Income under the hea “Income from hous property” and it ) computation = CHAPTER = 1 & mt WHAT ISTHE BASIS OF CHARGE [SEC. 22] 66. Income is taxable under the head “Income from house property” if the following three conditions satisfied: 5 faeries 1. The property should consist of any buildings orJands appurtenant thergty, 2. The asseaspe should be owner of the property. ANALY 43 The p¥Operly should not be used by the owner forthe purpose of any business or profession carried on's hhim, the profits of which are chargeable to income-tax. RS iy business or profession carried on Unless therefore all the aforesaid corultions are satisfied, the property income cannot the head “Income from house property”. propesy: tbe charged to tax und ‘To put it differently, ifal the aforesaid conditions are satisfied, property incom x ae a eg rks tire ee tate under eZ bron incorporated with the object of buying and developing landed properties en = COMPAPY W! Provisions illustrated: eee ‘The following illustrations are given to have better understanding — a 1X owns a building. Ii given on rent Income of the property is taxable 1 apenas the ebeve-noted thre condilions are sath, "ane Under the head “Income from house bailing on is ects Property as Conny Set godown. In this case, no income is taxable under the head “Income from hous, satisfied. Het 66.1 Property consisting of any buildings or lands appurtenant thereto The tay buildings or land appurtenant thereto, Rental income ofa vacant plot (not apeee ey, SHOU consist of chargeable fo tax under the head “Income from house property” bt fs taxable ager ont © Buileing) is pot land gains of business or profession” or under the head “Incomte from other sourseaey LedSE the head “Profits “Building” = The word “building” is wide enough to include residential houses Gone BAY be occupied), building let out for office use, or for storage or for use as factory. Leen ote fet Iecture halls and other public auditoriums are “buildings” * Even music halls, out or solf- dance halls,———____ APPLICABILITY OF S. 22 IN CERTAIN TYPICAL CASES ™ Para 664 “Lond appurtenant thereto” - The appurtenant lands in respect of a buil in the form of approach 4 sin respect of a building may be of app roads fo at {com public streets, compounds, courtyard, backyards, playgrounds, et. I also include oe parking spaces, roads connecting one departinent wit department, playgrounds for the benefits of oe ae ig one department with another department, playgrou 66.2 Assossee should be owner of the property Income is taxable uni the head, "Income from house property” only ifthe assessee is the owner (or deemed as “owner”) of a house property. The owner may bean individual, HUE, firm, company, co-operative society or association of persons, ete, Ania value of property 1s assessed to tax under section 22 in the hands of owner, even if he is notin receipt of income. It is not pecessary that ownership should extend to the site on which building stands as well as the superstructure. Income from subletting isnot taxable as income from house property. SRE loner; Besides the legal owner, section 27 provides thatthe following persons are tobe treated as lowner” of ahouse for the purpose of charging tax on annual value under the head "Income reer vase Property forthe purpose of charging, 1. If an individual transfers a house property without adequate consideration to his/her spouse or his/her ‘ without adequate consideration to his/her spo! minor child, the transferor is deemed as owner of the property. This rule is, however, not applicable, if an nevenal transfers a house property tohis/her spouse under an agreementto live apart or to his or her minor married daughter. 2. The holder of impartible estate is deemed 2s owner of the property. 3. Ifa property is allotted by a group co-operative housing sociely to its members under the house building scheme of the society, members are deemed as owner of the property. A similar rule is applicable, fa property is allotted to members by a company/ AOP. pepe 4. Ifa person has acquired a property under a “power of attomey transaction” by satisfying the conditions of gection53A of the Transfer of Property Act, heis deemed as owner of the property, although he may not be the “registered owner” of the property. Section 53A of the Transfer of Property Act requires the following conditions: 4@. there should bean agreement in writing betsveen the purchaser and the seller; », the purchaser has paid the consideration or he is ready to pay the consideration; and the purchaser has taken the possession of the property. Ifthe aforesaid three conditions are satisfied, the purchaser becomes the deemed “ow: the purpose of income-tax, even if he is not the registered owner of the property. 5. Ifa person takes a property on lease for 12 years or more, he becomes deemed owner of the company. 66.3 Property should not be occupied by the owner for his own. business or profession- Arcwal value ofa house property is not chargeable to tax under the head “Income from house property”, if the owner uses the property for the purposes of carrying on his business or profession (whose income is chargeable ta tax). The reason of this exclusion seems to be that notional rent of property isnot allowable as a permissible desigetion while computing busines income, if person caries on business or profession in his own house propery. +A few examples A few examples are given below ~ 1. X owns a property. He uses the property as his office, factory or godown. As the property is used for the Purpose of carrying on own business or profession, nothing is taxable under section 22. 