(INCOME TAX ACT)- INCOME FROM HOUSE PROPERTY

•Sale of House Property → Taxable u/h 'Capital Gains

•Renting of House Property → Taxable u/h House Property'.
Note: Annual Value is taxable & not the rent

BASIS OF CHARGE [SECTION 22]

•Annual value of any house property which is owned by the assessee is taxable u/h Income from HP.
•House property shall include all types of house properties [i.e. residential houses, shops, godowns,
cinema building, workshop building, hotel buildings etc).

ANALYSIS OF SECTION 22
1. Property should consist of any building or Land attached to the building
* Land appurtenant means land connected with the building (Ex: Garden, Garage, Parking)
* Letting out of vacant land → Taxable u/h IFOS (as No Building)
* Subletting of House Property → Taxable u/h IFOS (as No Ownership]

2. Assessee must be the owner of the rented House Property

•Ownership of land on which the building stands is not necessary. (Land may be on lease)
•Ownership in PY is relevant & not in AY.
•Registration of the sale deed → Not necessary. (& thus includes also a beneficial owner)
•Ownership includes deemed ownership (discussed in Section 27 later).
•House Property with Disputed Title of Ownership: it will be the decision of Income-tax Department
as to who is the owner till the court gives its decision on such property.

3. Purpose
* HP may be used for any purpose by the owner (other than for his business/profession).
* If house property is used by the assessee for his own business/profession, annual value of such
house property is not taxable u/h house property.
Eg: Mr. X uses the property for his office. Income from such property cannot be taxed u/h HP.

4. Property held as stock-in-trade etc

➔ Annual value of house property will be charged under the head “Income from house
property”,where it is held by the assessee as stock-in-trade of a business also.
➔ However, the annual value of property being held as stock in trade would be treated as NIL
for a period of two years from the end of the financial year in which certificate of completion
of construction of the property is obtained from the competent authority, if such property is
not let out during such period [Section 23(5)].
 (INCOME TAX ACT)- INCOME FROM HOUSE PROPERTY
“STEPS TO COMPUTE "INCOME FROM HOUSE PROPERTY"
A. Gross Annual Value (GAV) xxx
B. Less: Municipal tax paid by the owner during the PY. (XXX)
C. Net Annual Value (NAV) (A-B) xxx
D. Less: Deduction u/s 24 (XXX)
Section 24(a): Standard deduction (30% of NAV)
Section 24(b): Interest on borrowed Capital

A. DETERMINATION OF GROSS ANNUAL VALUE (SECTION 23)

1. Calculate Expected Rent (ER) = Higher of (a) MV Municipal Value or
(b) Fair Rent subject to maximum of SR (Standard rent)
2. Calculate Actual Rent Received (ARR) = Rent receivable - Unrealized Rent.
3. GAV = Higher of ER or ARR
•Unrealized Rent → House was let out, but rent could not be recovered from tenant.
•Vacancy Loss → Loss of rent because house property remained vacant during such period.

Q1. When Unrealized Rent shall be deducted from Rent Received/Receivable?

Answer: Unrealized rent shall be deducted from rent if all the following conditions are satisfied:
(a) Tenancy is bonafide
(b) Defaulting tenant has vacated or steps have been taken to compel him to vacate the property;
(c) Defaulting tenant is not in occupation of any other property of the assesse;
(d) Assessee has taken all reasonable steps to institute legal proceedings for the recovery of the
unpaid rent or satisfies AO that legal proceedings would be useless.

Q2. Jayashree owns 5 houses in Chennai, all of which are let-out. Compute GAV of each House.
S.No. Particulars House 1 House 2 House 3 House 4 House 5
1. Municipal Value 80000 55000 65000 24000 80000
2. Fair Rent 90000 60000 65000 25000 75000
3. Higher of (i) & (ii)
4. Standard Rent NA 75000 58000 NA 78000
5. Expected rent
[Lower of (iii) & (iv)]
6. ARR 72000 72000 60000 30000 72000
GAV [Higher of (v) & (vi)]

