What is the meaning of “Income from House

Property”?
The Income Tax Act has divided the income received by an
individual in various heads for simplification of tax computation.
One of these heads is “Income from House property”. The income
earned by the ownership of a property is said to be Income from
House property. If a taxpayer owns a house property and rents it,
the rent received from that property is taxable.

Your house, building, office, or shop can be termed as house

property. All the properties are taxable be it commercial or
residential.If the property is used for residential purpose it is
taxed under income from house property. On the other hand if
the property is used for business or profession then it is
considered as income from business or profession.

What are the conditions for taxability of “Income

from House Property”?
The income from house property is added to your gross total
income only when it fulfills three basic conditions -

1. You are the owner of that property.

2. Property consist of any buildings and/or land.Building can be
residential house, factory building, shops, offices etc.
3. The property is used for any purpose except used by
you(owner)for the purpose of running your business or
profession.
Important Note: The rent from the vacant land is considered as
income from other sources.

How to calculate Income from House Property for

income tax purposes?
The income tax categorises your income under 2 categories for
the purpose of taxability of house property income. These are :

 Self-Occupied House Property :This is the type of

property that is self owned and used for own residential
purposes. This may be occupied by the owner’s family or
relative or self. A property that is unoccupied is considered
as a self-occupied property for the purpose of income tax.
Before the Financial Year 2019-20 if taxpayer owns more
than one house property, only one is considered as self-
occupied property and rest are assumed to be let out. From
2019-20 onwards two properties are considered as self-
occupied properties.
 Let Out House Property :Any house property that is
rented for complete or part of the year is considered as a let
out property for income tax purposes.
Note :Inherited Property Any property inherited from parents,
grandparents, etc, can be either considered as self-occupied or let
out house property based on the usage as discussed above.

CALCULATION OF “Income from House Property”

a. Determining Gross Annual Value (GAV) of the property :

The gross annual value of a self-occupied property is nil, while for a let out
property the gross annual value is the rent collected for the same house property.

b. Reduction of Municipal Taxes(property tax):

When the property tax is paid it is allowed to be deducted from the gross annual
value of the property.

c. Determination of Net Annual Value (NAV):

When the property tax is deducted from the Gross Annual Value it gives the Net
Annual Value.

d. Reduction of standard Deduction @30% of Net Annual Value:

30% of the Net annual Value is allowed to be deducted as a rebate from the NAV
under Income Tax Act. Beyond 30% no other expenses such as repair,
reconstruction or painting can be claimed as a tax relief under the Act.

e. Reduction of home loan interest:

The interest paid during the financial year on the house loan availed is to be
deducted under section 24 of the Income Tax Act.

f. Final Determination of Income from House property:

The final value that arrives is your income from house property. This is taxable at
the slab rate applicable on your income.

Calculation/Assessment of “Income from House Property”

in both cases – Self-occupied and Let Out
Let Out
Type of House Property Self-Occupied Property
Property
Gross Annual Value
Less: Municipal Taxes/ Taxes paid to local
Nil
authorities XXX
Not Applicable
Net Annual Value XXX
Nil
Less: Deductions under section 24 XXX
Not applicable
30% of NAV
Limit to Rs 2 Lakh per
 Standard Deduction No limit
annum
 Interest paid on Home Loan XXX
XXX
Income from House property
Important Note: From the F.Y. 2017-18,set of loss of income from house property from other
sources of income is restricted to Rs. 2,00,000.
How to calculate the Gross Annual Value of House
Property?
Assessment of Gross Annual Value of Self-Occupied House Property :

The annual value will be nil if the individual self occupies the only property he or
she owns. However, if the person has multiple properties with the purpose of self
occupation, only one property is considered as self occupied and its annual value
can be specified as nil . The assessment of the annual value of the remaining
properties will be done according to the expected rent if the property was let out.

Assessment of Gross Annual Value of Let-Out House Property :

Step 1: Find out the Reasonable Expected Rent of the Property (A)

Reasonable Expected Rent is the amount for which the property can be reasonably
be expected to be let out from year to year. It is higher of the Municipal Valuation
or Fair Rent of the property, but cannot exceed the standard rent determined as per
the Rent Control Act. Reasonable Expected Rent = Higher of Municipal Valuation
or Fair Rent, subject to maximum Standard Rent

Step 2: Find out the Actual Rent Received or Receivable (B)

Step 3: Higher of (A) or (B), is the Gross Annual Value

Important terminologies related to “Income from House

Property”
Municipal value is the value of the house property that is calculated by the
municipal authorities for imposing municipal taxes.

Fair rent value is the fair rent that can be charged for a similar property with
the same features in the same locality.

Standard rent is the rent determined under Rent Control Act. The property
owner cannot charge a rent higher than the standard rent fixed under Rent
Control Act.

Net Annual Value (NAV) is the value calculated as Gross Annual Value minus
Municipal taxes paid.

Deductions are the rebates that are given to the taxpayer as benefits for making
investments. These are deducted to ascertain the Actual taxable income. The
taxpayer can claim these deductions under section 24 of the Income Tax Act,
1961.

What are the Deductions for calculation of Income from House

Property?
The deductions under the head Income from house property are provided under
section 24 of the Income Tax Act.These are:

Standard Deduction:

You can claim 30% of the Net Annual Value as a deduction of repairs, rents and
so on (irrespective of the Actual expenditure incurred). If the Gross Annual
Value is nil this deduction is not applicable.

Home Loan Interest:

You can claim deductions for interest on home loans taken for the purchase,
construction, reconstruction and repair under this section.

How to Calculate of Income for Self Occupied house property?

Prior to Budget 2019, when an assessee own more than one residential houses,
only is considered as self -occupied and other was considered as deemed let-out.
After Budget 2019, an assessee can own two houses as self-occupied houses
and more than two houses will be considered as deemed let out. Before
proceeding further, there are certain scenarios of self-occupied to be discussed:

 Property used for business and profession: If the property is used for
business and not for residential purpose, then no income will be
considered under the head “income from house property” and rent
expenses in regards to house property will not be allowed under the head
“Income from business and profession.”
 Provided to employees as residential quarters: Where the house
property is provided to the employees as quarters , then the property is
considered as a part of business but where any rent is charged from the
employees for the same, rent received will be taxable under business and
profession.

Example for Calculation of Income from Self-Occupied House

Property
To understand how income is computed for self occupied properties , let's take
an example:

Mohan owns a house property , municipal value of which is INR 2,50,000 and
municipal tax paid by him is INR 53,000. Interest on home loan paid by Mohan
is INR 2,88,000. Compute income of Mohan.

Solution:
Particulars Amount(Rs.)
A.Gross Annual Value (for self occupied properties, GAV is
NIL
considered NIL)
B.Less: Municipal Taxes (For self occupied, municipal taxes are
NIL
considered)
Net Annual Value (A-B) NIL
Less : Interest on home loan As per section 24, interest is
(2,00,000)
restricted to INR 2 lakh)
Income from House Property (2,00,000)