2.X Ltd. is a manufacturing company. The factory of the company is situated in Andhhra Pradesh. Within the factory campus, there isa residential colony having 80 quarters for workers. These quarters are given to the workers for residential purposes. A nominal rent of Rs. 100 per month is recovered from the workers Asthe Purpose of letting out of residential quarters isto run the business smoothly, the residential quarters will be ireated as house property used by the assessce for the purpose of its business, Accordingly, annual value thereof is not chargeable under section 22. Recovery of rent of Rs. 100 per month from the workers will be taken gs business receipt. . 3.Y Ltd, makes available a few rooms in its factory on nominal rent to the Government for locating a branch of nationalised bank, post office and central excise office for carrying on its business efficiently and smoothly. Nothing is taxable under section 22, Rent collected, being incidental to the business of Y Ltd, is assessable ao basins income er scons cast- Ar rom wat dicen ee icability of section 22in certain typical cases - Apart from what is discussed earlier the following + House property in a foreign country - A resident assessee is taxable under section 22 in respect of annwal value of a property situated in a foreign country. mer of the property forPara67 = income rnon nous PnoPEnry AND ITs COMPUTATION somecases, the owner gets rent gy, building (for instance, cha tte ins “composite rent ee ering, ent of the b ferent services provided so recovered is known # Composite rent - Apart fron Gike furniture) or he charges for different security, cir conditioning, ete). The am the composite rent isa fallows— . © Prange et tof aig 8 ees compte a eaten ee Pm which isatsibutable to the ase of property i840 be aga, posite rent is to be split up and Hate torenuiion of the s07¥ices uch ey form ofan vale ue eee erty watch and ward fang supply, provision of lifts, supply of water, rrangement for ScavergiOG: MGT At AA Beis ahaa ene oelee see Profits and gains of business or profession” oF ead cone sr aigerent services (like Tift ar condition, other sources” ™ oe 1 i aptuildnng ancl letting out ofother assets (ike furniture) arc the py senmcgemitet ratte agatha ant ting af ern two lettings are not separable (letting cut of cinema house along with Teting Out of furgintt Projector). Such income is taxable either as business income or incom: ES. This applicable even if sum receivable forthe two lettings is fixed separately. ki © Where composite rent isrent ofllting out of building ane eng out of other assets and He 100 lettings are, Irethere is lelting out af br ae sl aes ute other assets al the twa etings ae separable teat that teting of one is acceptable to the other parly without letting out of the other: for instance lng bn g along with car), then income from letting out of building is taxable under the head *[ a house property” and income [rom letting out of ather assets is taxable either as business income o> ny fom other sources, This rule Is applicable even if the asessee receives composite rent from his tenant lettings. © When a house property is oumned by co-owners (Sec. 26} - Ifa house property is owned by two or more then such personsave known as co-owners, respective shares ofco-ownets are definite and ascertain share of each such person (in the computed income of property) shall be included in his total income. sy, Roted that co-owners are not taxable as an association of persons. = & & WHEN PROPERTY INCOME IS NOT CHARGED TO TAX 67. In some cases, rental income is not chargeable to tax. Some such cases are ~ income from farm hinge annual value of any one palace of an ex-ruler; property income of a local authority/trade union/pigg arly; house property held for charitable purposes, etc. © = & WHAT IS THE BASIS OF COMPUTING INCOME FROM A LET OUT HOUSE PROPERTY 68. Income froma let out house property is determined as under: Gres anal vale fe: para 61] = Less : Municipal taxes [se para 68.2] va Net annual value = lass : Deduction under section 24 [see para 683] ~ Standard deduction wn = Interest on borrowed capital Income from house property sy 68.1 Grose annual value - Tax under the head “Income from house property” is not a tax upon retell property. Itis tax on inherent capacity of a building to yield income. The standard selected asa nensuredl 8 income to be taxed is “annual value”. Gross annual value is determined as follows — Step | Find out reasonable expected rent of the propery | Step) | Find out rent actually received or receivable after excluding unrvalized rent bul below dedi loss due to vacancy Step Mt] Find out which one is higher—amount compu Tor Step tt a | Step IV] Find out loss becaune of va ae Step V _ -Note Where then wry tated ngs fn iy va herent ate nea ta viaghetinsd eoaaatartn fe Step 1 Find net spropenty ma factors have te be taken ite vee property Uvect by auinicipation likely totetets having reyanl teetoane fof the property, These factors 2 muerte factors euysitnd vent heeapent mer f iyectty ar piatrave wed bunts Viren ad