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INTRODUCTION

This p r o j e c t deals with income, which falls under the head Income from house property. The scope of income charged under this head is defined by section 22 of the Income Tax Act and the computation of income falling under this head is go erned by sections 2! to 2". All the pro isions relating to tax treatment of income from house property are explained in this project.

OBJECTIVES
After going through this lesson, you will be able to understand# $ The meaning of house property $ %ho is treated as owner of house property $ The treatment of rental income from properties under different circumstances $ &etermination of the annual alue of a house property $ The expenses deductible from rental'notional income from house property $ (pecial treatment gi en to self)occupied house property $ Treatment of income'loss from house property.

BASIS OF CHARGE (SECTION 22)


The annual alue of a property, consisting of any buildings or lands appurtenant thereto, of which the assessee is the owner, is chargeable to tax under the head Income from house property. *owe er, if a house property, or any portion thereof, is occupied by the assessee, for the purpose of any business or profession, carried on by him, the profits of which are chargeable to income)tax, the alue of such property is not chargeable to tax under this head. Thus, three conditions are to be satisfied for property income to be taxable under this head. +. The property should consist of buildings or lands appurtenant thereto. 2. The assessee should 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 profits of which are chargeable to income)tax.

APPLICABILITY OF SECTION 22
Buildings ! l"nds "##u!$%n"n$
The term building includes residential houses, bungalows, office buildings, warehouses, doc,s, factory buildings, music halls, lecture halls, auditorium etc. The appurtenant lands in respect of a residential building may be in the form of approach roads to and from public streets, compounds, courtyards, bac,yards, playgrounds, ,itchen garden, motor garage, stable or coach home, cattle)shed etc, attached to and forming part of the building. In respect of

non)residential buildings, the appurtenant lands may be in the form of car)par,ing spaces, roads connecting one department with another department, playgrounds for the benefit of employees, etc. All other types of properties are excluded from the scope of section 22. -ental income from a acant plot of land .not appurtenant to a building/ is not chargeable to tax under the head Income from house property, but is taxable either under the head 0rofits and gains of business or profession or under the head Income from other sources, as the case may be. *owe er, if there is land appurtenant to a house property, and it is let out along with the house property, the income arising from it is taxable under this head.

O&n%!s'i# ( ' us% #! #%!$)


It is only the owner .or deemed owner/ of house property who is liable to tax on income under this head. 1wner may be an indi idual, firm, company, co) operati e society or association of persons. The property may be let out to a third party either for residential purposes or for business purposes. Annual alue of property is assessed to tax in the hands of the owner e en if he is not in receipt of the income. 2or tax purposes, the assessee is re3uired to be the owner in the pre ious year only. If the ownership of the property changes in the rele ant assessment year, it is immaterial as the tax is to be paid on the income of the pre ious year. Income from subletting is not taxable under section 22. 2or example, A owns a house property. *e lets it out to be 4. 4 further lets it .or a portion of it/ out to 5. -ental income of A is taxable under the head Income from house property. *owe er, since 4 is not the owner of the house, his income is not taxable as income from house property, but as income from other sources under section 67. &eemed owner# (ection 2" of the Income Tax Act pro ides that, in certain circumstances, persons who are not legal owners are to be treated as deemed owners of house property for the purpose of tax liability under this head. +. If an indi idual transfers a house property to his or her spouse .except in connection with an agreement to li e apart/ or to a minor child .except a married daughter/ without ade3uate consideration, he is deemed as the owner of the property for tax purposes. *owe er, if an indi idual transfers cash to his or her spouse or minor child, and the transferee ac3uires a house property out of the gifted amount, the transferor shall not be treated as the deemed owner of the house property. 2. The holder of an Impartible 8state is deemed to be the owner of all the properties comprised in the estate. !. A member of a co)operati e society, company or association of persons, to whom a property .or a part thereof/ is allotted or leased under a house) building scheme of the society, company or association, is deemed to be the owner of such property. 9. A person who has ac3uired a property under a power of attorney transaction, by satisfying the conditions of section 6!A of the Transfer of 0roperty Act, that is

under a written agreement, the purchaser has paid the consideration or is ready to pay the consideration and has ta,en the possession of the property, is the deemed owner of the property, although he may not be the registered owner. 6. A person who has ac3uired a right in a building .under clause .f/ of section 27:;A/, by way of a lease for a term of not less than +2 years .whether fixed originally or extended through a pro ision in the agreement/, is the deemed owner of the property. This pro ision does not co er any right by way of a lease renewable from month to month or for a period not exceeding one year. 1wnership must be of the superstructure. It is not necessary that the assessee is also the owner of the land. Thus, when a person obtains a piece of land on lease and constructs a building on it, the income from such building will be taxed in his hands as income from house property.

