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INCOME FROM

HOUSE PROPERTY
Prince Jain

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 for property
income to be taxable under this head
• The property must consist of buildings
and lands appurtenant thereto.
• The assessee must be the owner of such
house property.
• The property may be used for any purpose
but 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 tax.

Deemed Owner
• It is the legal owner of a house property who is
chargeable to tax in respect of property income.
• The following persons are deemed to be owners
of the house property for the purpose of
computing income from house property.
• An individual, who transfers house property
otherwise than for adequate consideration to his
or her spouse (not being a transfer in connection
with an agreement to live apart) or to his minor
child (not being a married daughter), is deemed
owner of the house property.

Deemed Owner
• The holder of an impartible estate is a
deemed owner of all properties comprised
in the estate.
• A member of a cooperative society,
company or other association of persons,
to whom a building or a part thereof is
allotted or leased under a house building
scheme of the society, company or
association of persons, is deemed owner
of the property.

Composite Rent • In certain cases. gas. In this case such composite rent should be split . Such rent is known as composite rent. watch and ward. the owner charges rent from the tenant not only on account of rent for the house property but also on account of service charges for various facilities provided with the house. air conditioning etc. electricity. water. The said composite rent can fall under 2 categories: • (a) Composite rent on account of rent for the property and service charges for various facilities provided along with the house like lift.

. The other portion of the composite rent received for rendering services shall be assessable as “Income from other sources”. Composite Rent up and the portion of rent attributable to the letting of the premises shall be assessable as “Income from house property”.

the entire income would be taxable as “business income” or as “other sources”. plant or furniture belonging to the owner. In this case if the letting of the property is separable from the letting of the other assets. furniture. • On the other hand. . if the letting of the property is inseparable from the letting of other assets like machinery. Composite Rent • (b) Composite rent on account of rent for the property and the hire charges of machinery. then the portion of the rent attributable to the letting of the premises shall be assessable as “ Income from house property” and the other portion of the composite rent for letting other assets shall be assessable either as “business income” or as “other sources”.

When income from house property is not charged to tax In the following cases income from property is not charged to tax: • Income from any farm house forming part of agricultural income • Annual value of any one palace in the occupation of an ex-ruler • Income from house property to a local authority .

(b) any political party. . • Property income of: (a)any registered trade union. • Income from house property held for any charitable purposes.When income from house property is not charged to tax • Income from a house property to an approved scientific research association. to philanthropic hospital or other medical institution. to a university or other educational institution.

It is something like notional rent which could have been derived. had the property been let. the annual value of any property shall be the sum for which the property might reasonably be expected to be let from year to year. What is Annual Value? • As per section 23(1)(a). • It may neither be the actual rent derived nor the municipal valuation of the property. .

Determining Annual Value In determining the annual value there are four factors which are normally taken into consideration. These are: • Actual rent received or receivable • Municipal Value • Fair rent of the property • Standard rent .

. paid by the owner. Annual value may be determined in the following two steps: 1) Determine gross annual value 2) From gross annual value. The balance shall be the net annual value which. as per the Income tax Act. if any. is the annual value. annual value is the value after deduction of municipal taxes. deduct municipal taxes paid by the owner during previous year. Computation of annual value of a property [Section 23(1)] • As per Income tax.

Different categories of properties • The annual value has to be determined for different categories of properties. . (D) House property which is self –occupied for residential purposes or could not actually be self occupied owing to employment in any other place. (C) House property which is part of the year let and part of the year self occupied. These are: (A)House property which is let throughout the previous year (B) House property which is let and was vacant during whole or any part of previous year.

the amount so received or receivable . (A)House property which is let throughout the previous year The annual value of any such property shall be deemed to be: • (a) The sum for which the property might reasonably be expected to let from year to year. or • (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a).

. its annual value cannot exceed the standard rent. Determination of Gross Annual Value As per clause (a) above. For estimation of the same. (i) Municipal Valuation (ii) Fair rent But. in case the property is governed by the Rent control Act. the higher of the following two is taken to be the expected rent. the first step for determining the gross annual value is to calculate the sum for which the property might reasonably be expected to let from year to year.