COMPUTATION OF GAV FOR DIFFERENT TYPES OF HOUSE PROPERTIES

1. Self-occupied (SOP)/ unoccupied * GAV = Nil for 2 Houses (Only for Individual/HUF)
HP * No deduction of Municipal taxes paid by the owner.
2. Let Out Property (LOP) for whole * GAV Higher of (i) ER or (ii) ARR
year * No Question of vacancy since property was occupied for
whole year.
 (INCOME TAX ACT)- INCOME FROM HOUSE PROPERTY
3. LOP vacant for a part of the year * ER shall be calculated for whole year.
* While computing ARR, rent for the period for which the
house was vacant shall be excluded.
IF ARR > ER GAV = ARR
IF ARR < ER due to vacancy GAV=ARR
If ARR < ER due to other reason GAV = ER
4. LOP for part of the year & SOP * ER shall be calculated for the whole year.
for the part of year * ARR shall be computed for let out period.
* GAV = Higher of (i) ER (for whole year) or
(ii) ARR (for let out part).
5. Deemed Let out property * If Assessee is having more than 2 houses & he is using all
of them for himself, he has the option to choose any 2
houses as SOP & other houses will be deemed to be let out.
*GAV of DLOP →ER because there is no rent since both
HPs are SOP
* GAV of SOP = Nil
6. Single House - One portion is let ▪SOP → GAV = Nil; No deduction of Municipal taxes paid;
& another portion is self-occupied ▪Interest is deductible subject to the limit of Rs.
30,000/2,00,000.
▪For LOP → ER shall be computed on proportionate basis.

Q3. Anirudh has a property whose municipal valuation is Rs. 1,30,000 p.a. The fair rent is Rs.
1,10,000 p.a. and the standard rent fixed by the Rent Control Act is Rs. 1,20,000 p.a. The property
was let out for a rent of Rs. 11,000 p.m. throughout the previous year. Unrealised rent was Rs.
11,000 and all conditions prescribed by Rule 4 are satisfied. He paid municipal taxes @10% of
municipal valuation. Interest on borrowed capital was Rs. 40,000 for the year. Compute his income
from house property for AY 24-25. (Space left blank intentionally)
Answer :

Q.4 Rajesh, a British national, is a resident and ordinarily resident in India during the P.Y.2023-24.
He owns a house in London, which he has let out at £ 10,000 p.m. The municipal taxes paid to the
Municipal Corporation of London is £ 8,000 during the P.Y.2023-24. The value of one £ in Indian
rupe to be taken at Rs.95. Compute Rajesh’s Net Annual Value of the property for the A.Y. 2024-25.
Answer:
 (INCOME TAX ACT)- INCOME FROM HOUSE PROPERTY

DEDUCTIONS FROM ANNUAL VALUE [SECTION 24]

(i) There are two deductions from annual value. They are :
(i) 30% of NAV; and
(ii) Interest on borrowed capital
Deductions provided under section 24 are exhaustive.

1. 30% of NAV is allowed as deduction under section 24(a)

(a) This is a flat deduction and is allowed irrespective of the actual expenditure incurred.
(b) The assessee will not be entitled to deduction of 30%, in the following cases, as the annual
value it self is Nil.

(i) In case of self-occupied properties or

(ii) In case of property held as stock-in-trade and the whole or any part of the property is not let
out during the whole or any part of the previous year, upto 2 years from the end of the financial
year in which certificate of completion of construction of the property is obtained from the
competent authority.

2. Interest on borrowed capital is allowed as deduction u/s 24(b)

(i) Interest payable on loans borrowed for the purpose of acquisition, construction, repairs,
renewal or reconstruction can be claimed as deduction.
(ii) Interest payable on a fresh loan taken to repay the original loan raised earlier for the aforesaid
purposes is also admissible as a deduction.

3. Interest for pre-construction period

➔ Pre-construction period is the period prior to the previous year in which property is acquired
or construction is completed.
➔ Interest payable on borrowed capital for the period prior to the previous year in which the
property has been acquired or constructed (Pre-construction interest) as reduced by any
part thereof allowed as deduction under any other provision of the Act, can be claimed as
deduction over a period of 5 years in equal annual instalments commencing from the year of
acquisition or completion of construction.