P! #%!$) us%d ( ! &n *usin%ss ! #! (%ssi n


The owner of a house property is not liable to tax under this head if the property is used by him for his own business or profession. 4ut the business or profession should be such whose income is chargeable to tax. 5hargeability to tax does not mean that the income is actually taxed. It is possible that in a particular year the profits are not sufficient enough to attract tax liability. %hat it means is that the income from such business or profession is not exempt from tax. If an employer builds 3uarters for residential use by his employees and the letting out of these 3uarters is considered as incidental to his business, the income from such property is not taxable under this head, because the property in this case is considered to be used by the owner for his own business. It shall, therefore, be taxed as business income. The abo e position will not change e en if the buildings are let out to go ernment authorities for locating their underta,ings li,e 4an,s, 0ost 1ffice, 0olice (tation, 5entral 8xcise 1ffice, etc., pro ided the dominant purpose of letting out the accommodation is to enable the assessee to carry on his business more efficiently and smoothly. Also, income from paying) guest accommodation is taxable as income from business. %here house property owned by a partner is used by the firm .neither it is let out to the firm nor any rent is obtained for it/ for its business purposes, the partner is entitled to the exemption. The reason for this exemption is that the notional rent of property is not allowable as a permissible deduction while computing business income, if a person carries on the business or profession in his own house property.

C +# si$% !%n$
In some cases, the owner obtains rent of other assets .li,e furniture/ or he charges for different ser ices pro ided in the building .for instance, charges for lift, security, air

conditioning, etc./, apart from obtaining the rent of the building. The amount so reco ered is ,nown as composite rent. If the owner of a house property gets a composite rent for the property as well as for ser ices rendered to the tenants, composite rent is to be split up and the sum which is attributable to the use of property is to be assessed in the form of annual alue under section 22. The amount which relates to rendition of the ser ices .such as electricity supply, pro isions of lifts, supply of water, watch and ward facilities, etc./ is charged to tax under the head 0rofits and gains of business or profession or under the head Income from other sources. If there is letting of machinery, plant and furniture and also letting of the building and the two lettings form part and parcel of the same transaction or the two lettings are inseparable, then such income is taxable either as business income or income from other sources. This happens in the case of letting out of hotel rooms, theatres, auditoriums, etc. It is commonly understood that the charges per day for a room in a hotel are not specifically for the room only. In fact, a major portion of room tariff is for the amenities and ser ices pro ided in the hotel. (imilar is the case where a cinema house is let out at composite rent charged for the building, furniture, machines, e3uipment, staff, power consumption, etc. In all such cases, the composite rent recei ed by the owner of the property is not to be split up and nothing is taxable as income from house property.

R%n$"l in, +% ( " d%"l%! in ' us% #! #%!$)


If a person is engaged in the business of purchasing house properties with the purpose of letting them on high rents and disposing off those properties which are not profitable for this purpose, the rental income from such property will not be taxed as business income. Any rent from house property, whether recei ed by a dealer or a landlord, is taxable under the head Income from house property. It will remain so e en if the property is held by the assessee as stoc,)in)trade of a business or if the assessee is a company which is incorporated for the purpose of building houses and letting them on rent.

Dis#u$%d &n%!s'i#
If the title of ownership of a house property is disputed in a court of law, the decision as to who is the owner rests with the Income)tax &epartment. <ere existence of dispute as to title cannot hold up an assessment e en if a suit has been filed. =enerally the recipient of rental income or the person who is in possession of the property is treated as owner.

H us% #! #%!$) in " ( !%ign , un$!)


A resident assessee is taxable under section 22 in respect of annual alue of a property in a foreign country. A resident but not ordinarily resident or a non) resident is, howe er, chargeable under section 22 in respect of income of a house property situated aboard, pro ided income is recei ed in India during the pre ious year. If tax incidence is attracted under section 22 in respect of a house property situated abroad, its annual alue will be computed as if the property is situated in India.

PROPERTY INCO-ES E.E-PT FRO- TA.


(ome incomes from house property are exempt from tax. They are neither taxable nor included in the total income of the assessee for the rate purposes. These are# +. Income from a farm house >section 2.+A/ .c/ and section +?.+/@. 2. Annual alue of one palace in the occupation of an ex)ruler >section +?.+:A/@.

!. 0roperty income of a local authority >section +?.2?/@. 9. 0roperty income of an appro ed scientific research association >section +?.2+/@. 6. 0roperty income of an educational institution and hospital >section +?.2!5/@. 7. 0roperty income of a registered trade union >section +?.29/@. ". Income from property held for charitable purposes >section ++@. A. 0roperty income of a political party >section +!A@. :. Income from property used for own business or profession >section 22@. +?. Annual alue of one self occupied property >section 2!.2/@.

CO-PUTATION OF INCO-E FRO- LET OUT HOUSE PROPERTY


Income from house property is determined as under# =ross Annual Balue Cess# <unicipal Taxes Det Annual Balue Cess# &eductions under (ection 29 ) (tatutory &eduction .!?E of DAB/ ) Interest on 4orrowed 5apital Income 2rom *ouse 0roperty xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx

DETER-INATION OF ANNUAL VALUE


The basis of calculating Income from *ouse property is the annual alue. This is the inherent capacity of the property to earn income and it has been defined as the amount for which the property may reasonably be expected to be let out from year to year. It is not necessary that the property should actually be let out. It is also not necessary that the reasonable return from property should be e3ual to the actual rent realiFed when the property is, in fact, let out. %here the actual rent recei ed is more than the reasonable return, it has been specifically pro ided that the actual rent will be the annual alue. %here, howe er, the actual rent is less than the reasonable rent .e.g., in case where the tenancy is affected by fraud, emergency, close relationship or such other consideration/, the latter will be the annual alue. The municipal alue of the property, the cost of construction, the standard rent, if any, under the -ent 5ontrol Act, the rent of similar properties in the same locality, are all pointers to the determination of annual alue. =ross Annual Balue >(ection 2!.+/@ The following four factors ha e to be ta,en into consideration while determining the =ross Annual Balue of the property# +. -ent payable by the tenant .actual rent/ 2. <unicipal aluation of the property. !. 2air rental alue .mar,et alue of a similar property in the same area/. 9. (tandard rent payable under the -ent 5ontrol Act. Actual -ent# It is the most important factor in determining the annual alue of a let out house property. It does not include rent for the period during which the property remains acant. <oreo er, it does not include the rent that the tax payer is unable to realiFe, if certain conditions are satisfied. (ometimes a tenant pays a composite rent for the property as well as certain benefits pro ided by the landlord. (uch composite rent is to be disintegrated and only that part of it which is attributable to the letting out of the house property is to be considered in the determination of the annual alue. <unicipal Baluation# <unicipal or local authorities charge house tax on properties situated in the urban areas. 2or this purpose, they ha e to determine the income earning capacity of the property so as to calculate the amount of house tax to be paid by the owner of the property. 4ut this aluation cannot be treated as a conclusi e e idence of the rental alue of the property, although such aluation is gi en due consideration by the Assessing 1fficer. 2air -ental Balue# It is the rent normally charged for similar house properties in the same locality. Although two properties cannot be ali,e in e ery respect, the e idence pro ided by transactions of other parties in the matter of other properties in the neighborhood, more or less comparable to the property in 3uestion, is rele ant in arri ing at reasonable expected rent. (tandard -ent# (tandard -ent is the maximum rent which a person can legally reco er from his tenant under a -ent 5ontrol Act. This rule is applicable e en if a tenant has lost his

right to apply for fixation of the standard rent. This means that if a property is co ered under the -ent 5ontrol Act, its reasonable expected rent cannot exceed the standard rent. The =ross Annual Balue is the municipal alue, the actual rent .whether recei ed or recei able/ or the fair rental alue, whiche er is highest. If, howe er, the -ent 5ontrol Act applies to the property, the gross annual alue cannot exceed the standard rent under the -ent 5ontrol Act, or the actual rent, whiche er is higher. If the property is let out but remains acant during any part or whole of the year and due to such acancy, the rent recei ed is less than the reasonable expected rent, such lesser amount shall be the Annual alue. 2or the purpose of determining the Annual alue, the actual rent shall not include the rent which cannot be realiFed by the owner. *owe er, the following conditions need to be satisfied for this# .a/ The tenancy is bona fideG .b/ The defaulting tenant has acated, or steps ha e been ta,en to compel him to acate the property. .c/ The defaulting tenant is not in occupation of any other property of the assesseeG .d/ The assessee has ta,en all reasonable steps to institute legal proceedings for the reco ery of the unpaid rent or satisfied the Assessing 1fficer that legal proceedings would be useless. ICC;(T-ATI1D 7.+ Find $'% G! ss Annu"l V"lu% in $'% ,"s% ( $'% ( ll &ing #! #%!$i%s/ .+/ alue 2air rent (tandard rent Actual rent recei able ;nrealiFed rent 0eriod acancy of 62,??? 7?,??? DA 66,??? H H .2/ +, ??,??? +, ?2,??? :?,??? :6,??? H 6,??? H H .!/ 7?,??? 7A,??? "?,??? "2,??? .9/ "6,??? "?,??? 7?,??? "2,??? H .6/ +, A?,??? +, A6,??? +, "6,??? +, 7A,??? 92,??? <unicipal

A months + month

(1C;TI1D .+/ (ince -ent 5ontrol Act is not applicable, =AB will be the highest of municipal alue, fair rent and actual rent. *ence, the =AB will be -s. 7?,???. .2/ =AB cannot exceed the standard rent or actual rent, whiche er is higher. Therefore, =AB will be -s. :6,???. .!/ Actual rent recei able will be reduced by the amount of unrealiFed rent i.e. -s. "2,??? I -s. 6,??? J -s. 7",???. Dow, =AB will be the highest of municipal alue, fair rent and actual rent, subject to the maximum of standard rent. *ence, =AB will be -s. 7A,???. .9/ =AB will be the actual rent recei able adjusted by the loss due to acancy i.e. -s. "2,??? I -s. 9A,??? J -s. 29,???. .6/ Actual rent recei able will be reduced by the amount of unrealiFed rent and loss due to acancy i.e. -s. +, 7A,??? I -s. 92,??? I -s. +9,??? J -s. +, +2,???. Dow, we will ta,e the highest of municipal alue, fair rent and actual rent, subject to the maximum of standard rent. (o, =AB will be -s. +, "6,??? reduced by the loss due to acancy i.e. -s. +, "6,??? I -s. +9,??? J -s.+, 7+,???. &eduction of <unicipal Taxes 2rom the annual alue as determined abo e municipal taxes are to be deducted if the following conditions are fulfilled# $ $ $ The property is let out during the whole or any part of the pre ious year The <unicipal taxes must be borne by the landlord .If the <unicipal taxes or any part thereof are borne by the tenant, it will not be allowed/. The <unicipal taxes must be paid during the year .%here the municipal taxes become due but ha e not been actually paid, it will not be allowed. (imilarly, the year to which the taxes relate to, is also immaterial/.