• However. but restricted to the standard rent. . Determination of Gross Annual Value • To conclude: The first step is to calculate the gross annual value which will be the maximum of Municipal value or fair rent. if the actual rent received or receivable exceeds such amount then the actual rent so received/receivable shall be the Gross Annual value.

and • (b) These have been actually paid during the previous year. municipal taxes (including service taxes) to be deducted: Municipal taxes levied by local authority are to be deducted from the gross annual value.e. Municipal taxes paid • Step 2: Taxes levied by any local authority in respect of the property i. . if the following conditions are satisfied: • (a) The municipal taxes have been borne by the owner.

• From such net annual value. deductions permissible under section 24 (a) & (b) are allowed and the balance is the income under the head “Income from house property”. Net Annual Value • The value arrived at after deducting the municipal taxes. . if any. may be referred to as the Net Annual Value.

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 ******* .

000. . Municipal taxes during the year were Rs 40. The house property has been let for Rs 12000 p.m.000. Example Example: Municipal value of house is Rs 95.000. Compute annual value.000 and standard rent is Rs 110. fair rent is Rs 130.

000 • Less: Municipal taxes paid Rs 40.000) but restricted to standard rent (Rs 120.000 • Net Annual Value Rs 104.000) or fair rent (Rs 130. • Gross Annual value shall be higher of expected rent (Rs 120.000 .000) Hence.000) or actual rent received/receivable (Rs 144. Example • Answer: (a) Expected rent shall be higher of municipal value (Rs 95.000. gross annual value shall be Rs 144.000) • Therefore.000 • (b) Actual rent received or receivable (12000*12) = 144. expected rent = Rs 120.

whichever is HIGHER. Gross annual value where the property is let and was vacant for part of the year and the actual rent received or receivable is more than the reasonable expected rent in spite of vacancy period: • The gross annual value in this case shall be: (1)The sum for which the property might reasonably be expected to be let from year to year . (B) House which is let and was vacant during the whole or part of previous year • I. or (2) actual rent received or receivable. .

000. . fair rent is Rs 130.000 and standard rent is Rs 110. and was vacant for one month during the previous year. Example Example: • Municipal value of house is Rs 95. Municipal taxes during the year were Rs 40000. Compute annual value.000. The house property has been let for Rs 12000 p.m.

gross annual value shall be Rs 132.000 • Net Annual Value Rs 92.000 • Less: Municipal taxes paid Rs 40.000 . Example Answer: • (a) Expected rent shall be higher of municipal value (Rs 95.000 • (b) Actual rent received or receivable (12000*11) = 132.000) • Hence. expected rent = Rs 120.000) but restricted to standard rent (Rs 120.000 • Gross annual value = Higher of (a) or (b) • Therefore.000) or fair rent (Rs 130.

• The annual value of the property shall be determined under this situation if all the following 3 conditions are satisfied: . (B) House which is let and was vacant during the whole or part of previous year • II. Gross annual value where the property is let and was vacant for the whole or part of the year and the actual rent received or receivable owing to such vacancy is less than the expected rent.

(3) Owing to such vacancy. . (B) House which is let and was vacant during the whole or part of previous year (1)The property is let. In this case. the gross annual value shall be the actual rent received or receivable. (2) It was vacant during the whole or part of the previous year. the actual rent received or receivable is less than the expected rent.

fair rent is Rs 130.000. Municipal taxes during the year were Rs 40000. . Compute annual value. Example Example: • Municipal value of house is Rs 95.000 and standard rent is Rs 110.000. The house property has been let for Rs 12000 p. and was vacant for three months during the previous year.m.

000*9) Rs 108. Example Answer: • Expected rent Rs 110.000 – Rs 40.000) Municipal taxes paid Rs 40.000) = Rs 68.000 • Net Annual Value (Rs 108.e.000 • As the actual rent received or receivable owing to vacancy is less than the expected rent. the gross annual value will be actual rent received / receivable (i.000 .000 • Actual rent received/receivable (Rs 12. Rs 108.

Hence. its annual value shall be determined as per the provisions relating to let out property. . part of the year let and part of the year occupied for own residence. (C). House property which is part of the year let and part of the year occupied for own residence • Where a house property is. the period of occupation of property for own residence shall be irrelevant and the annual value of such house property shall be determined as if it is let. the expected rent shall be taken for full year but the actual rent received or receivable shall be taken only for the period let. • In this case.

000 p. Example Example: • Ajay owns a house property in Delhi whose municipal value is Rs 200. .000. Compute the annual value of the property if the municipal tax paid during the previous year was Rs 40. The standard rent is Rs 220.000.000.m. It was self occupied from April to July and from August it was let out for Rs 18.000 and the fair rent is Rs 240.

