Income From House Property

• Basis of Charge:
The basis of calculating income from house property is the
annual value.

This is the inherent capacity of the property to earn income.

The charge is not because of the receipt of any income but is
on the inherent potential of the house property to generate
income.
 Conditions to be fulfilled:
• The property must consist of buildings
and lands appurtenant thereto.
• The assessee must be the owner of such
house property.
• The property should not be used by the
owner for the purpose of any business
or profession carried on by him
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 *******
 Determining Gross Annual Value
I. Expected Rent:
a) Higher of Municipal Value or Fair Rent
b) If Rent Control Act is applicable, Lower of
Standard Rent or Step a)
II. Actual Rent Received/ Receivable-Unrealised
Rent
III. Higher of step I) or II) – Vacancy Allowance
 Municipal taxes paid
• Step 2: Deduct Municipal Taxes, 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.
 Example
Municipal value of house is Rs 95,000,
fair rent is Rs 130,000 and
standard rent is Rs 110,000.
The house property has been let for Rs 12000
p.m. Municipal taxes during the year were Rs
40,000. Compute annual value.
 Example
Municipal value of house is Rs 95,000,
fair rent is Rs 130,000 and
standard rent is Rs 110,000.
The house property has been let for Rs
12000 p.m., however the rent is unrealized
for 2 months. The tenant has vacated the
property. Municipal taxes were Rs 40000
(50% were paid by tenant). Compute annual
value.
 Example
Municipal value of house is Rs 95,000,
Fair rent is Rs 130,000 and
standard rent is Rs 110,000.
The house property has been let for Rs 12000
p.m. however the rent is unrealized for 2
months. The property was vacant for three
months during the previous year. Municipal
taxes were paid Rs 40000. Compute annual
value.
 (C). Self Occupied for a period and
then Let Out
• 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.
• 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.
 Example
Example:
• Ajay owns a house property in Delhi whose
municipal value is Rs 200,000 and the fair
rent is Rs 240,000. The standard rent is Rs
220,000. It was self occupied from April to
July and from August it was let out for Rs
18,000 p.m. Compute the annual value of
the property if the municipal tax paid
during the previous year was Rs 40,000.
 Treatment of unrealized rent
• The actual rent received or receivable shall
not include the amount of rent which the
owner cannot realize, subject to:
– Tenancy is Bonafide
– Tenant has vacated the property
– Tenant is not in occupation of any other house
property of the owner.
– Legal proceedings have been started against the
tenant
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.
 Self-occupied house property

Annual value Nil

Less: Interest on borrowed Capital
(up to maximum Rs. 200000) ***
Income From House Property ***
 (D)Property could not be self occupied owing to
employment

• The annual value of such a house or part of

the house shall be taken to be NIL, if no
other benefit is derived there from.
 Deemed to be Let Out Properties

• To treat any one of the houses to be self

occupied .
• The other house(s) shall be deemed to be
let out.
 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 is income from house
property in the year of receipt
• Standard deduction of 30% of the receipt
shall be allowed as deduction .
• The assessee need not be the owner of the
house property in the year of receipt.
 Examples
Particulars Illustration 2 Illustration 3 Illustration 10
Municipal 90000 65000 135000
Valuation
Fair Rent 88000 69000 143000
Standard Rent 70000 55000 130000
Actual / Annual 8000pm 102000 14000pm
Rent
Unrealised Rent 3 Months 1 Month
Vacancy Period 3 Months
Municipal Tax 26000
Rent increased
retrospectively from April
2017 by Rs.3000 in June
2018
Illustration 13
Big House: 50% Let out (Monthly Rent Rs. 3200)
25% used for Profession
25% Self Occupied
Municipal valuation : Rs. 60000
Standard Rent : Rs. 90000
Municipal Taxes Paid : Rs.12000
Interest on Borrowed Capital For Repairs: 28000
The let out portion remained vacant for 1 month
Illustration 15
House I House II House III
Purpose Let out to Bank Self Occupied Let out to
Residence
Actual Rent 30000 24000
MV 32000 28000 30000
M Tax paid – 1200 1000 3000
Owner
M Tax paid – 2000 1800
Tenant
Fire Insurance 2000 1000 3000
Premium
Interest on loan 7000 5000
for Renewal of
house