DEDUCTIONS UNDER SECTION 20


Two deductions will be allowed from the net annual alue .which is gross annual alue less municipal taxes/ to arri e at the taxable income under the head income from house property. It has to be borne in mind that the deductions mentioned here .section 29/ are exhausti e and no other deductions are allowed. The deductions admissible are as under# (tatutory deduction# !? per cent of the net annual alue will be allowed as a deduction towards repairs and collection of rent for the property, irrespecti e of the actual expenditure incurred.

Interest on borrowed capital# The interest on borrowed capital will be allowable as a deduction on an accrual basis if the money has been borrowed to buy or construct the house. Amount of interest payable for the rele ant year should be calculated and claimed as deduction. It is immaterial whether the interest has actually been paid during the year or not. *owe er, there should be a clear lin, between the borrowal and the construction'purchase etc., of the property. If money is borrowed for some other purpose, interest payable thereon cannot be claimed as deduction. The following points are to be ,ept in mind while claiming deduction on account of interest on borrowed capital# +. In case the property is let out, the entire amount of interest accrued during the year is deductible. The borrowals may be for construction'ac3uisition or repairs'renewals. 2. A fresh loan may be raised exclusi ely to repay the original loan ta,en for purchase' construction etc., of the property. In such a case also, the interest on the fresh loan will be allowable. !. Interest payable on interest will not be allowed. 9. 4ro,erage or commission paid to arrange a loan for house construction will not be allowed. 6. %hen interest is payable outside India, no deduction will be allowed unless tax is deducted at source or someone in India is treated as agent of the non)resident. Interest attributable to period prior to construction'ac3uisition <oney may be borrowed prior to the ac3uisition or construction of the property. In such a case, the period commencing from the date of borrowing and ending on the date of repayment of loan or on <arch !+ immediately preceeding the date of ac3uisition or completion of construction, whiche er is earlier, is termed as the pre)construction period. The interest paid'payable for the pre)construction period is to be aggregated and claimed as deduction in fi e e3ual instalments during fi e successi e financial years starting with the year in which the ac3uisition or construction is completed. This deduction is not allowed if the loan is utiliFed for repairs, renewal or reconstruction. ICC;(T-ATI1D 7.2 K ta,es a loan of -s. +?, ??,??? L +2E p.a. on Muly+, 2??+ for the construction of a house property. The construction of the property is completed on Manuary+6, 2??9. 5alculate the amount of interest deductible in the different pre ious years. (1C;TI1D +2E of -s. +?, ??,??? J -s. +2,??? will be deductible from the annual alue of the house property e ery year till the loan is repaid. Interest for the pre)construction period i.e. from Muly +, 2??+ to <arch !+, 2??!

.immediately preceeding the pre ious year during which the construction of the house property is completed/ will be -s. +2,??? N2+'+2 J -s. 2+,???. It will be deductible in 6 e3ual installments of -s. 9,2?? each starting from the pre ious year in which the construction is completed i.e. 2??!)?9. Therefore, the total amount deductible as interest on borrowed capital for the first 6 pre ious years 2??!)?9, 2??9)?6, 2??6)?7, 2??7)?" and 2??")?A will be -s. +2,??? O 9,2?? J -s. +7,2??.

CO-PUTATION OF INCO-E FRO- SELF 1 OCCUPIED HOUSE PROPERTY


The annual alue of one self)occupied house property, which has not been actually let out at any time during the pre ious year, is ta,en as Dil >(ection 2!.2/ .a/@. 2rom the annual alue, only the interest on borrowed capital is allowed as a deduction under section 29. The amount of deduction will be# $ $ 8ither the actual amount accrued or -s.!?,???') whiche er is less %hen borrowal of money or ac3uisition of the property is after !+.!.+::: ) deduction is -s.+, 6?,???') applicable to A.P 2??2)?! and onwards.

*owe er, if the borrowal is for repairs, renewals or reconstruction, the deduction is restricted to -s.!?, ???. If the borrowal is for construction'ac3uisition, higher deduction as noted abo e is a ailable. If a person owns more than one house property, using all of them for self) occupation, he is entitled to exercise an option in terms of which, the annual alue of one house property as specified by him will be ta,en at Dil. The other self occupied house property'is will be deemed to be let out and their annual alue will be determined on notional basis as if they had been let out. Annual Balue of one house away from wor, place >(ection 2!.2/ .b/@ A person may own a house property, for example, in 4angalore, which he normally uses for his residence. *e is transferred to 5hennai, where he does not own any house property and stays in a rental accommodation. In such a case, the house property in 4angalore cannot be used for self)occupation and notional income, therefore, would normally ha e been chargeable although he deri es no benefit from the property. To sa e the tax payer from hardship in such situations, it has been specifically pro ided that the annual alue of such a property would be ta,en to be nil subject to the following conditions#
$ $

The assessee must be the owner of only one house property. *e is not able to occupy the house property because of his employment, business etc., away from the place where the property is situated. $ The property should not ha e been actually let or any benefit is deri ed therefrom. $ *e has to reside at the place of employment in a building not belonging to him.

