Income Under the Head

House Property
Basis of Charge (Section 22)- if only this is satisfied, then
income would be qualified under the head of House property,
if not, then, it won’t be considered
1. Property should consist of any building and land appurtenant thereto
(without building, not to be considered under this head. If only a vacant land then it will be considered under PGBP or other sources.
Building can be residential or commercial. Land appurtenant means unbuilt area associated with the building)
2. Assessee must be the owner or Deemed owner
(if not owner, then it will go under the head of other sources. Subletting is covered under the head ‘other sources’. Deemed owner is
the one on whose name property is not registered but still he/she is accepted as owner- ex- property registered in the name of wife for
inadequate consideration/minor, then husband/parent would be considered deemed owner)
3. House Property must be used for any purpose except business or profession of assessee
(Ex- Mr. A has a property which is let out or self occupied, then in both situation, it will be covered under the head “house property”.
However, if such self-occupied property is used for business/profession, then it will be under PGBP. Also, tenant can use the property
for both commercial/residential purpose. )
4. Annual value of the house property held as stock in trade (working in real estate, like construction of flat and then selling it) will also
be taxable under this head. As per Section 23(5), Net Annual Value (NAV) of house property held as stock in trade shall be nil for 2
years from the end of Financial year in which completion certificate is issued, if not let out for such period.
Example- Mr. X constructed flats in 2022-23 and received completion certificate on 1st October, 2022 for 50 flats. By 31st March, 2022,
he sold around 40 flats and still 10 flats are with him as a Stock in Trade. These 10 unsold flats are assessable under the head House
Property as deemed to be let out. However, from the year when the construction was complete till the end of 2 years after it (i.e., 31st
March, 2025), no let out/ income generated out of such 10 flats. Then, for 2 years, their NAV would be assumed as Nil. However, even
after such period, they are not let-out, then it would be assumed as “deemed to be let”.
How to calculate Income under the Head
“House Property”?
Step 1- Calculate the Gross Annual Value (GAV)
Step 2- (less) municipal taxes paid by the owner (only on paid basis and no deduction if
burden of municipal taxes is borne by the tenant. Paid can be for the current year and also,
for the last years.) NAV (also called annual value) would be reached after the deduction
Step 3- (less) standard deduction under Section 24 (a)- 30% of NAV would be deducted
from the NAV. (standard deduction is notional expenditure which the government allows
for the repair and maintenance of the house property)
Step 4- (less) interest on capital borrowed for House Property. Loan taken for
construction/purchase/repair/maintenance/renovation of the house property from the
NAV. It is allowed on “due” basis only, actually incurred or not is irrelevant.
The resultant figure would be the “Income under the Head ‘House Property’”.
House Property’s insurance expenditure, ground rent- to be ignored for deduction purpose
Calculation of GAV
• Fair rent (FR)- rent usually charged in the locality of the property. Ex- rent of Laxmi Nagar is Rs. 1,00,000
p.m. for the properties with similar sq. ft. area and facility, so, the property will also assumed to have fair
rent of Rs. 1,00,000 only.
• Municipal value (MV)- Municipal/local authority declare some annual value of the property over which
it charges the municipal taxes.
• Standard rent (SR)-Maximum rent which can be charged per the Rent Control Act.
• Actual rent(AR)- actual rent over which the property is let out.
Step 1- FR or MV, whichever is higher is to be compared with the standard rent.
Step 2- whichever is lower in step 1 at the end would be declared as expected rent. Compare it with AR,
whichever is higher would be the GAV.
Note1- Sometimes, standard Rent not given/applicable, then,
Step 1- FR or MV, whichever is higher would be the expected rent.
Step 2- Compare the expected rent with actual rent, whichever is higher would be GAV
Note 2- Sometimes Fair rent is not given, actual rent would only be considered as the fair rent.
If House property is let out throughout the
year, then how to calculate
• Find Expected Rent (of entire year)
• Find Actual Rent (of entire year)
Whichever is higher would be GAV
(-) Municipal tax = NAV
(-) standard deduction from NAV
(-) Interest on capital borrowed from NAV
Value of House Property
If House Property not let out throughout the year (let out for
the part of the year and self occupied for the part of the year)
Example- let out for 10 months or self-occupied for 2 months
Expected rent to be calculated for the whole 12 months. Actual rent for let out
period (here 10 months) is to be calculated. Compare both, whichever is
higher would be GAV and then apply the deductions likewise
Fair Rent= 50,000 pm
MV= 30,000 pm
SR = 26000 pm
AR = 35000 pm (for 10 months and self occupied for 2 months)
Municipal taxes paid = 40,000
Calculate income under the head House Property?