4. Interest for the year in which construction is completed/ property is acquired:

➔ Interest relating to the year of completion of construction/ acquisition of property can be
fully claimed in that year irrespective of the date of completion/ acquisition.
(ii) Deduction in respect of self-occupied or unoccupied property where annual value is nil

(1) Under default tax regime under section 115BAC

➔ There would be no deduction on account of interest on loan under section 24(b) under
 (INCOME TAX ACT)- INCOME FROM HOUSE PROPERTY
default tax regime under section 115BAC in respect of the property referred to in section
23(2) i.e., self-occupied or unoccupied property
(2) Under optional tax regime (normal provisions of the Act)
(1) In case assessee has exercised the option of shifting out of the default tax regime provided
under section 115BAC(1A), the assessee will be allowed a deduction on account of interest
(including 1/5th of the accumulated interest of pre‐construction period)
Conditions Amount of Deduction
(i) Where the property is acquired or constructed with Actual interest payable in aggregate for
capital borrowed on or after 1.4.1999 and such one or two self- occupied properties,
acquisition or construction is completed within 5 years subject to maximum of Rs.2,00,000, if
from the end of the financial year in which the capital certificate mentioned in (2) below is
was borrowed. obtained.
(ii) Where the property is repaired, renewed or Actual interest payable in aggregate for
reconstructed with capital borrowed on or after one or two self- occupied properties,
1.4.1999. subject to a maximum of Rs. 30,000.

Q.5 Mr. Manas owns two house properties one at Bombay, wherein his family resides and the other
at Delhi, which is unoccupied. He lives in Chandigarh for his employment purposes in a rented house.
For acquisition of house property at Bombay, he has taken a loan of Rs. 30 lakh@10% p.a. on
1.4.2022. He has not repaid any amount so far. In respect of house property at Delhi, he has taken a
loan of Rs. 5 lakh@11% p.a. on 1.10.2022 towards repairs. Compute the deduction which would be
available to him under section 24(b) for A.Y.2024-25 in respect of interest payable on such loan if
he exercises the option of shifting out of the default tax regime provided under section 115BAC(1A)
Answer:
→ Mr. Manas can claim benefit of Nil Annual Value in respect of his house property at Bombay and
Delhi, since no benefit is derived by him from such properties, and he cannot occupy such properties
due to reason of his employment at Chandigarh, where he lives in a rented house.
→ He is eligible for deduction under section 24(b) since he has exercised the option of shifting out
of the default tax regime provided under section 115BAC(1A).
Computation of deduction u/s 24(b) for A.Y.2024-25
Particulars Amount
I) Interest on loan taken for acquisition of residential house property at Bombay
30,00,000 x 10% = 3,00,000
Restricted to Rs. 2,00,000 2,00,000

II) Interest on loan taken for repair of residential house property at Delhi
Rs. 5,00,000 x 11% = Rs. 55,000
Restricted to Rs. 30,000 30,000
Total interest 2,30,000
Deduction under section 24(b) in respect of (I) and (II) above to be restricted to 2,00,000
 (INCOME TAX ACT)- INCOME FROM HOUSE PROPERTY

Deductions from Net Annual Value under default tax regime under section 115BAC

Deductions from Net Annual Value under optional tax regime (normal provisions of the Act) :
 (INCOME TAX ACT)- INCOME FROM HOUSE PROPERTY

Q.6 Ganesh has a property whose municipal valuation is 2,50,000 p.a. The fair rent is 2,00,000 p.a.
and the standard rent fixed by the Rent Control Act is 2,10,000 p.a. The property was let out for a
rent of Rs. 20,000 p.m. However, the tenant vacated the property on 31.1.2024. Unrealised rent was
20,000 and all conditions prescribed by Rule 4 are satisfied. He paid municipal taxes @8% of
Municipal valuation. Interest on borrowed capital was 65,000 for the year. Compute the income from
house property of Ganesh for A.Y.2024-25.

