INCOME FROM

HOUSE
PROPERTY
Prepared By:
Mandeep Kaur
 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 Section 27

• 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, 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. Such rent is known as composite
rent. 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, gas, water, electricity, watch and ward,
air conditioning etc. In this case such composite rent
should be split.
 Composite Rent

up and the portion of rent attributable to

the letting of the premises shall be
assessable as “Income from house
property”. The other portion of the
composite rent received for rendering
services shall be assessable as “Income
from other sources”.
 Composite Rent
• (b) Composite rent on account of rent for the property and the
hire charges of machinery, 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, 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”.
• On the other hand, if the letting of the property is inseparable
from the letting of other assets like machinery, furniture, the
entire income would be taxable 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.
 When income from house
property is not charged to tax
• Income from a house property to an approved
scientific research association, to a university or
other educational institution, to charitable
hospital or other medical institution.
• Property income of: (a)any registered trade
union, (b) any political party.
• Income from house property held for any
charitable purposes.
 What is Annual Value?

• As per section 23(1)(a), 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.
• It may neither be the actual rent derived nor the
municipal valuation of the property. It is
something like notional rent which could have
been derived, had the property been let.
 Determining Annual Value

In determining the annual value there are four factors which are
normally taken into consideration. These are:
1. Municipal value: Rent fetching capacity of the house determined
by the municipal authorities.
2. Fair rent: Rent fetching capacity of similar property in the same
locality.
3. Standard Rent: Maximum rent which can be taken from a tenant
legally under Rent Control Act.
4. Expected Rent: Higher of (a) MV or (b) FR subject to Maximum of
SR.
 Computation of annual value of
a property [Section 23(1)]
• As per Income tax, annual value is the value after deduction
of municipal taxes, if any, paid by the owner. Annual value
may be determined in the following two steps:
1) Determine gross annual value
2) From gross annual value, deduct municipal taxes paid by
the owner during previous year.

The balance shall be the net annual value which, as per the
Income tax Act, is the annual value.
 Different categories of
properties
• The annual value has to be determined for different
categories of properties. 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.
(C) House property which is part of the year let and part of the
year self occupied.
(D) House property which is self –occupied for residential
purposes or could not actually be self occupied owing to
employment in any other place.
 (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), the amount so received
or receivable i.e actual rent.
 Determination of Gross Annual Value

As per clause (a) above, 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. For estimation of the same, the higher of the
following two is taken to be the expected rent.
(i) Municipal Valuation
(ii) Fair rental Value
But, in case the property is governed by the Rent control
Act, its annual value cannot exceed the standard rent.
 Determination of Gross Annual
Value
• To conclude Firstly, calculate the gross annual
value which will be the maximum of Municipal
value or fair rent, but restricted to the standard
rent.
• However, if the actual rent received or
receivable exceeds such amount then the actual
rent so received/receivable shall be the Gross
Annual value.
Solution
 Municipal taxes paid

Step 2:
• Meaning: Taxes levied by any local authority in respect of
the property.
• Municipal taxes are to be deducted from the GAV if the
following conditions are fulfilled:
a) The municipal taxes have been borne by the owner,
and
b) These have been actually paid during the previous
year.
 Net Annual Value

• The value arrived at after deducting the

municipal taxes, if any, may be referred to as
the Net Annual Value i.e
NAV = GAV - Municipal Taxes paid & 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”.
 Determination of Income from
House Property
Gross Annual Value *******
Less: Municipal Taxes *******
Net Annual Value *******
Less: Deduction under section 24
Standard Deduction (@30% of Net Annual Value) *******
Interest on borrowed capital *******
Income from House Property *******
 (B) House which is let and was
vacant during the whole or part of
previous year
I. 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 , or
(2) actual rent received or receivable,
whichever is HIGHER.
 (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.
• 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
(1) The property is let,
(2) It was vacant during the whole or part of the
previous year.
(3) Owing to such vacancy, the actual rent
received or receivable is less than the expected
rent,
In this case, the gross annual value shall be the
actual rent received or receivable.
(C). House property which is part of the year
let and part of the year occupied for own
residence
• Where a house property is, part of the year let and part
of the year occupied for own residence, its annual value
shall be determined as per the provisions relating to let
out property.
• In this case, 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. Hence, the expected rent shall be taken for full year
but the actual rent received or receivable shall be taken
only for the period let.
 TREATMENT OF UNREALIZED
RENT Section 25 A
• 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.
• Unrealized Rent → House was let out,
but rent could not be recovered from
tenant.
 Rules for Unrealised Rent
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 assessee;
(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.
 Deduction from Income from
House Property Section 24
Income chargeable under the head “Income from
house property” shall be computed after making the
following deductions:
(a) Standard deduction (section 24 A) : From the
net annual value computed, the assessee shall be
allowed a standard deduction of a sum equal to 30%
of the net annual value. This deduction is allowed
towards repairs and collection of rent for the
property, irrespective of any expenditure incurred.
 Deduction from income from
House Property
(b) Interest on borrowed capital (section 24 B) :
 Interest on pre construction period
• Interest attributable to the period prior to completion of
construction:
Computation of Prior Period
Interest
 Points to Remember Contd.,