Example Answer: • Gross annual value shall be higher of the two (a)Expected rent (Municipal value Rs 200.000 Net Annual value is Rs 180.000 or Fair rent Rs 240.000. whichever is higher) but cannot exceed standard rent (Rs 220. Gross annual value is Rs 220.000) Rs 220.000 Hence.000 .000 (b)Actual rent received/receivable for let out period (Rs 18.000*8) Rs 144.000 Less: Municipal tax paid is Rs 40.

Treatment of unrealized rent • The actual rent received or receivable shall not include the amount of rent which the owner cannot realize. subject to the rules made in this behalf. .

irrespective of any expenditure incurred.Deduction from Income from House Property • Income chargeable under the head “Income from house property” shall be computed after making the following deductions: • (a) Statutory deduction: From the net annual value computed. the assessee shall be allowed a statutory deduction of a sum equal to 30% of the net asset value. This deduction is allowed towards repairs and collection of rent for the property. .

Deduction from income from House Property • (b) Interest on borrowed capital: Where the property has been acquired. • The amount of interest payable yearly should be calculated separately and claimed as a deduction every year. constructed. repaired. . renewed or reconstructed with borrowed capital. the amount of interest payable on such capital is allowed as a deduction. It is immaterial whether the interest has been actually paid or not paid during the year.

• In such a case interest paid/payable for the period prior to previous year in which the property is acquired/constructed will be aggregated and allowed in five successive financial years starting from the year in which the acquisition/construction was completed. .Interest on pre construction period • Interest attributable to the period prior to completion of construction: It may so happen that money is borrowed earlier and acquisition or completion of construction takes place in any subsequent year. Meanwhile interest becomes payable.

Example Example: • The assessee took a loan of Rs 600. The loan carries an interest @10% p.000 • 1/5th is allowed for the year = Rs 24. • Answer: • (i) Interest for the previous year 2009-10 on Rs 600.e. from 01/04/2007 to 31/03/2009 (for 2 years) = Rs 120. The entire loan is outstanding.a.000 • (ii) Interest for the pre construction period i.000 • Total interest allowable = Rs 84. Compute the interest allowable for the assessment year 2010-11. The construction is completed on 15/06/2009.000 .000 @ 10% = Rs 60.000 on 01/04/2007 from a bank for construction of a house.

or (b) Cannot actually be occupied by the owner by reason of the fact that owing to his employment. business or profession carried on at any other place. The annual value of such a house or part of the house shall be taken to be NIL. Computation of income of a property which is self occupied for residential purposes or could not actually be self occupied owing to • employment Where the annual value of such house shall be nil: Where the property consists of a house or a part of a house which: (a)is in the occupation of the owner for the purposes of his own residence and no other benefit is derived therefrom. (D). . he has to reside at that place in a building not belonging to him.

• The other house(s) shall be deemed to be let out and the annual value shall be the sum for which the property might reasonably be expected to let from year to year.Where assessee has more than one house for self-occupation • If there are more than one residential houses. . which are in the occupation of the owner for his residential purposes then he may exercise an option to treat any one of the houses to be self occupied .

Deduction in respect of one self- occupied house where annual value is Nil • Where annual value of one self- occupied house is nil. • However. the assessee will be allowed deduction on account of interest (including 1/5th of the accumulated interest of pre construction period as under: . the assessee will not be entitled to the statutory deduction of 30% as the annual value itself is nil.

Deduction in respect of one self- occupied house where annual value is Nil (a) Where the property is acquired or constructed with capital borrowed on or after 01/04/1999 and such acquisition or construction is completed within 3 years of the end of the financial year in which the capital was borrowed: Actual interest payable subject to maximum of Rs 150.000 if relevant certificate is obtained* .

i. Deduction in respect of one self- occupied house where annual value is Nil • (b) In any other case.000 .e. borrowed for repairs or renewal or conditions mentioned in clause (a) are not satisfied: Actual interest payable subject to a maximum of Rs 30.

income shall be determined as follows: Gross Annual Value NIL Less: Municipal Tax paid NIL NET ANNUAL VALUE NIL Less: Standard Deduction NIL Less: Interest on borrowed capital Deductible Income from Self occupied Property*********** .Computation of Annual value of one self occupied property • In case of one property (which is not let out or put to any other use) used throughout the previous year by the owner for his residential purpose.