Answer : Computation of income from house property of Ganesh for A.Y.2024-25

Particulars Amount
Computation of GAV
Step 1 Compute ER Higher of MV of ` 2,50,000 p.a. & FR of `
2,00,000 p.a., but restricted to SR of ` 2,10,000 p.a. = 2,10,000 210000
Step 2 Compute Actual rent received/receivable Actual rent
received/receivable for let out period less unrealized rent 180000
as per Rule 4 = ` 2,00,000 – ` 20,000 = 1,80,000
Step 3 Compare ER & Actual rent received/receivable
Step 4 In this case the actual rent of ` 1,80,000 is lower than ER
of 2,10,000 owing to vacancy, since, had the property not been 180000
vacant the actual rent would have been 2,20,000 (1,80,000 +
40,000, being notional rent for February and March 2023).
Therefore, actual rent is the GAV.
Gross Annual Value 1,80,000
Less: Municipal taxes (paid by the owner during the previous year) 20,000
= 8% of 2,50,000
Net Annual Value (NAV) 1,60,000
Less : Deductions under section 24
(a) 30% of NAV = 30% of Rs. 1,60,000 48000
(b) Interest on borrowed capital (actual without any ceiling limit) 65000 1,13,000
Income from House Property 47,000

Q.7 Smt. Rajalakshmi owns a house property at Adyar in Chennai. The municipal value of the
property is Rs.5,00,000, fair rent is 4,20,000 and standard rent is 4,80,000. The property was let-
out for Rs. 50,000 p.m. up to December 2023. Thereafter, the tenant vacated the property and
Smt. Rajalakshmi used the house for self-occupation. Rent for the months of November and
December 2023 could not be realisedin spite of the owner’s efforts. All the conditions prescribed
under Rule 4 are satisfied. She paid municipal taxes @12% during the year. She had paid interest of
25,000 during the year for amount borrowed for repairs for the house property. Compute her
income from house property for the A.Y. 2024-25. (space left blank intentionally)
 (INCOME TAX ACT)- INCOME FROM HOUSE PROPERTY

INADMISSIBLE DEDUCTIONS [SECTION 25]

Interest chargeable under this Act which is payable outside India shall not be deducted if –
(a) tax has not been paid or deducted from such interest and
(b) in respect of which there is no person in India who may be treated as an agent.

PROVISION FOR ARREARS OF RENT AND UNREALIZED RENT RECEIVED SUBSEQUENTLY

[SECTION 25A]
(i) As per section 25A(1), the amount of rent received in arrears from a tenant or the amount of
unrealized rent realised subsequently from a tenant by an assessee shall be deemed to be income
from house property in the financial year in which such rent is received or realised, and shall be
included in the total income of the assessee under the head “Income from house property”, whether
the assessee is the owner of the property or not in that financial year.
(ii) Section 25A(2) provides a deduction of 30% of arrears of rent or unrealised rent realised
subsequently by the assessee.
Summary:
Section 25A Arrears of Rent / Unrealised Rent
(i) Taxable in the year of receipt/realisation
(ii) Deduction@30% of rent received/realised
(iii) Taxable even if assessee is not the owner of the property in the financial year of
receipt/realisation.

Q.8 Mr. Anand sold his residential house property in March, 2023. In June, 2023, he recovered rent
of ` 10,000 from Mr. Gaurav, to whom he had let out his house for two years from April 2017 to
March 2019. He could not realize two months rent of ` 20,000 from him and to that extent his
actual rent was reduced while computing income from house property for A.Y.2019-20.
Further, he had let out his property from April, 2019 to February, 2023 to Mr. Satish. In April,
2021, he had increased the rent from ` 12,000 to ` 15,000 per month and the same was a subject
matter of dispute. In September, 2023, the matter was finally settled and Mr. Anand received `
69,000 as arrears of rent for the period April 2021 to February, 2023. Would the recovery of
unrealised rent and arrears of rent be taxable in the hands of Mr. Anand, and if so in which year?