(a) Loan may be taken for purchasing the land even if

construction is done out of the own funds.
(b) Interest on unpaid interest is not deductible.
(c) Interest on fresh loan taken to repay original loan is
allowed as a deduction.
(d) Amount paid as brokerage/commission for arrangement
of loan → NOT Allowed as deduction.
(e) If loan is taken from outside India, Interest is deductible
if tax has been deducted at source.
 (D). 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; 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, he has to reside at that place in
a building not belonging to him,
The annual value of such a house or part of the house shall be
taken to be NIL.
 Where assessee has more than
Two house for self-occupation
• If there are more than two residential houses,
which are in the occupation of the owner for his
residential purposes then he may exercise an
option to treat any two of the houses to be self
occupied .
• The other house(s) shall be deemed to be let out
property.
 Deduction in respect of one self-
occupied house where annual value
is Nil
• Where annual value of self-occupied house is
nil, the assessee will not be entitled to the
standard deduction of 30% as the annual value
itself 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:
 Deduction in respect of 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 5 years of
the end of the financial year in which the
capital was borrowed: Actual interest
payable subject to maximum of Rs
2,00,000 if relevant certificate is obtained*
 Deduction in respect of self-
occupied house where annual value
is Nil
• (b) In any other case, i.e. borrowed
for repairs or renewal or conditions
mentioned in clause (a) are not
satisfied: Actual interest payable
subject to a maximum of Rs
30,000.
Computation of Annual value of
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, 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 (Loss) from Self occupied Property ***********
 HOUSE PROPERTY HELD
AS Stock in trade
• If the property constitutes SIT of a business, Income from such house
property is to be charged u/h “Income from House Property”. [Since
specific head has been given for income from house property, it cannot
be taxed under any other head].
• Annual value of HP held as SIT = NIL for 2 year from the end of
FY in which completion certificate of the property is obtained from
competent authority, if such property is not Let Out Property (LOP)
during such period. [Sec 23(5)]
• Properties of an assessee engaged in the business of letting out of
properties: Income earned by an assessee engaged in the business of
letting out of properties on rent would be taxable as Business Income.
 Special Provisions

1. Special provisions when unrealized rent is

realized subsequently Section 25AA
• Where any rent could not be realized and the
same was allowed as deduction and
subsequently if such amount is realized, such
an amount will be deemed to be the income
from house property of that year in which it is
received.
• It is not necessary that the assessee continues
to be the owner of the property in the year of
receipt also.
 Special Provisions Contd.,
2. Arrears of rent received Section 25B
• Where the owner of the house property receives
arrears of rent from such a property, the same shall
be deemed to the income from house property in
the year of receipt.
• Standard deduction of 30% of the receipt shall be
allowed as deduction towards repairs and collection
charges. No other deduction will be allowed.
• The assessee need not be the owner of the house
property in the year of receipt.
To sum up….
 House property owned by Co-
owners
• If a house property is owned by two or more persons, then such persons
are known as co-owners. When the share of each co-owner is definite
and ascertainable, it has been provided that each of the owners will be
assessed individually in respect of share of income from the property.
• Where HP is self-occupied by each co-owner : Annual value for each
co-owner will be NIL and each of them will be entitled to maximum
deduction of Rs.30,000 or 2,00,000.
• Where the entire or part of the property is let : Income from such
HP shall be first computed as if this property is owned by one owner
and thereafter the income is apportioned amongst each co-owner as per
their definite share.
To sum up….
 Property in a foreign country

• In case of a resident in India, income from property

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

There can be loss under the head “income from

house property”
(i) In the case of a self-occupied property, the
annual value is taken as nil. No deductions are
allowed except for interest on borrowed capital up
to a maximum of Rs 30,000 or Rs 2,00,000 .
Naturally, therefore, there may be a loss in respect
of such house property up to a maximum of Rs
30,000 or Rs 150,000, as the case may be.
 Loss from house property

(ii) In respect of any other house property, namely

a house property which is fully let out or part of
the year let out etc., 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. Similarly,
deductions under section 24 in case of property
deemed to be let out can be more than net annual
value.
 Can Net Annual Value be
negative ?

Yes, when municipal taxes

paid by owner are more
than the gross annual
value.
 Where a person has income from
HP without any house property in
his hands?

• Unrealised Rent
• Arrears of Rent
• Deemed Ownership
Taxability of income from sub-
letting of House Property
• If any person has sub let any HP ,
anu income received shall be
taxable under the head OTHER
SOURCES as per section 56 &
further total income shall be rent
received minus expenses incurred.
Numericals
Question
Contd.,
Solution
Contd.,
 Interest on Loan : Question
The assessee took a loan of Rs 600,000 on 01/04/2007 from
a bank for construction of a house. The loan carries an
interest @10% p.a. The construction is completed on
15/06/2009. The entire loan is outstanding. Compute the
interest allowable for the assessment year 2010-11.
Answer:
(i) Interest for the previous year 2009-10 on Rs 600,000 @
10% = Rs 60,000
(ii) Interest for the pre construction period i.e. from
01/04/2007 to 31/03/2009 (for 2 years) = Rs 120,000
1/5th is allowed for the year = Rs 24,000
Total interest allowable = Rs 84,000
 Question: If Mr. X had taken a loan of Rs. 5,00,000 for
construction of property on 01.10.2017 & interest is payable @
10% p.a. and the construction was completed on 30.06.2018,
interest allowed under section 24(b) shall be:
(a) Current year Interet = Interest for PY 2018-19 = 10% of Rs. 5,00,000 = Rs. 50,000;

(b) Pre-construction Period = Period from date of borrowings to 31st march

immediately preceding date of completion.

Date of Completion = 30.6.2018. Thus pre-construction period will end on 31st march
immediately preceding 30.6.2018 which is 31st March 2018.
Thus Pre-construction period = From 1.10.2017 - 31.03.2018
Pre-construction Interest =10% of Rs. 5,00,000 for 6 months (from 01.10.2017 to
31.03.2018)= Rs. 25,000.
Prior period interest to be allowed in 5 equal annual installments of Rs. 5,000 from the
year of completion of
construction i.e. in this case, PY 2018-19.
Therefore, total interest deduction u/s 24(b) = 50,000 + 5000 = Rs. 55,000.
Question (2017)
Question (2019)
THANK YOU!