a bonoee pemperty. br tien Oe believer, spo 4, suunisipal valuation of the property; or 2, fairrent of the property The higher of @) oF (fs Rencrally taken a expected ti 1, however, a propetty is covered by a “standlaral rent’ deterssinatie under th © Munuspaoatuaion Bor ceilectingy in their jurisdiction. Such valuations building. «Pair mat ofthe property ~ Fair vent ot th property in the same of similar fovality ouland rent wauter Rent Control Acts. from his tenant under a Rent Control standard rent ifa property is caver property can be ae Standard rent isl ha pera can eyally tecreer Act. A landlord cannot legally recerver fron hin tears treme than red by a Rent Control Act. Provisions illustrated Se mentones cacy the reasonable expected rent is computed on the basis of three factors narre’ al valuation (MV), &, foie rent of the property (FR); and {standard rent ofthe property (SR), Tee LEN of (MY) and! (FR, subject to maximum of (ER) is reasonable expected rent ‘The example given below illustrates the aforesaid proportions» (Ps. Presena) A B c Daal = ‘Municipal value (Vy 0 30 30 2 20 Fair rent FR) 46 46 46 = Standard rent (SR) NA 45 33 s Reasonable expected rent under Step I [MV of FR whichever i higher, subject to maxtmuen os oh 4s 8 45 or Iownanable expected rent cannot excoed the ammantel standard rent, Reasonable expected a Gn RO lower than standard rent Re Piso ec Nee ‘# Step Il - Find Out Rent ‘Actually Received of Receiomble - For the purpose of Step IL, rent received ce neeivabie sh calculated as follows — " “_ a Rent of the. ‘Previous year (or that part of the revious year) for which the property & avalabeke J ae Year (or that po Previous year) the prope es ‘ess Uncealised rent fa few conditions ate satisfied | Rent received/recsivable before deducing loss dus to vacancy The following points should be nove Sev aiewe Fran eine fo ¥acancy shall ot be deducted rom the computation af ent mivat/nannabie s Shall be deducted under Step IV.PUTATION, yM HOUSE PROPERTY AND ITS COMI ee ee as certain benefits provide by operty as well Sometimes a tenant pays a composite ent of property a tegrated and itis only that Pan, 2. Sometimes a font pay site ont must be dis tei etree et estore empl Font rl i isin an . os the let cut of property which would fo 3 of repairs, the amount spent by the tenant annot 3. If the tenant bas undertaken to bear the cost 0 at, Shame ae ge i Income of House 2, House 3 and a ioe) 30,000] 5.000] 2.29, Income from properties Income computation of X = + Rs. 1,22,000+ Rs, Income from house property [Rs (-)30,000 + Rs, 5,000 + Rs. 2,29,000 Business income Gross total income ess: Deduction under sections B0C and 80D Net incomet “5 5 & WHAT ARE SPECIAL QUENTLY [SEc. 25A] PROVISIONS WHEN UNREALISED RENT IS REALISED Say theamount of unrealised rentrealised subsequently by ana, camountofrentreceived inarrearsort ntrealis : cra neeentotenteceivedin ious year in which uch rents received or edlse The fli, shall be charged to income-tax in the previ Points should be noted ~ 2 The recipient of arrears of rent (or the. recipient of unrealised re Such rents received, regardless of the fact nt) is chargeable to tax in the. Fear in why ‘whether in the year of receipt the house property is Owned by i, deat fetibient can claim 30 percent ofthe arrears of rent or the unrealised rent realised subsequentiys n. 70-PLX owns a residential pro ot property is Rs. 220,000 fair eats ae Ate A Lid pays ncnicipal tax. On Aprit 7 2021, rent is inereased fom FF £0000 per month to Bs. 45.000 per pontine dar epliteefec from April, 2020. X gets Re £60,000 (being eres Oren fer the financial yer 202021) Apt Te gt Find out he net income of Xr the, ‘assessment year 2022-33 on Se imtion thee is income from other sucess 500,000, Solution : Municipal value (MV) Fair rent (FR) Standard rent (SR) Step I- Reasonable expected rent ofthe Property (MV or ER, whichever is higher, subject to maximum of SR] Step It - Rent received receivable after deducting unrealized rent but before adjusting I due to vacancy (Rs, 45,000 » 12) sting loss Step I~ Amount computed in Step lo Step Iw ichever is higher Step IV - Loss due to vacancy ‘Step V - Gross annual value is Step It minus Step tv ‘Less: Municipal tax (paid by tenant, not deductible) Net annual value Less: Standard deduction under section 242 (e, 30% of et annual value) Income from property _ Arrears fren (ering teal ya) recede prvon year 2004-2 Arrears received (Rs. 5,000 » 12) Less: Sandaed deduction under section 25A(2) fe, 90% of Re, 60,000), 5 egineunderstonTSBAC: in te, Re, 30000 + Re. 1700 and don under sais Soest rowed ct pr - (ie, R30 " To far eay ccna Lis let out to A Ld, (rent beng Rs, £0,000 per month). Municipal ve 162000 3,78,000 60,000 ‘ 18000 occupied Hereston borrowed capital portaning 19 sel &CUPIed Properia,PROBLEMS ON COMPUTATION OF PROPERTY INCOME = 72-P2 ars of rent chargeable to tax a Income under the head “Income from house f iam Income from other sources more (ei fa STEmeY Psa) m0 Net income ine 5,20,000 WHAT IS MODE OF TAXATION OF ARREARS OF RENT TA. See para 70. Problems on computation af property Income a aoe TPL X (age: 24 years, resident as occupied to houses or hi resent purgtes, particular of which ar es THeuse I Hose ; feeineslg| Rae ‘Municipal valuation (MV) am | 30000 Fir rent (FR) 85,000 32,000 Standart reut under Rent Controt