Answer : Since the unrealised rent was recovered in the P.Y.2023-24, the same would be taxable in
the A.Y.2024-25 under section 25A, irrespective of the fact that Mr. Anand was not the owner of
the house in that year. Further, the arrears of rent was also received in the P.Y.2023-24, and hence
the same would be taxable in the A.Y.2024- 25 under section 25A, even though Mr. Anand was not
the owner of the house in that year. A deduction of 30%of unrealised rent recovered and arrears of
rent would be allowed while computing income from house property of Mr. Anand for A.Y.2024-25.
Computation of income from house property of Mr. Anand for A.Y.2024-25
Unrealised rent recovered = 10000
Arrears of rent received = 69000
Total = 79000
Less: Ded @30%
Income from House Prop.
 (INCOME TAX ACT)- INCOME FROM HOUSE PROPERTY

TREATMENT OF INCOME FROM CO- OWNED PROPERTY [SECTION 26]

Self‐occupied property Let‐out property

The annual value of the property of each co- owner will be Nil The income from
and each co-owner shall be entitled to a deduction of ` 30,000/ such property shall
` 2,00,000, as the case may be, on account of interest on be computed as if
borrowed capital if they exercise the option of shifting out of the property is
the default tax regime provided under section 115BAC(1A). owned by one owner
However, if the co-owner owns another selfoccupied/ and thereafter the
unoccupied property, the aggregate interest from the co-owned income so computed
property and the other self-occupied property cannot exceed shall be apportioned
30,000/ 2,00,000, as the case may be. amongst each co-
As mentioned earlier, no interest deduction in respect of self- owner as per their
occupied property would be allowable to the co-owners under specific share.
the default tax regime.

DEEMED OWNERSHIP [SECTION 27]

As per section 27, the following persons, though not legal owners of a property, are deemed to be
the owners for the purposes of section 22 to 26.
(i) Transfer to a spouse [Section 27(i)] – In case of transfer of house property by an individual to
his or her spouse otherwise than for adequate consideration, the transferor is deemed to be the
owner of the transferred property.
Exception – In case of transfer to spouse in connection with an agreement to live apart, the
transferor will not be deemed to be the owner. The transferee will be the owner of the house
property.
(ii) Transfer to a minor child [Section 27(i)] – In case of transfer of house property by an
individual to his or her minor child otherwise than for adequate consideration, the transferor would
be deemed to be owner of the house property transferred.
Exception – In case of transfer to a minor married daughter, the transferor is not deemed to be
the owner.
Note ‐ Where cash is transferred to spouse/minor child and the transferee acquires property out
of such cash, then, the transferor shall not be treated as deemed owner of the property. However,
clubbing provisions will be attracted.
(iii) Holder of an impartible estate [Section 27(ii)] – The impartible estate is a property which is
not legally divisible. The holder of an impartible estate shall be deemed to be the individual owner of
all properties comprised in the estate.
After enactment of the Hindu Succession Act, 1956, all the properties comprised in an impartible
estate by custom is to be assessed in the status of a HUF. However, section 27(ii) will continue to
be applicable in relation to impartible estates by grant or covenant.
(iv) Member of a co‐operative society etc. [Section 27(iii)] – A member of a co-operative society,
company or other association of persons 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 or part thereof allotted to him although the co-operative society/company/ association
is the legal owner of that building.
 (INCOME TAX ACT)- INCOME FROM HOUSE PROPERTY
(v) Person in possession of a property [Section 27(iiia)] – A person who is allowed to take or retain
the possession of any building or part thereof in part performance of a contract of the nature
referred to in section 53A of the Transfer of Property Act shall be the deemed owner of that
house property. This would include cases where the –
(1) possession of property has been handed over to the buyer
(2) sale consideration has been paid or promised to be paid to the seller by the buyer
(3) sale deed has not been executed in favour of the buyer, although certain other documents like
power of attorney/agreement to sell/will etc. have been executed.
In all the above cases, the buyer would be deemed to be the owner of the property although it is not
registered in his name.
(vi) Person having right in a property for a period not less than 12 years [Section 27(iiib)] – A
person who acquires any rights in or with respect to any building or part thereof, by virtue of any
transaction as is referred to in section 269UA(f) i.e. transfer by way of lease for not less than 12
years, shall be deemed to be the owner of that building or part thereof.
Exception – In case the person acquiring any rights by way of lease from month to month or for a
period not exceeding one year, such person will not be deemed to be the owner.