reasonably be expected to let from year
to year. For estimation of the same, the higher of the
following two is taken to be the expected rent.
(i) Municipal Valuation
(ii) Fair rent
But, in case the property is governed by the Rent control
Act, its annual value cannot exceed the standard rent.
Determination of Gross Annual Value
 To conclude: The first step is to calculate the gross
annual value which will be the maximum of
Municipal value or fair rent, but restricted to the
standard rent.
 However, if the actual rent received or receivable
exceeds such amount then the actual rent so
received/receivable shall be the Gross Annual
value.
 Computation of GAV
 Step 1 Compute ER
ER = Higher of MV and FR, but restricted to SR

 Step 2 Compute Actual rent received/receivable

Actual rent received/receivable less unrealized rent
as per Rule 4
 Step 3 Compare ER and Actual rent received/receivable

 Step 4 GAV is the higher of ER and Actual rent received/

receivable
Particulars I II III IV V VI

Municipal 200000 240000 360000 420000 480000 450000

value

Fair rental 240000 300000 400000 420000 500000 500000

value
Standard NA 240000 500000 300000 NA 480000
rent

Actual rent/ 180000 360000 480000 360000 540000 420000

annual rent

SOLUTION

GAV 240000 360000 480000 360000 540000 480000

Municipal taxes paid
 Step 2: Taxes levied by any local authority in
respect of the property i.e. municipal taxes
(including service taxes) to be deducted: Municipal
taxes levied by local authority are to be deducted
from the gross annual value, if the following
conditions are satisfied:
(a) The municipal taxes have been borne by the
owner, and
(b) These have been actually paid during the
previous year.
Net Annual Value
 The value arrived at after deducting the municipal
taxes, if any, may be referred to as the Net Annual
Value.
 From such net annual value, deductions
permissible under section 24 (a) & (b) are allowed
and the balance is the income under the head
“Income from house property”.
Determination of Income from House
Property
Gross Annual Value *******
Less: Municipal Taxes *******
Net Annual Value *******
Less: Deduction under section 24
Standard Deduction (@30%) *******
Interest on borrowed capital *******
Income from House Property *******
 ILLUSTRATION
X owns 3 houses in Delhi, particulars of which are as under:
Particulars I HOUSE II HOUSE III HOUSE
No of residential units 2 1 3

Municipal value 120000 72000 60000

Fair rental value 150000 75000 75000
Standard rent 130000 80000 72000
Rent per unit per 70000 84000 21000
annum
Municipal taxes 12000 (due but not 8000 for last year paid 60000( it includes
paid) in this year and 9000 54000 paid as advance
of current year due for next 9 years)
but not paid

Compute the annual value of the above three houses for AY 2018-19.
 (B) House which is let and was vacant
during the whole or part of previous
year
 I. Gross annual value where the property is let and
was vacant for part of the year and the actual rent
received or receivable is more than the reasonable
expected rent in spite of vacancy period:
 The gross annual value in this case shall be:
(1) The sum for which the property might reasonably
be expected to be let from year to year , or
(2) actual rent received or receivable,
whichever is HIGHER.
 (B) House which is let and was vacant during
the whole or part of previous year
II. Gross annual value where the property is let and was vacant
for the whole or part of the year and the actual rent received
or receivable owing to such vacancy is less than the expected
rent.
The annual value of the property shall be determined under
this situation if all the following 3 conditions are satisfied:
(1) The property is let,
(2) It was vacant during the whole or part of the previous year.
(3) Owing to such vacancy, the actual rent received or
receivable is less than the expected rent,
In this case, the gross annual value shall be the actual rent
received or receivable.
(C). House property which is part of the year let
and part of the year occupied for own
residence
 Where a house property is, part of the year let and
part of the year occupied for own residence, its
annual value shall be determined as per the
provisions relating to let out property.
 In this case, the period of occupation of property
for own residence shall be irrelevant and the annual
value of such house property shall be determined
as if it is let. Hence, the expected rent shall be
taken for full year but the actual rent received or
receivable shall be taken only for the period let.
 Treatment of unrealized rent
 The actual rent received or receivable shall not include the amount of
rent which the owner cannot realize, subject to the rules made in this
behalf.
Rules
 The tenancy is bona fide
 The defaulting tenant has vacated or steps have been taken to compel
him to vacate the property
 The defaulting tenant is not in occupation of any other property of the
assessee
 The assessee has taken all the steps to institute legal proceedings for the
recovery of unpaid rent or satisfies the assessing officer that legal
proceedings would be useless.