Annual Balue of a house property which is partly self I occupied and partly let out If a house property consists of two or more independent residential units, one of which is self I occupied and the other unit.s/ are let out, the income from the different units is to be calculated separately. The income from the unit which is self I occupied for residential purposes is to be calculated as per the pro isions of (ection 2!.2/.a/ i.e. the annual alue will be ta,en as nil and only interest on borrowed capital will be deductible upto the maximum limit of -s. +,6?,??? or -s. !?,???, as the case may be. The income from the let out unit.s/ will be calculated in the same manner as the income from any let out house property. If a house property is self I occupied for a part of the year and let out for the remaining part of the year, the benefit of (ection 2!.2/ .a/ is not a ailable and the income from the property will be calculated as if it is let out. ICC;(T-ATI1D 7.! K owns two houses. The rele ant details are as follows# *ouse I (elf I occupied Cet out -ent per month <unicipal aluation 2air rent (tandard rent -ent of let out period <unicipal taxes paid Interest on borrowed capital April +, 2??6 to Mune !?, 2??6 Muly +, 2??6 to <arch !+, 2??7 -s. A,??? -s. :?,??? -s. +, ??,??? -s. +, ??,??? -s. "2,??? -s. +2,??? -s. 2?,??? *ouse II Muly +, 2??6 to <arch !+, 2??7 April +, 2??6 to Mune !?, 2??6 -s. 6,??? -s. 7?,??? -s. 76,??? -s. 6?,??? -s. +6,??? -s. A,??? -s. 9,???

5alculate income from house property for the assessment year 2??7)?". (1C;TI1D *ouse I =ross Annual Balue +, ??,??? *ouse II 6?,???

Cess# <unicipal taxes Det Annual Balue Cess# &eductions under (ection 29 (tatutory deduction .!?E of DAB/ Interest on borrowed capital Income from house property

+2,??? AA,???

A,??? 92,???

27,9?? 2?,??? 9+,7??

+2,7?? 9,??? 26,9??

ILLUSTRATION 230 K owns a big house which has three independent units. ;nit I .6?E of the floor area/ is let out for residential purpose on a monthly rent of -s. A,???. This unit remains acant for one month when it is not put to any use. A sum of -s. +,6?? could not be collected from the tenant. ;nit II .26E of the floor area/ is used by K for the purpose of his profession, while ;nit III .the remaining 26E/ is utiliFed by him for the purpose of his residence. 1ther particulars of the house are as follows# <unicipal aluation# -s. 7?,???, fair rent# -s. "?,???, standard rent# -s. :?,???, municipal taxes# -s. +!,???, repairs# -s. 9,???, interest on capital borrowed for renewal of the property# -s. !7,??? and fire insurance premium# -s. +6,???. 0rofessional income of K is -s. :?,??? .without debiting house rent and other incidental expenditure including admissible depreciation on the portion of the house used for profession# -s. A,???/. &etermine the =ross Total Income of K for the assessment year 2??7)?". (1C;TI1D ;nit I .let out/ <unicipal aluation .6?E of -s. 7?,???/ 2air rent .6?E of -s. "?,???/ (tandard rent .6?E of -s. :?,???/ Actual rent .-s. A,??? x ++ I +,6??/ be the actual rent, since it is the highest/ =ross Annual Balue Cess# <unicipal Taxes .6?E of -s. +!,???/ A7,6?? 7,6?? !?,??? !6,??? 96,??? A7,6?? .=AB will

Det Annual Balue Cess# &eductions under (ection 29 (tatutory &eduction .!?E of -s. A?,???/ Interest on borrowed capital .6?E of -s. !7,???/ Income from ;nit I ;nit III .self I occupied/ Annual Balue Interest on borrowed capital .26E of -s. !7,???/ Income from ;nit III ;nit II .used for own profession/ 29,??? +A,???

A?,???

92,??? !A,???

DIC :,??? ) :,???

Cess#

(ince ;nit II is used by K for the purpose of his profession, its annual alue will not be charged to tax as income from house property, nor will the notional rent be deductible from professional income. 1ther expenses relating to the portion of his house used for the purpose of his profession will be deducted from his professional income. Therefore, taxable professional income of K will be calculated as follows# 0rofessional income Cess# <unicipal taxes .26E of -s. +!,???/ -epairs .26E of -s. 9,???/ Interest .26E of -s. !7,???/ Insurance premium .26E of -s. +6,???/ &epreciation Taxable professional income 5omputation of =ross Total Income Income from house property ;nit I ;nit II !A,??? ) :,??? 2:,??? !,26? +,??? :,??? !,"6? A,??? 26,??? 76,??? :?,???

Income from profession =ross Total Income

76,??? :9,???