If house property let out for part of the year
and vacant for part of the year
• Find expected rent for the entire year
• Find the actual rent for the let out period
Compare both, if AR> ER, then GAV= AR; If AR<ER, then check if AR<ER because of vacancy
then, GAV = AR (only exceptional case in the head of ‘house property’) if not then GAV =
ER.
Example- Case1 Case 2 Case 3
ER p.m. 30,000 30,000 30,000
AR p.m. 40,000 33,000 24,000
Vacancy 2 Months 2 months 2 months
Calculate the GAV per each case?
AR to be calculated and also assumed if let out for the entire year and still it is less than ER
then it is not because of the vacancy.
House property let out for part of the year, vacant part
of the year and self occupied for part of the year
• Find expected Rate (ER)
• Find Actual rent (AR) for let out period
• If AR>ER, GAV= AR
• If AR<ER, Reason vacancy, GAV = AR
• If AR<ER, Reason not vacancy, GAV = ER
Example- ER = Rs.35,000 pm; AR = Rs. 45,000; Let out for 7 months, vacant
for 1 month and self-occupied for 4 months. Calculate GAV?
Calculate ER for entire year, AR for let out period; assume if not vacant
then AR for 8 months and calculate AR for this period, if AR still < ER, then
reason not vacancy, if AR>ER, then reason is vacancy.
Self-occupied House Property throughout the
year
• One assessee can self-occupy for a maximum of 2 house properties. If more than 2 houses self occupied,
then it would be deemed to be let out.
• GAV would be Nil, municipal taxes paid won’t be allowed as a deduction. Consequently, NAV would also be
Nil, Standard deduction would be nil, interest on capital borrowed would be allowed maximum for Rs.
2,00,000 /30,000
• Interest on capital borrowed would be allowed as deduction for maximum of Rs.2,00,000 if following
conditions are fulfilled
i. Loan borrowed on or after 1/04/1999
ii. If House property construction/acquisition completed within 5 years from the end of year in which loan
is acquired (ex- loan taken on 1st August, 2017 still the period would be counted from the end of f.y.
2017-18 i.e., 31st March, 2018 till 31st March, 2023 and within this period, construction must be over)
iii. Interest certificate specifying how much loan is repaid
If any condition not satisfied then, maximum deduction would be allowed for 30,000. example for
renovation/repair, loan taken
This limit is for maximum of two house
Part of the House Property partly let out, partly self-occupied (ex-
60% portion let out, 40% portion self-occupied for the entire
year)
• For 40% self-occupied
NAV would be NIL
(-) std. deduction would be NIL
(-) Interest on capital borrowed (40%) subject to maximum 2lakh/30k exemption
Let’s assume, Interest on capital borrowed is Rs.4lakh. Then, 40% of 4Lakh would be allowed subject to the limit.
• For 60% let out
ER(60%)
AR
GAV
(-)Municipal Tax (per 60%)
NAV would be received
(-) standard deduction
(-) interest on capital borrowed (60%)
2Lakh/30k restriction only allowed for self-occupied house property and no restriction over the let out house property.
When there are more than 2 self occupied
house property
• Any two would be self-occupied
• Remaining = deemed to be let out , GAV = ER
Example- three self occupied house property
Three combination would be there
Option 1- HP1 and HP2 self-occupied and HP3 as let out and income would be found.
Option 2- HP2 and HP3 self-occupied and HP1 as let out and income would be found
Option 3- HP1 and HP3 self-occupied and HP2 as let out and income would be found
In all these combination, whichever option has the lower income/higher loss, would
be opted for taxation purpose
Treatment of unrealised rent (when rent from
the tenant is not recovered)
• Actual rent received/receivable should not include unrealised rent if all the
four conditions are satisfied:
i. Tenancy is bona fide (assessee did not know about the default in advance)
ii. Defaulting tenant has vacated the house property/ steps initiated to
vacate such tenant
iii. Defaulting tenant is not in occupation of another House Property of
assessee
iv. Assessee initiated legal steps to recover unrealised rent or satisfy
Assessing officer that such action will be useless
• Statutory deduction u/S. 24(a), assessee shall be allowed a notional
expenditure equals to 30% of NAV.