Act (SR) 65,000 36,000 ‘Municipal taxes paid 10percent | 10percent Fire insurance 600 360 Interest on enpita Borrowed for construction of houses (lon was lake in 2017-18 and construction is completed within one year) 1soo00 | 1.70000 assessment year 2022-23 00 the nen aby for the md, X does ot rant fo opt forthe alternative bax lace fombusineys Rs. 230.000 Determine te taxable inc stm ion thal conretes Rs. 140,000 towards the public provident regi of section TISBACt- i - Sulutign =X has occupied two houses for his own residential purposes. These houses willl treated as sel-occupied ‘and income will be calculated as follows ~ Rs. Nil ‘Annual value of two houses ‘Less: Deduction under section 24 Standard deduction Tateret on borrowed! capital (Rs. 1.4000 + Rs 170,001, but subject Income from House 1 and House 2 Business income Gross total income Liss: Deduction under section 80 maximum of Rs. 2,00,000) Net income ‘Tax on Rs. 5,90,000 tse: Rebate under section 874 Balance 31720 ‘Adi: Vealth and education cess ‘Tax liability (eounded off) occupied te hanss for hs esidntia papas parts sof thich areas follows: 72-P2 X (age: 61 years) es Housel | Housel) |? House i Rs Rs. Rs (SR) [not applicable) 15,000 20,000 = 10,000 30,000 30,000 ‘Standard rent under the Rent Control Act Muntcipal valuation (MAY) Fir rent FR) 13000 | 18000 | 35,000 ‘Mapa tues pid 1.200 2,400 "3600 Repits Nit Nil 200 Insurance premium’ 1,200 1,300 #00 {Ground rent — Jeers ite +500 ae a rd go 20 percent ram ercentitino se I (Ae arog Sean: iy 10, 2023) ig: ame 1, 2012, date of repayment Saameune reine vison f ton TIA ae cs oth ook in pra 193,AHUWTY ANI HES COMMUTATION AAP HROHIEE RATE fe ANNE FRONT Fee eatpoawnk nt find RIES auf ta for SAPP fa th Calerga er, aoe dias vaqenl Ryn atios hab be ton tenbteatial psp Only 60 tse cn Te Sadie VI JV osvaypiea pypention Mbt eomalalyy property will hey els a Ad walt teetaaiat gel : adnan anny Hoi lle tread as elf occupied Niteoat opshns i Vow E a Viewer Band Photius + ee Hone 2 anid Haas Ree 5 — House 1 Spe contos Ae nnn Lanalshe anya’ (NE MLN iba fo fo De eartiod forwar soe a8 Meme ane treated 'f}, one may proces occupied property” “loomed to be Tet om 35g f dintosit unsanerot ey 2 Ytet upganne at Ehouse ay 1 thee B Punt oat the dtutontiy tonnes Whouse computed under Step 7 est il and Step 2, "98 “selfoccupied! propestieg = 4 age tosses appt Hy Ws per Step J) may be take speeuaung bese aval stewie fy Te fet ot | Howse? | Hoa fi ah Rs, a sone in vaca Use ave sf evened properties = | Netannwal value: bi Nit Na Lew Intensstion borrowed capital (current year's interest : Rs, 18,000 + pawonstruction peril interst + Rs, 24,600, subject to maximum of Rs W009, asconstruction is completed after 5 years) Nit} 20000 Income from property (a) ii | Na] Ohno ‘Slep 2 = Computation of acome fre are deen To Te et ont = Gross annual value (being nwnicipal value oF fair rent, whichever is lower but subject to maxiajum of standard rent) 15,000 | 20,000 Less: Municipal tax 1200 | 2400 Net annual value 73,800 | 77,600 ess: Deduction under section 24 Standard deduction ago} 5280 Interest on borrowed capital (Re. 18,000 + Rs, 24,600) Nil il Income from property (8) 9560 | 12320) Step 3 Step 1 minus Step 210) - 9,600 | (12300 ‘Step 4 Selection : House T and House 2 (oe fleas selFoccupied properties) Income of House 1 and House 2 sel-oceupied! properties) Nit Nit Income of House3 (deemed to be let out property) = - Income from properties Nit Ral Note Pre-construction period's interests calculate from June 2012 to March 31, 2019 (Rs, 90,000at the rate of Brea cgay 123.000, deduetibie in5 years from previous years 2019-20 to 2023.24, instalment of one yea Rs, 24,600), COMPUTATION OF NET INCOME a Regular j tax regime f Rs. Salary 1430,680 ‘Less: Standard deduction 50,000 Income from salary 73,80,680 Income from house property [House : Nil + House Il: Nil + House ll: () Rs, 20,620] (320620 Gross total income 13,60,06053, x ——_——_— aa —~_______proptsns on compurarion OF PROPERTY INCOME = 72-73 15 ON Com Regular |" Alleriative tax regime | tox regio ae Re. [iss Deduction under section ra Reiners und ti" 8 Contin to cgi prove font sae, a 7225.90 | 74105060 Tax or mel income seer cizeay eae Tegime (exemption limit is Rs. 3,00,000in the case reseed OE RTT aay - shot reper Beste os Ne 20%, balance Rs. 160,060: 25%) =| 1sso1s ‘Adi : Health and education cess (% of ax) za 601 Tax liability rounded off 7as800 | 171600 Xisadvised . “sadist opt forth alematve tee erie acne jear 2, age 255 years) ons four houses, prtcars of which areas lls TBE ie 5 a Me ie ze Municipal vatuation (MY) “nom | 3000 | 68.000 | 95000 Fair ent (FR) 3000 | 13000 | 7000 | 95,000 Standard rent (SR) 36200 | 1200 | 75000 | 90,000 Rent (f property islet out throughout he year) 22,0 - - = Unrelied rent 3500 - - = Municipal taxes ” = Pai by X = 500 7000 | 9000 = Pid by tenant 3000 = - 5 Date of eompleton of construction Mayst, | May31, | Mareh3t, | April 2020 | 2020 2020 2019 Repairs ne | 2000 | 1000 | 3000 Caleton charges 200 = - z es ry 300 : 00 Grown rent 300 £00 F Nature of occupation Leteut Sef Sor | eccuped residence ‘er or resitence | busiiess | residence Property remains vacant for 2 month (March 16, 2022 to May 5, 2022. X barrows Rs, 30.000, Re. 4000 and Rs. 65,000 jorronstictin of owe, vse and Hense 1, respectively (ate of Borewing Je 15, 201, date