(1<8 (085IAC 0-1BI(I1D(


T"4"*ili$) ( Un!%"li5%d R%n$ !%, 6%!%d l"$%! (S%,$i n 27A) %here any rent cannot be realiFed, and subse3uently if such amount is realiFed, such an amount will be deemed to be the income from house property of that year in which it is recei ed. %e ha e seen earlier that the basic re3uirement for assessment of this income is the ownership of the property. *owe er, in the cases where unrealiFed rent is subse3uently realiFed, it is not necessary that the assessee continues to be the owner of the property in the year of receipt also. Ass%ss+%n$ ( "!!%"!s ( !%n$ !%,%i6%d (S%,$i n 27B) %hen the owner of a property recei es arrears of rent from such a property, the same shall be deemed to be the income from house property in the year of receipt. !?E of the receipt shall be allowed as deduction towards repairs, collection charges etc. Do other deduction will be allowed. As in the case of unrealiFed rent, the assessee need not be the owner of the property in the year of receipt. H us% #! #%!$) &n%d *) , 8 &n%!s (s%,$i n 22) If a house property is owned by two or more persons, then such persons are ,nown as co)owners. 5o)owners are not taxable as an association of persons. %hen the share of each co)owner is definite and ascertainable, it has been pro ided that each of the owners will be assessed indi idually in respect of share of income from the property. In other words, income from the property will be determined and allocated to each co)owner according to his share. %hen each of the co)owners of a property uses it for his residence, each of them will also get the concessional treatment in respect of one self)occupied property. L ss (! + ' us% #! #%!$) If the aggregate amount of permissible deductions exceeds the annual alue of the house property, there will be a loss from that property. (o far as income from a self)occupied property is concerned, and in respect of a property away from the wor,place, the annual alue is ta,en at nil and no other deductions are allowed except for interest on borrowed capital upto a maximum of -s.!?,??? or -s.+,6?,???. In such cases, there may be a loss upto a maximum of -s.!?, ??? or -s.+, 6?,???, as the case may be. *owe er, in respect of a let out house property, there are no restrictions on deductions and therefore, there can be loss of any amount under this head.

The loss from one house property can be set off against the income from another house property. The remaining loss, if any, can be set off against incomes under any other head li,e salary. In case the loss does not get wiped out completely, the balance will be carried forward to the next assessment year to be set off against the income from house property of that year. *owe er, such carry forward is restricted to eight assessment years only.

C8T ;( (;< ;0
;nder section 22 of the Income Tax Act, the annual alue of house property, consisting of buildings and lands appurtenant thereto, is taxable under the head Income from house property, in the hands of the owner .or deemed owner/ of the property, pro ided that the property is not used by the assessee for the purpose of his own business or profession. 2or determining the annual alue of the house property, the actual rent recei ed or recei able from the property, the municipal aluation, the fair rental alue and the standard rent under the -ent 5ontrol Act are ta,en into account. 2rom the =ross Annual Balue of the property, the <unicipal Taxes are deducted to arri e at the Det Annual Balue. (ection 29 of the Income Tax Act pro ides that !?E of the DAB and the interest on borrowed capital shall be deducted from the DAB to obtain the taxable income from house property. As per (ection 2!.2/ of the Income Tax Act, the annual alue of one self) occupied house property is ta,en to be nil. Do deductions are permissible from the annual alue of such property, except the interest on borrowed capital, subject to the maximum limit of -s.+, 6?,??? or -s.!?, ??? as the case may be. The abo e pro isions may result in loss from house property, which may be set off against income from another house property or against incomes under the other heads. The balance loss may be carried forward, to be set off against the income from house property, upto a maximum of eight assessment years.

INCO-E CHARGEABLE REAL 9 NOTIONAL This is the only head of income, which taxes notional income .except under some circumstances under capital gains, income from other sources/. The taxability may not necessarily be of actual rent or income recei ed but the potential income, which the property is capable of yielding. Accordingly, if a person owns a property which is leying acant, notional income with respect to such property may be liable to tax e en though the owner may not ha e recei ed any income from such property. 2urther, if the property is let out and the rent recei ed is less than the potential rent which the property is capable of yielding, tax would be payable on the rent which the owner is capable of getting and not on the actual rent .-efer heading I Q&etermination of annual alueQ/. Though the head of chargeability of the income is Income from house property what is charged under this head not only the income from house .dwelling/ but all income arising out of letting of building. In other words (ections 22 to 2" are wholly silent as to the purpose for which a building or a house property is to be used. This head of income can be aptly described as income from properties. CHARGEABILITY U:S 22 "3 ;'"$ is ,'"!g%"*l% und%! $'is '%"d< Annual alue of property consisting of any building or land appurtenant thereto except such property which is used by assessee for the purpose of business and profession. If the building is used by the assessee for the purposes of his business or profession, no notional income from such building can be assessed to tax under the head QIncome from house propertyQ and no deduction on account of notional rent is a ailable to the assessee while computing the income under the head QIncome from business or professionQ. *3 In &' s% '"nd su,' in, +% is $"4"*l%< Income from house property is taxable in the hands of owner'deemed owner of the property. 1wner is a person who is entitled to recei e income from property in his own right. Income is chargeable in the hands of person e en if he is not a registered owner. -ental income from sub)letting of property ac3uired on monthly tenancy basis or on lease for a period of less than twel e years may be taxable either as QIncome from business or professionQ, where such letting is the business of the assessee or taxable as QIncome from other sourcesQ. This would depend upon facts of each case. PROPERTY O;NED BY CO8O;NERS (SECTION 22) %here property consisting of buildings and lands appurtenant thereto is owned by two or more persons and their respecti e shares are definite and ascertainable, such persons shall not be assessed as an A.1.0. .Association of 0ersons/ but the share of each person in the income from the property as computed under sections 22 to 26 .i.e., income from house property/ shall be included in his total income. 1wner includes deemed owner u's 2" as under# R Transfer to spouse without ade3uate consideration or to a minor child not being a married daughter. *owe er, if the transfer is under an agreement to li e apart, such transfer to the spouse would not be co ered.