• It is not necessary that the assessee continues to be the owner of the property in the year of receipt also. . such an amount will be deemed to be the income from house property of that year in which it is received. Special Provisions • Special provisions when unrealized rent is realized subsequently • Where any rent could not be realized and the same was allowed as deduction and subsequently if such amount is realized.

the same shall be deemed to the income from house property in the year of receipt. • The assessee need not be the owner of the house property in the year of receipt. No other deduction will be allowed. Arrears of rent received • Arrears of rent received • Where the owner of the house property receives arrears of rent from such a property. . • Standard deduction of 30% of the receipt shall be allowed as deduction towards repairs and collection charges.

then such persons are known as co- owners. it has been provided that each of the owners will be assessed individually in respect of share of income from the property. House property owned by Co- owners • If a house property is owned by two or more persons. each of them will also get the concessional treatment in respect of one self occupied property. . When the share of each co-owner is definite and ascertainable. • When each of the co-owners of a property uses it for his residence.

• However. income from property situated in foreign country is taxable. income from a property situated in foreign country will be taxable in India only when it is received in India during the previous year. if the assessee is a non- resident or resident but not ordinarily resident in India. .Property in a foreign country • In case of a resident in India. whether such income is brought into India or not.

. No deductions are allowed except for interest on borrowed capital up to a maximum of Rs 30. as the case may be.000.000 or Rs 150. therefore. there may be a loss in respect of such house property up to a maximum of Rs 30.000 or Rs 150.000 . the annual value is taken as nil. Naturally. Loss from house property • There can be loss under the head “income from house property” • (i) In the case of a self-occupied property.

there are no restrictions on deductions and therefore. . there can be loss under this head in respect of such properties due to municipal taxes as well as deductions. namely a house property which is fully let out or part of the year let out etc. Similarly.. Loss from house property • (ii) In respect of any other house property. deductions under section 24 in case of property deemed to be let out can be more than net annual value.

Expected changes in Direct Tax Code Particul Existing Proposed Impact ars Provisio Provision n • Tax • Annual • Gross rent is • New base value is the basis for concept of the taxation. taxatio presumptive • May result n rent* form the in basis for inconsistenc determining y where gross rent. This . rateable *6% of (a) value is not rateable value fixed. presumptive basis Contractual rent for rent and introduced.

plant. if property letting of income both is • Fixed inseparabl deduction . Expected changes in Direct Tax Particular Existing Code Proposed Impact s Provision Provision • Definitio • Any • Also • Income n of buildings includes earlier house or lands buildings taxed under property appurtena along with income income nt thereto machinery from other expande . sources d furniture shall now or any be taxed as other house facility.

presumpti respect ve rent. of entire year even if property is owned for a . Expected changes in Direct Tax Code Particula Existing Proposed Impact rs Provision Provision • Property • Annual value • No • Tax may acquired is considered provision be during for the to payable the proportionate apportion in year. period.

even is vacant presumpti though for whole ve rent no or part of does not income . allowance not contractu • Tax may included al rent be for period factors in payable property vacancy. payable g annual on value. e while deduction be computin provided. Expected changes in Direct Tax Code Particulars Existing Proposed Impact Provision Provision • Unrealize • Deductibl • No • Tax may d rent. unrealize • Vacancy • Income • Though d rent.

Expected changes in Direct Tax Code Particulars Existing Proposed Impact Provision Provision • Statutory • 30% of • 20% of • Will deduction Gross gross increase . annual rent. • No • Tax on • Deductio specific • Specific services n for tax provision provision will be on included. deductibl services e. income. . taxable value.

investment in property . property. • May result in • Allowed • Allowed sham let out without without deals. Expected changes in Direct Tax Code Particular Existing Proposed Impact s Provision Provision • Interest • Allowed up • No • Provision on to Rs deduction discriminato borrowe 150. property. owners. limit for let limit for let • May out out discourage properties.000 for available ry in favor of d capital self for self multiple occupied occupied home property.

taxable letting income convention as house centre. expenses and . Expected changes in Direct Tax Code Particul Existing Proposed Impact ars Provision Provision • Income • Taxable • Taxable as • Commerci from as house property al letting busine busines income. cold property storage and income forms part of even SEZ) though in • Fixed the deductions as nature of against actual business. will be ss of s (Except hotel.