of repayoent of Tan Jiang wit nderest: December 31, 2019, rt of interest 15 por cent por an Barbies income of for the previous yor 2021-22 is Rs 1,55 00 (it fs bre computed as per the provisions of eome-tax Ais Secomne he teal cone ed x ty of X forthe asseiment year 2022-23 0 the assumption Ut he eligible Pricuction under section BOC (pi proident fd contrition: RS 140000) and section 80 (donation to Prime Minister's Relief Fund : Rs. 100,000), Ignore section 125BAC. Solution :X uses House Il for his business purposes. Annual value of itis, therefore, nat chargeable to tax under the head “Income from house property”. Hose and House IV are used by X for his residential purposes, These houses wil be treated as selF-occupled ‘ome of these houses will be calculated as follows ~ properties, House His lt out. fe Howe Ty] Hove iT ponoWe TY | Ra | RS Municipal value (MV) Sana Fair rent FR) oa Standard rent (SR) a ‘Annual rent 33500 Unrealised rent Toss due to vacancy (Le,, rent from March 16,2022 to March 31, 2022 1s 16/365 of Re. 42,000), ‘Computation of annual value " Step I- Reasonable expected rent of the property [MV or FR, whichever is 36200 higher, but subject to maximum of SR] . Step Il- Rent received /roceivable after deducting unrealized rent but before gant Adjusting loss due to vacancy 3 Step Il!- Amount computed in Step I or Step I, whichever is higher Step IV Loss due to vacancy Step V- Gross annual value is Slep Ill minus Step IV Less: Municipal taxes (municipal tax* paid by tenant is not deductible) Net annual value ‘Less: Standard deduction (30% of net annual value) Less: Interest on borrowed capital (current year) {Less Interest of pre-construction period (ie, interest of Rs. 20,000 of Rs. 40,000 ‘or Rs. 65,000 @ 15% per annum from June 15, 2015 to December 31, 2019) leductible in 5 years in Sequal rctshoente 4091 S54 730 Income from property as _| ©3454 | 738 Compan of tae ncona of X Income from house A House es 21570 House It O5A51 House it Nit House IV Q739 877 Business income 1455090 Gross total income Tas less: Deduction under sections 80C and 80G (Rs. 140,000 + Rs. 1,00,00) 240000 Net income (rounded off) a ‘Taxt (see Appendix 1) Add : Surcharge (applicable only if net income exceeds Rs. 50 lakh) Tax and surcharge . ‘Add : Health and education cess (4% of tax and surcharge) Tax liability (rounded off) ‘Note : Coltection charges, land revere and ground rent are not deductible. 72. PA Xonos abi house (reton compete on March 31, 2017). The house hs three intpentnt unis Unit 160 of or aren set outfor residential pruposeon monly ent @f Rs 8200 Uni} remins encnt ort noah ee Betloany se. sum af Rs 700 cou at cle forte ten, Uni 2 25 percent of neler elo purpose of his profession whe Unit 3 (he rining 25 per cen) is ulin fre rps oft retin Gann ofthe house are as follows ‘Maisto Rs 60000, ret: Rs. 70,00 standard rent under te Rent Control Act R& 90,000, muni Bs. 15,000, reps. $000, terest pit borane fo reunloftproperty: Rs 36,000, pron ore Re large created under the will by fier in far of Mrs, XR, 9000 and fre surance pemia ratas be Xramprofesson's Rs 795 000{witout iting ue rentend other incident exjentiucincuamadctat athe portion of haus se for prfsion Rs. 8000). Deter th lle come of X fr teaser ng OT deposits Rs, 1,10,000 in PPP account. Solution : Unit ¥ (et out) Re ‘Municipal valuation (50% of Rs. 60,000) (MV) som Fair rent (50% of Rs. 70,000) (eR) ssa indard rent (50% of Rs, 90,000) GR) 1 Standard rent (50 ) au Annual rent (Rs. 8,200 * 12) ble only in the case ofa resent individual if his/her taxable income is Rs 5:00.00 ot less ‘Rebate under section 7A isPROBLEMS OH COMPUTATION OF PROPERTY INCOIAE # 77.7% bs Unrealived rent 1h Loss of rent because of vacancy aah anual value Slep 1 - Reasonable expected rent of the property [MV or FR, whichever i higher, but subject te maximum of SR] “ith Step Hl Rent received/ receivable after deducting, unrealized rent but before adjusting, lam due to vacancy wm ‘pif - Amount computed in Stey Jor Slep I, whichever is higher aIh Step 1V = Loss due to vacancy 1m) Step V - Gross annual value is Step If minus Step 1V “Wb Less : Municipal tax (50% of Rs, 15,000) 7D Net annual value Pa Lass : Deductions under seetion 24 Standard deduction (0% of Rs, 82,000) 2M Interest (50% of Rs. 36,000) UM Income of Unit 1 Wh Unit 3 (selfocenpied) — Net annual value Nil Less : Interest (25% of Re, 36,000) WD Income of Unit OA COMPUTATION OF PROFESSIONAL. INCOME Income 1 Less Pe Municipal taxes (4 of Rs. 15,000) 37 Repairs (V4 of Rs, 4,000) am Interest (Ya of Rs 26,000) wh Ground rent (Veof Rs. 6400) 1h ‘Annual charge (“personal expenditure not deductible) Insurance premium (V4 of Rs, 15,00) 7A ‘Depreciation sah TA COMPUTATION OF TOTAL INCOME Income from house property & Unit 32400 & Unit3 yn AKA Income from profession a Gross total income TAD Less: Deduction under section 80S som Net income 5D Notes = cat a ec rien Hepes en ee Properly income Ps.952,000 Fair rent (FR) ‘Municipal aluation (AV)1 ITS COMPUTATION _ o ‘72-P5 a INCOME FROM HOUSE PROPERTY AN 3.09.00 Standart rent (SR) eon Annual rent Bs Unrentsed rent ofthe previous year 2021-22 00 Unreatised rent ofthe previous ye 2020-21 é Vacant period (number of montis) done Loss on account of momcy pie Mimicipa taxes pit A Repu 009 ta 20.009 Land rece 25.000 Ground rent 66,000 Interest on onptal borrowed by