• Interest on capital borrowed
Divided into two parts
a. Interest related to pre-construction period- It is accumulated and allowed in five equal installments from the year
in which construction is completed.
Pre-construction period- starts from the date loan was taken till 31 st March preceding to the date of the completion of
construction.
Ex- Loan taken on 10th August, 2017, Construction completed on 10th March, 2022. Pre-construction period will start from
10th August, 2017 till 31st March, 2022. Interest during this period would be accumulated and divided equally in 5
installments. So, installments would be divided in following period:
i. 2022-23
ii. 2023-24
iii. 2024-25
iv. 2025-26
v. 2026-27
vi. 2027-28
Illustration- loan taken on 1st May, 2019 of Rs. 10 Lakh p.a. with interest @12%pa. Construction complete on 31 st April,
2022. Calculate deduction under Section 24(5) for the fy 2022-23. Assume that entire loan is outstanding. Pre-
construction period- 1/05/2022- 31/03/2022. 10,00,000*12%*(total months in pre-construction period)/12= Interest.
This interest would be divided into five installments (from f.y. 2022-23 to 2026-27). Current period (2022-23) deduction =
10lakh (since not paid for the entire year) * 12% = 1,20,000 + interest accrued in installment.
b. Interest related to current financial year- It is allowed 100% in the current year on due basis.
• Note:
1. Interest on fresh loan taken to repay the original loan is also allowed.
2. Brokerage/Commission for arrangement of loan is not allowed.
3. Interest on unpaid interest is not allowed (when installment paid late)
4. If loan is taken from outside India, Interest is deductible only if TDS is deducted
• Co-owned house property (when a house property has more than one owner)
Example- There are four units of a house property. Unit 1 and 2 is self-occupied by A and B
who are co-owners of the house property. Unit 3 and 4 is let out. Treatment would be as
follows:
Let out portion would be calculated normally. The resultant income under the head ‘house
property’ would be divided between A and B
Unit 1 which is self-occupied by A would be calculated separately for A. Interest on capital
borrowed would be allowed maximum for 2lakh/30k as the case maybe.
Unit 2 which is self-occupied by B would be calculated separately for A. Interest on capital
borrowed would be allowed maximum for 2lakh/30k as the case maybe.
• Taxability in respect of arrears of rent/Recovery of unrealised rent
(Section 25A)- standard deduction of upto 30% of them would be
realised
If Rent incremented retrospectively (from the back date), let’s say rent
increased in 2022-23 but implemented retrospectively (from 2020-21).
Hence, the increased portion of these past years would be the income
under the head ‘house property’ in the f.y. 2022-23 itself.
• Following incomes are exempted under the head ‘house property’
1. Income from farmhouse
2. Property held for charitable/religious purposes
3. House property used for own business/profession.
4. Income from house property of registered Trade Union/Local authority
Deemed Owner
• Transfer of House Property to spouse for inadequate consideration- Transferor spouse is deemed
to be the owner of the house property transferred. However, if transferred under an agreement
to live apart, then transferee spouse can be considered as owner.
• Transfer of house property to Minor Child for inadequate consideration- Transferor is deemed as
owner of House Property. However, House Property is transferred to a minor married daughter,
then deemed ownership not applied.
• Allotment/Lease to the member of a cooperative society- Member to whom a building or part
thereof is allotted or leased under a house building scheme of a society/company/association,
shall be deemed to be owner of that building.
• Person in possession of a property- if possession is received for part performance of the contract,
the person having the possession is deemed owner for income tax purpose.
• Holder of impartible Estate- deemed as owner of all properties in the estate
• Lease for 12 years or more- a person who acquires any building by way of lease for a period of 12
years or more shall be deemed to be the owner of that property.
Composite rent (when a house property is let
out with other assets)
• If let out building and other assets are inseparable- taxable under the
head PGBP or other sources
• If let out building and other assets are separable-
1. Letting out of building is taxable under head House Property
2. Letting out of other assets taxable either under the head PGBP or
under the head other sources.