R *older of impartial estate shall be deemed to be owner of all the properties comprised in the estate R A member of a co)operati e society, company or other association to whom a building is allotted or leased under a house building scheme of society, company or other association as a case may be. R A person who is allowed to ta,e or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 6!A of the Transfer of 0roperty Act,+AA2 .9 of +AA2/. R A person who ac3uires any lease rights of not less than twel e years .excluding any rights by way of a lease from month to month or for a period not exceeding one year/ 1fficial assignee can be treated as owner for the purpose of section 22 except when the recei er is appointed by court. INCO-E FRO- PROPERTIES UNDER THE PERVIE; OF THE HEAD =INCO-E FRO- HOUSE PROPERTY= a. 0redominantly, only income from letting out of building or land appurtenant thereto is taxable under the head QIncome from house propertyQ. Accordingly, if letting out is of a bungalow along with the garden surrounding it, the income of the entire bungalow along with land appurtenant theretoG i.e., the garden would be taxed under this head. If the letting out is only of the acant land, the rent recei ed from such letting out of land is not taxable under the head QIncome from house propertyQ. It may be taxable under the head QIncome from business or professionQ if the business of the assessee is to let out land or may be taxable as QIncome from other sourcesQ if letting out of land is not the business of the assessee. 2urther if composite rent is recei ed for property as well as ser ices and amenities, the annual alue of such property is assessable under section 22 and profits arising from ser ices and amenities is chargeable to tax under section 2AG i.e., business income or under section 67G i.e., income from other sources.

b. -ental income from letting out of residential and commercial buildings is co ered under this head of income. %here property constitutes stoc, in trade of business or where business of assessee is to let out house property, income is co ered under the head profits and gains of 4usiness S 0rofession. 2urther if letting out is subser ient to the main business the annual alue will not be chargeable u's. 22 rather it will be chargeable under profits and gains of 4usiness S 0rofession.

c. %here an assessee let machinery, plant or furniture and also buildings, and the letting out of buildings is inseparable from the letting of the machinery, plant or furniture, the income from such letting, if it is not chargeable to tax under the head QIncome from business or professionQ would be taxable under the head QIncome from other sourcesQ .

R -efer (ection 67.2/.iii/. The *onble (upreme 5ourt has in the case of Shambhu Investments (P.) Ltd. s. CIT .2??!/ 27! IT- +9! .(5/ held that income from letting out would be taxable under the head QIncome from house propertyQ primarily on the ground that letting of building was a primary object with additional right to use furniture, etc. DETER-INATION OF ANNUAL VALUE 2or determining the annual alue, one has to first determine the gross annual alue .=AB/ which is the higher of # a. The sum for which the property might reasonably be expected to let from year to year. In cases of properties where (tandard rent has been fixed, such sum cannot exceed the standard rent fixed .-efer Sheila Kaushish vs. CIT >+:A+@ " Taxman + .(5/ S Amolak Ram Khosla vs. CIT >+:A+@ " Taxman 6+ .(5//. *owe er where property let was acant during the whole or part of the pre ious year and rent actually recei ed or recei able is less than expected rent, then rent actually recei ed or recei able is ta,en as =AB.

b. %here property is actually let out and the rent recei ed or recei able is more than the amount determined in .a/ abo e, the annual alue would be the actual rent recei ed. Dote# 2ollowing amounts are not added to the =AB

Amount of municipal tax realised from tenant Dotional interest on amount recei ed towards rent'security deposit from the tenant -epairs carried out by the tenant.

ANNUAL VALUE TO BE TA>EN AS ?NIL@ IN CERTAIN CASES a. The annual alue of a property which is in occupation of the owner for the purposes of his residence would be considered to be nil if he does not deri e any other benefit from the said residential house. If the owner has more than one house for the purposes of his residence, the annual alue of any one of such houses, at his option, would be considered to be nil. Dotional income of other residential houses would be liable to tax. In such case owner may choose to consider the annual alue nil .for computation purposes/ in respect of the one property at his option.

b. (imilarly, if the assessee is owner of only one residential house which he is unable to occupy on account of his employment, business or profession carried on at any other place and on account of which he has to reside at that other place in a building not owned by him,

the annual alue of such house shall be nil. DETER-INATION OF NET ANNUAL VALUE (NAV) The following amounts are re3uired to be reduced while determining the net annual alue # a. Any taxes le ied by any local authority, which are liable to be paid by the owner, only on actual payment thereof during the pre ious yearG and b. The unrealisable rent subject to satisfaction of conditions prescribed under -ule 9. Amount of unrealised rent shall be e3ual to the amount of rent payable but not paid by a tenant of the assessee and so pro ed to be lost and irreco erable where,R

the tenancy is bona fide the defaulting tenant has acated, or steps ha e been ta,en to compel him to acate the property the defaulting tenant is not in occupation of any other property of the assessee the assessee has ta,en all reasonable steps to institute legal proceedings for the reco ery of the unpaid rent or satisfies the Assessing 1fficer that legal proceedings would be useless.