mortgaging House I (funds are nse fer construction of House 11) 0 | ut for Nature of eccupation Sweep rate | “oa , © assessment year 2022-23 asstiming that X de 5 Deternine the table income ul tasty of X forthe assess yr 2022-23 nung ts Re rag erence fda rs, Xtsts S0O0D Ie NSC VI ae tbl fr X toe A, tax regime under section TISBAC? ee Be 34099) Solution : HOUSE | Gross annual salle Step 1- Reasonable expected Step - Rent received/receivable after deducting unrealized rent but bofore vacancy maximum of SR} Step Il Amount computed in Step lor Step II, whichever is higher Step IV Loss due to vacancy Step V- Gross annual value is Step Il! minus Step 1V Less : Municipal taxes Net annual value Less : Deductions under section 24 (BOX of Rs. 4,50,000) utilised for the construction of House II, it is not deductible from Standard deduction Interest (*as the funds are the income of House I) Income from House 1 HOUSE 11 Gross annual value to maximum of SR] Step Il- Rent received, due to vacancy Step liI- Amount computed in St Step IV - Loss due to vacancy Step V- Gross annual value is Step Less : Municipal taxes Net annual value Less : Deductions under section 24 Standard deduction (80% of Rs. 1,60,000) Interest on capital ("as the capital is borrowed for even if House 1 is mortgaged by X for this purpose) tep Tor Step Il, whichever is higher I minus Step 1V rent of the property [MV or FR, whichever is higher, but subject to adjusting loss due to jc? 1- Reasonable expected rent ofthe property [MV or FR, whichever is higher, but subject /receivable after deducting unrealized rent but before adjusting loss construction of House II, it is deductible, Rs, 135,000, Nir Income from House Il SOMPUTATION OF NET INCOME OF X Sues Rs. (28,000) m house property [House ‘come fror_PROBLEMS ON COMPUTATION OF PROPERTY INCOME = 72-P6 Regular | Alternatce tax regime | tax regime Rs. Rs. 982,000 | __9.82,000 Business income oe income 712.69,000 | 12,69,000 ss: Deduction under section 80C (Rs, 140,000 + Rs. 50,000, subject toa maximum. ‘of Rs, 1,50,000) A 4 1,50,000 Nit Net income 77,19,000 | _12,69,000 Tax on net income Income-tax under the regular tax regime (exemption limit is Rs, 3,00,000 in the ease ‘of senior citizen) (first Rs. 3,00,000: nil, next Rs, 2,00,000 :5%,-next Rs. 5,00,000: 20%, income exceeding Rs. 1,00,000 30%) 145,700 a lncome-tax under alternative tax regime (exeraption limit is Rs. 250,000 under alternative tax regime even inthe case of senior citizen) (rst Rs. 250,000, next Rs. 250,000 5%, next Rs, 250,000: 10%, next Rs. 250,000: 15%, next Rs. 2,50,000 20%, balance Rs. 19,000 ; 25%) -| 129750 Aild : Health and education cess (4% of tax) 5.828 5.190 ‘Tax liability (rounded off) T5150 | _ 134940 Notes - 1. Deduction on account of unrealised rent of earlier years is not available. Moreover, insurance, land revenue and. ground rent are not deductible. 2. X can reduce his tax liability, if he opts forthe alternative tax regime under section TISBAC. T2-PG X (age :63 yenrs) oun teo houses. Releant details ae gion beloee— Housel House Tr Letout ‘April J, 2021 t0 fume 30, 2021 | July 1, 2021 to March 31, 2022 rent being Rs. 6,000 per (rent being. Rs, 13,000 per month) month) Selfocenpied July 1, 2021 f0 March 31, 2022 | Aprit 1, 2021 to June 30, 2022 Rs. Rs Municipal ontuation per amaiem (MV) 60,000 100,000 Fair rent per anmuns (ER) 70,000 95,600 ‘Standard rent per annem (SR) 66,000 110,000 ‘Rent ofl cut period 18,000 117,000 Interest on borrowed capital 2,000 40,000 Municipal tox paid 10,000 17,000 ‘Assuring that income of X from business is Rs. 12,80,000 (he does nat have ey other iicome) and he deposits Rs. 1,50,000 int public provident fad, fd out his net income ad tnx Kabiity for the assessment year 2022-23. 1s it beneficial for X to opt for the alternative lax regime der section TISBAC? Solution. House Howse Tt Rs. Gross annual value ‘Slep |- Reasonable expected rent of the property [MV ot FR, whichever is higher, but ‘subject to maximum of SR] 100,000 Shep Il - Rent received /recelvable after deducting unrealized rent but before adjusting, loss due to vacancy 417,000 Sep IIT- Amount computed in Step Ior Sep If, whichever is higher 44177000 Step IV - Loss due to vacancy Nit Step V- Gross annual value is Step IH mirs Step 1 | a Less: Municipal tax. 1700 Net annual value Ce Less : Deductions under section 24 Standard deduction (30% of Rs. 56,000 or Rs, 1,00,000) anes Interest on borrowed capital um Income from property, +00077m INCORNE THRONE HOUNE PHOERTY AND ITS COMMUTATION _ ner Trou trp slows fw Gros total noone ; tess Deduction miler setlon 80 (contribution to public provident fund) Netinwonne eaten esr te oemplon i sR. 30000n cae cf senlor tice (ist RS. 0,000: i, next Rs, 20,000: B%, next Rs 500,000: 20%, soe seeing, 88, 1,00 4H: 30%) laconstow tres altomative tax axgime (exemption limit is Rs. 250,000 under attemative tay rogime even in the case of seniar citizen) (frst Rs, 250,000: ni, next Rs, 250.000 : 5%, next Rs, 250,000 : 10%, next Rs. 250,000 : 15%, next Rs 250/000: 20%, balan Rs, 97,200 : 25%) ‘dd: Nealth and extucation cess (4% of tax) Ta tially (rounded! off) TRO | TE Notes 4 Jlnthiscas House tis sefoxepied up to une 30202. Ist outwith eect rom July 1, 2001, Aste having a single resident wt spd ar apr fhe ya (no forthe whey) a aE temahingpatefn ye heh af eton 22 |) rtarale Ns