 The unrealised rent should be deducted from clause (b) or clause

(c) of Section 23(1) i.e. the actual rent received or receivable
 Deduction from Income from House
Property
Income chargeable under the head “Income from
house property” shall be computed after making
the following deductions:
(a) Statutory deduction: From the net annual value
computed, the assessee shall be allowed a statutory
deduction of a sum equal to 30% of the net asset
value. This deduction is allowed towards repairs
and collection of rent for the property, irrespective
of any expenditure incurred.
Deduction from income from House
Property
(b) Interest on borrowed capital: Where the
property has been acquired, constructed, repaired,
renewed or reconstructed with borrowed capital,
the amount of interest payable on such capital is
allowed as a deduction.
The amount of interest payable yearly should be
calculated separately and claimed as a deduction
every year. It is immaterial whether the interest has
been actually paid or not paid during the year.
Interest on pre construction period
 Interest attributable to the period prior to
completion of construction: It may so happen that
money is borrowed earlier and acquisition or
completion of construction takes place in any
subsequent year. Meanwhile interest becomes
payable.
 In such a case interest paid/payable for the period
prior to previous year in which the property is
acquired/constructed will be aggregated and
allowed in five successive financial years
starting from the year in which the
acquisition/construction was completed.
(D). Computation of income of a property which is
self occupied for residential purposes or could not
actually be self occupied owing to employment
 Where the annual value of such house shall be nil:
Where the property consists of a house or a part of a
house which:
(a) is in the occupation of the owner for the purposes of
his own residence and no other benefit is derived
therefrom; or
(b) Cannot actually be occupied by the owner by reason
of the fact that owing to his employment, business or
profession carried on at any other place, he has to
reside at that place in a building not belonging to
him,
The annual value of such a house or part of the house
shall be taken to be NIL.
Where assessee has more than one
house for self-occupation
 If there are more than one residential houses,
which are in the occupation of the owner for his
residential purposes then he may exercise an
option to treat any one of the houses to be self
occupied .
 The other house(s) shall be deemed to be let out
and the annual value shall be the sum for which the
property might reasonably be expected to let from
year to year.
 Deduction in respect of one self-
occupied house where annual value is
Nil
 Where annual value of one self-occupied house is
nil, the assessee will not be entitled to the statutory
deduction of 30% as the annual value itself is nil.
 However, the assessee will be allowed deduction on
account of interest (including 1/5th of the
accumulated interest of pre construction period as
under:
Deduction in respect of one self-
occupied house where annual value is
Nil
(a) Where the property is acquired or constructed
with capital borrowed on or after 01/04/1999 and
such acquisition or construction is completed within
5 years of the end of the financial year in which the
capital was borrowed: Actual interest payable
subject to maximum of Rs 2,00,000 if relevant
certificate is obtained*
Deduction in respect of one self-
occupied house where annual value is
Nil
 (b) In any other case, i.e. borrowed for repairs or
renewal or conditions mentioned in clause (a) are
not satisfied: Actual interest payable subject to
a maximum of Rs 30,000
Computation of Annual value of one
self occupied property
 In case of one property (which is not let out or put
to any other use) used throughout the previous year
by the owner for his residential purpose, income
shall be determined as follows:
Gross Annual Value NIL
Less: Municipal Tax paid NIL
NET ANNUAL VALUE NIL
Less: Standard Deduction NIL
Less: Interest on borrowed capital Deductible
Income from Self occupied Property ***********
Special Provisions
• Special provisions when unrealized rent is
realized subsequently
• Where any rent could not be realized and
the same was allowed as deduction and
subsequently if such amount is realized,
such an amount will be deemed to be the
income from house property of that year in
which it is received.
• It is not necessary that the assessee
continues to be the owner of the property
in the year of receipt also.
Arrears of rent received
 Arrears of rent received
 Where the owner of the house property receives
arrears of rent from such a property, the same shall
be deemed to the income from house property in
the year of receipt.
 Standard deduction of 30% of the receipt shall be
allowed as deduction towards repairs and collection
charges. No other deduction will be allowed.
 The assessee need not be the owner of the house
property in the year of receipt.
 House property owned by Co- owners
 If a house property is owned by two or more persons,
then such persons are known as co-owners. When the
share of each co-owner is definite and ascertainable, it
has been provided that each of the owners will be
assessed individually in respect of share of income from
the property.
 When each of the co-owners of a property uses it for his
residence, each of them will also get the concessional
treatment in respect of one self occupied property.
 House property owned by Co- owners
a) Where house property is self occupied by each co owner:
annual value of the property of each co owner shall be nil
and each of the co owner shall be entitled to maximum
deduction of Rs 30000/200000 under section 24 (b) on
account of interest on borrowed money
b) Where the entire or part of property is let out: the income
from house property shall be first computed as if this
property/ part is owned by one owner and thereafter the
income so computed shall be apportioned amongst each co
owner as per their definite share.
 Property in a foreign country
 In case of a resident in India, income from property
situated in foreign country is taxable, whether such
income is brought into India or not.
 However, if the assessee is a non-resident or resident
but not ordinarily resident in India, income from a
property situated in foreign country will be taxable in
India only when it is received in India during the
previous year.
 Loss from house property
There can be loss under the head “income from house
property”
(i) In the case of a self-occupied property, the annual value is
taken as nil. No deductions are allowed except for interest on
borrowed capital up to a maximum of Rs 30,000 or Rs
200,000 . Naturally, therefore, there may be a loss in respect
of such house property up to a maximum of Rs 30,000 or Rs
200,000, as the case may be.
(ii) In respect of any other house property, namely a house
property which is fully let out or part of the year let out etc.,
there are no restrictions on deductions and therefore, there
can be loss under this head in respect of such properties due
to municipal taxes as well as deductions. Similarly,
deductions under section 24 in case of property deemed to
be let out can be more than net annual value.