UNREALISED RENT REALISED SUBSEAUENTLY B SEC3 27AA

The entire amount of unrealised rent recei ed in the 0P shall be chargeable to tax in the year in which such amount is recei ed. .The deduction u's 2!'29 shall not be allowed if the unrealised rent pertaining to period up to AP 2??+)?2 S deduction u's 29.+/.x/ in respect thereof was allowed in earlier years./

;nrealised rent recei ed subse3uently is chargeable to tax e en if the house property is not owned by the assessee in the year of such reco ery.

ARREARS OF RENT RECEIVED S3 27B

%here any arrears of rent is recei ed which was not taxed earlier, such rent shall be assessed under the head QIncome from house propertyQ in the year in which such arrears are recei ed i.e. taxable on receipt basis. The arrears would be taxable under this head irrespecti e of the fact whether the assessee is the owner of the buildings in the year in which such arrears are recei ed. A deduction of !?E on account of repairs on the arrears of rent recei ed would be allowed in the year in which such arrears are taxable.

DEDUCTIONS ALLO;ED ;HILE CO-PUTING INCO-E UNDER THIS HEAD

The following deductions shall be allowed from the annual alue u's. 29# a. !?E of the annual alue as computed. b. Interest paid'payable on borrowed capital ac3uired for the purpose of ac3uisition, construction, repairs, renewals or reconstruction of house property subject to conditions and limits as mentioned herein after.

Interest for the period prior to ac3uisition or construction of the premises would be deductible in fi e e3ual instalments starting from the year in which property is ac3uired or constructed.

In ,"s% ( s%l( ,,u#i%d H us% P! #%!$) in$%!%s$ "ll &"*l% is su*C%,$ $ ( ll &ing , ndi$i ns/ Li+i$ ( d%du,$i n (in Rs3)

S!3 P"!$i,ul"!s N 3 +.

0roperty ac3uired'constructed after +st April, +::: with borrowed capital .deduction is allowed only where such ac3uisition or construction is completed within ! years from the end of the financial year in which capital was borrowed/ +,6?,???.?? In all other cases. !?,???.??

2. Dote#

a. Interest on new loan ta,en to repay original loan is considered as loan ta,en for such ac3uisition, construction etc. .-efer 54&T 5ircular Do. 2A dt. 2?.?A.+:7:/. b. %here interest is claimed as a deduction, a certificate from the lender certifying the amount of interest payable should be furnished by the assessee. c. The list of deduction specified u's 29 are exhausti e, no other deduction can be claimed other than specified therein. d. Interest on borrowed money which is payable outside India shall not be allowed as deduction u's 29.b/ unless the tax on the same has been paid or deducted at source

and in respect of which, there is a person in India, who may be treated as agent of the recipient for such purpose. e. 4ro,erage or commission paid to arrange a loan for house construction will not be allowed.

CO-PUTATION OF INCO-E FRO- HOUSE PROPERTY IN NUTSHELL P"!$i,ul"!s T)#% ( P! #%!$) S%l(8O,,u#i%d P! #%!$) H us% P! #%!$) u:s3 2D(2) A+$3 Rs3 KKK KKK KKK A+$3 Rs3 A+$3 Rs3 DIC DIC D%%+%d $ *% L%$8Ou$ P! #%!$) u:s3 2D(0) A+$3 Rs3 A+$3 Rs3 KKK DIC

L%$8Ou$ u:s3 2D(E)

A+$3 Rs3 .i/ -easonably 8xpected -ent .ii/ Actual rent recei ed or recei able G! ss Annu"l V"lu% (GAV) E3 (i) !F 23 (ii)G(i)F $'%n (ii) !F D3 (ii)H(i) du% $ 6","n,) $'%n (ii) Cess <unicipal Taxes paid to local authority by the owner E3 N%$ Annu"l V"lu%(NAV)

DIC .KKK/ KKK DIC DIC

KKK .KKK/ KKK

Cess# &eduction u's. 29 .a/ !?E of DAB .b/ Interest on loans as allowed 23 T $"l D%du,$i ns (")I(*) A. Income from *ouse 0roperty .+)2/ B. Add ;nrealised -ent -ecei ed subject to conditions of deduction u's. 2!'29 C. Add Arrears of -ent -ecei ed KKK .KKK/ Cess# !?E of arrears of -ent RRRRR T $"l In, +% (! + H us% P! #%!$) (AIBIC) ... ... ... ... DIC NIL DIC NIL KKK KKK .KKK/ ... DIC KKK .KKK/ (...) KKK KKK .KKK/ ...

...

NIL

NIL

DIC

DIC

Dote# The rent recei ed may be charged under the head business income or income from other sources where the assessee carries out an organised acti ity of letting out of the properties and'or the predominant object of recei ing such rent is the commercial exploitation of such property.