ceveraly dca et 4. Te income willhavetobecomputed asi the property is et out Similarly, the income House wil es tsiltkeppeny inoae 2.1has ena tht hr sro ued et 3. Xcan ace hs tail if hops for he aeretive tx regime under section THSBAC TP) Xe 1 soy caine complet Mute sapsan aes Tor eps yt 1.2 Rs. $4,00,000 on acerun! basis, Fair rent is Rs. 34, 70,000. X y lg mb a Municipe! Corporation (BMC), while the balance 80 per cont is paid by fenants (total nun cong BC br he pres pr emaatse Rs UCI Penh 3 Amount charged annually | Epa] from the tenants and which J fs included in the rent of Maintenance of if (eluding deprecation) Wier sappy Ee Mainenarce of swioming poot aan Lighting ofr Extension of unter connection incuting depreciation) Fre insurance premiun forthe houses owned by X Totat ‘The following additional information is anitabe ~ 1. Out of nintenance expenditure ot Properties is Xs, 260,000 forthe previous respect of ie repayment tinder Sclion BOC. "PH RS 80.000 On March 31, 20s eet ear noch 9. Unrelisa rn eeting rt haa ene np ay ele, nor sesh ben tak oct propery) : R402 £ Sameer hr prin nantes decnpx entree BAO 5. One flat of rental vate of 88. 10,000 romans eacnnt sang ee 5 One taf of dung the year for 6. he lepers tricia Rut Conta {Rebate under arcton 874 havalsie ony Ite co fr ddl her ate came eR 0006 et ertw RRODLEATY ON COAIPUTATION OF PROPERTY INCOME, #7216 2Vairrman PA SE Om ON canon gee UY ee the aunt tht he svt outst Aton BS AAIAU Aeeag Ae rene ae MEET pwr wn tnne LURE velo Aveta MY DN SeutinnSennwn atten AIAN AMad al Re A ANAM aga tea pong lo Anyawins as SHEA RS prailony tether tatinte 1 ote LUKLAAN be hangent foe pen lag aifteewut annette ANTS RS ELMAN eat atta ATG Ahoy HOM ESIC BN M Cragin pepenty tine he Bont nyvaate pvtanng WuTvame HHA {AME OF BE ALANA, Awe Novniogett ating eH LANANDS TMT 14) ANN) sn Rae rwat et) MON Satanbavet SN) NA nals wnt vo sti tt ho toreat Bhat aha tlie ppsrty oe stop Taya tan ket syst unt HENS he Net) ev . Nu Laos ate bo vmeRy Te, AN OES HVUANT For anonte (ee anna’ 8, M122 60 Mah AL MW 2700 Goong nto gr ata he Sap} Saamnatieoypytet nsntat the property [MAT oE LIC vhkhieyer Feighor, but amjoot maavirmam ot SB JOANN Sap tl Rent nyvivl/ wovivate after esting mnmalleet went ba tore valeting foe le Wr Yavanny 19.4400) Sap A> Anjount gunyputet in Shy Low Shp, wtietiover be ler 91M Sipe Lage at fo vavancy XN) Sip V- Gases a vane fe Shp Loe Shp AO NVAN Gwe annual vate Legs Manni sb tgs Tame BN (La AT a RS NO) 19 300 Netanaual value 2k Lease Destuetions unter seston 30 = 'Stanlant seston 6 WN Maat Toterost earoapita evo nome toon house property Tine) nen ENT other SUE Ancone trom the activity at prowling aitterent ameter tn commenstaL eamptes fear Note} Qe Interest on detenties Laven Gre total none Tess: Destine uoadernestlon 8 (eeyay ment of oa taken to nett gon ligite for dextaction) BaRT eed IT eypbes ts wo Mt Netinsome (ave ot) RAR Nw ome fo ther sane 4.000 Salary of manage (IO pertain to pang litle ets) om Lis due to vaca (IP Rs 1 Bi) 000 pentane incur! for prostating iteest anni (Rs AA AM given to he be = Ra 82.00 tobe dialensed Bet pall ly Hoes ite) sso team frm the activity pring lteest amet he eet epey Ox TAP Discs the ty frestment, wh the ely Solution : 1a hese property Froweved by tor ae peru ul persons me huovsn ayes MTS. NON ZA pplicabte en prepety teat by oo anon. Sten Zo appetite emit ane satiate 1,'The prop yt eve 2.11 is nent or doen naples, sen se prt és ue yt ne persons est cota of Ballinger Blagdon ave by UW 3. ‘The reapective shore of the co ovenenn ate ttle aral aevetainath rye Hy he eal tle toa U thee conalitions steve Ue fread "Trconne froth pints alsa Be nate Tole respect of property tne ave w ‘al the property (as onyptitat mates rome ob eae ache UN tosltowv tng, sv-onenera abl ot he gnaensent gn at aati yee evs ptt my thy PESAC st sna tn tt gsi YESPho @ INCORIE PHONY TIOUISE PROPERTY AUD ITS COMPUTATION 2 Vruccsaneesstusaltag Hvala ti eeapee Lal ell va iapued preg Uta tna estitest fre gelled 17leer para Minopplicableasiteach,. hauch ca: yey ta Bayer Ba weg of He aberve ho taanv tig san UY any twee saseastwetn lah bial shave belie XN, Ys 40% tN s 2). The prop iat ey ees snectn U sivdtabersvn Apel, eM vo ptcheneg yn, Ganttectn tates Ncont ete In. ether income ofeomowmen ing SP (stat ote bt aunt Re 9, NAA th tal Hae te a8 an ‘ned a Flown TSK: Rs set Net anual vale ese = Daal tons ane Stanslasst sess Iieveat on tontoncel capital ( Re, 80,08) Igeeateareree Net ince er 256000 ae ats auyematnaner oa hous prety. pope has four units a which X and each Lacthet hem astet sat not two uniteent monthly rent of fe. 15.000 (each st remeioc teen ace is a Repsurs 6 5:000 ; nruscipal tox : Rs. 60,000; interest on capital borrowed on May 6, 1998 : Rs. 1,35,000, tn Taz Ts Taiz owner peeex x ¥ > Used property Own residence | tetout | Ownresidence | Latag Re Re Re is Gross anual value x TSO Ri Ta tins Municipal xa 15,000 wi__| “tse Net annual value Nit TSO ‘S| Ta Less ; Deductions under section 24 * Sten devuction [0% of net annual vale nit 45,000 wit Intent on borrowed expat 20000 32780 20.000 Income 730000 Fi 30000 Income from house propery of X Income from house property of 72:9 Discuss te folowing ~ 2. Gare net annual gate be negative? 2 Is it possible to have negate hncome under the head 3. Wat willbe tex ereainent if income uruder te head Solution : Pointwise answer— 4. Netannual value - Cam it be negate - If the municipal tax paid then the et annual value ean be negative: Tor instaness here also the faic on). Daring the previeus year 2021S thew “Manicipal taxes of 2021-22 : Re, 30,000 ; municipal weet covtog capital borrewed for construction : Rs. 25.000; ‘The property inconve shall be determined as under — Tncome from house property"? “Tacome from louse property” is negative ? the landlord is more than the gross annual 9 property on annual rent of es 90,000 (wh ing expenses are pad by the owner YYeRrS Rs, 70.000; repairs : Rs 60K) ane inter Groce annual vale Less : Municipal tax Net annual value Less = Deductions under section 24 Standard deduction Interest on borrowed capital Income from property161 aon TEST YOUR KNOWLEDGE 2. Negative core from property -Vher itis epee Eee Vite itis posible» As can be sen in the example given above, itis possible ta have EeRRINE income under the head “Income from house property”. The rules in the different situations are ver ‘ Tecra et ul or deemed tobe leo ican have postive or negative nome Te nan Of one residentia} property fully self-occupied by the owner (ifitis not let out stall), the income always Hein ange of S200 000 oer and. mee ‘ & in the case of partly self-ccupied and partly let out residential residential property, ‘3. Tax treatment of los under the head “Income from house property” -If there is 3 loss under the head “Income from Property”, it can be set-off against any income under other heads of incocne during the current year (no loss can be sctoll against winnings fromlotteries races, etc}. Ifitisnot possible to set-off the loss (fully or partly) itean becarried forward to the next year for being set-off against the income under the head “Income from house property”. ‘Test your knowledge = — 1. Explain clearly the term “annual value” under seetion 2(1) ofthe Income-tax Act. Give examples 2, In computing the taxable income from house property, what deductions are allowed from annua! valve 3. X maintains books of account on the bass of mercantile system. Can he claim deduction of expenses under the head “Income from house property” on due basis? If nr, state the correct buss of deduction. 4. Owner of “house property” (including deemed owner under section 27) is chargeable to tax under the bead Income from house property’ [s there any provision under the Incometax Act under which a person is chargeable to tax under the head ‘Income from house property" even if he is not “owner” or “deemed owner” of a house property during the previous year? Explain the provision (if any) with «suitable example income may be negative or positive 5: (P5.1") Ms. X (ge: 22 yeas) has occupied two houses for er recdentilpurpots, parca of which ae as FaeT Hel eS eee Municipal valuation (MV) Boom00 | 17,0000 Fair rent (FR) 9,00,000 10,00,000 ‘Standard rent under the Rent Control Act (SR) 600.00 1050,000 Municipal taxes paid 75.000 73.000 Interest on borrowed capital (amount borrowed during December 2017, construction completed within 2 years) 6.0000 0000 Repairs Nil oo Business income of Mrs. X is Rs, 25,60,000. Besides Mrs. X is employed by a private limited company on annwal salary ef Rs, 560,000. She contributes Rs. 1,20,000 towards public provident fund during the previous year 2021- 22. Determine the taxable income and tax ability of Mrs X for the assessment year 2022-23. Ignore section 1I3BAC Pertaining to altemative tax regime. [Ans, 270,000, Rs. 6,53,000), 6. (P5.14°) X (age : 64 years), salaried employee (drawing Rs. 8.38989 as annval salary) has occupied three houses for his residential purposes, particulars of which are as follows: T T TH Rs, Rs Re, Standard rent under the Poona Rent Control Act (SR) 00 | 115,000 73,000 ‘Municipal valwation (MV) 70000 | 13,90,000 69,000 Fair rent (FR) 53.000 | 11,78,000 71000 ‘Municipal taxes paid +4000 2,000 6000 Repairs Nil Nil Nil Ground rent due but outstanding, eo = 300 Insurance premium due but outstanding 20 2000 iano X borrows froma relative Rs. 40,00,000@ 9 per centper annum for construction of House late of borrowing June 11,2018, date of repayment of loan May 31, 2021), Construction ofall the houses s completed in August 2020. Determine the taxable income and tax lability of X for the assessment year 2022-25 on the assumption that X contributes Rs. 46,000 towards statutory providenttund and Rs, 8,000 towards National Relief Bonds. Ignore section 115BAC pertaining to alternative tax regime. [Ans. Ra 593,140, Rs. 29,770), {Somber given inthe bracket is solved Problem No, of Students’ Guide to Incometay, Problems and SolutionsINCOME FROM HOUSE P} ROPERTY AND ITS COMPUTATION. 1 years) owns four houses (outside the jurisdiction of the 7. (P5.15*)X (ag are as follows: Municipal valuation (MV) air reat (FR) Rent fif property islet out throughout the year) Unrealised rent Municipal tax paid by X Date of completion of construction Repairs Collection charges Land revenue Interest on capital borrowed for repairs of house property Ingenst on capital borrowed for construction of house Popery Ices on capital borrowed for payment of muni Nature of cocupation, seco Self Self | Let out for Eig fr] oxcupied for] occupied for| residence January 2022. Business income of X forthe previ puted as per the provisions of Income-tax Act) Determine the eee ieee eet es RS