Income from house property

Compiled by: Dr Bhupendra Jain

Chargeability – Sec. 22
The annual value of any property comprising of building or land appurtenant thereto, of
which the assessee is the owner, is chargeable to tax under the head “Income from
house property”

Essential conditions for taxing income under this head-

1. The property should consist of any building or land appurtenant thereto;
2. The assessee should be the owner of the property; and
Note- Ownership includes both free-hold and lease-hold rights and also
includes deemed ownership.
3. The property should not be used by the owner for any business or profession
carried on by him, the profit of which is chargeable to income tax.

When income from house property is not charged to tax

In the following cases income from property is not tax charges:
❖ Farmhouse:
❖ Property held for charitable purposes:
❖ Property used for own business/profession:
❖ Self-occupied house:
❖ Property of registered trade union/local authority:
❖ In the case of an authority constituted under any law for the marketing of
commodities:
❖ Palace of ex-ruler:

The format given hereunder can be used to determine the taxable income from house
property:

Gross annual value (GAV)

Less: Municipal taxes paid to local authority
Net Annual Value (NAV)
Less: Deductions u/s.24
Statutory deduction (30% of NAV) xxxxx
Interest on capital borrowed (loans) xxxxx
Income from house property xxxxxx

Gross Annual Value:

The gross annual value shall be the maximum of the following three values:
a) Actual rent (received or receivable)
b) Fair rental value
c) Municipal value.

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In case standard rent has been determined for any property under the Rent Control Act
then provisions are as under.
Step I Step II Step III

FR or MV Higher value or Less Value or

SR AR
Whichever is higher Whichever is less Whichever is higher

Q.1: Determine the Gross Annual Value in the following cases.

Particulars A B C D
Rs. Rs. Rs. Rs.
Municipal valuation 1,00,000 80,000 1,20,000 1,20,000
Fair rent 1,20,000 60,000 1,10,000 98,000
Standard rent 1,10,000 1,10,000 1,25,000 NA
Annual rent 1,00,000 1,00,000 1,00,000 1,25,000

GAV

Municipal taxes: Deduction is permissible in respect of property taxes subject to the

following two conditions:
It should be borne by the assessee
It should be paid during the previous year.

Q.2: X owns three houses in Delhi, particulars of which are as under:

Particulars I House II House III House
No. of residential 2 1 3
units
Municipal value 1,20,000 72,000 60,000
Fair Rental Value 1,50,000 75,000 75,000
Standard Rent 1,30,000 80,000 72,000
Rent per unit per 70,000 84,000 21,000
annum
Municipal taxes Rs. 12,000 (due Rs 8,000 for last Rs. 60,000 (it
but not paid) year paid this year includes Rs.
and Rs. 9,000 for 54,000 paid as
current year due advance for the
but not paid. next 9 years.
Compute the annual value of the above three houses for the assessment year 2023-24.

Deduction [Section 24]

Statutory deduction: 30% of the net annual value deductible irrespective of any
expenditure incurred by the taxpayer.

Interest on loans: Interest payable on loans borrowed for the purchase,

construction, renovation, repairing, extension etc., can be claimed as a deduction.

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The interest of the previous year: interest relating to the year of completion of
construction can be fully claimed in that year irrespective of the date of completion

The interest of the pre-construction period: interest accrued during the construction
period preceding the year of completion of construction can be accumulated and
claimed as a deduction over 5 years in equal instalments commencing from
the year of completion of construction.

“Pre-construction period” means the period commencing on the date of borrowing

and ending March 31 immediately before the date of completion of construction/date of
acquisition or the date of repayment of the loan, whichever is earlier.

Q.3: The assessee took a loan for Rs. 6,00,000 on 1st April 2019 from a bank for the
construction of a house. The loan carries interest @ 10% p.a. The construction is
completed on 15.06.2022 The entire loan is still outstanding. Compute the interest
allowable for the assessment year 2023-24.

Treatment of unrealised rent [Explanation below section 23(1)]

(1) The Actual rent received/receivable should not include any amount of rent
which is not capable of being realised.
(2) However, the conditions prescribed in Rule 4 should be satisfied. They are –
(a) the tenancy is bona fide;
(b) the defaulting tenant has vacated, or steps have been taken to compel
him to vacate the property;
(c) the defaulting tenant is not in occupation of any other property of the
assessee;
(d) the assessee has taken all reasonable steps to institute legal
proceedings for the recovery of the unpaid rent or satisfies the Assessing
Officer that legal proceedings would be useless.

Types of House Property

The annual value has to be determined for different categories of properties. These
could be:
1. House property, which is let throughout the previous year.
2. House property, which is self-occupied for residential purposes or could not be self-
occupied owing to employment at any other place.
3. House property, which is let and was vacant during the whole or any part of the
previous year.
4. House property, which is part of the year, let and parts of the year self-occupied.

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1. House property, which is let throughout the previous year: [As per table above]

Q.4: R owns a house property in Delhi. From the particulars given below compute the
income from house property for the A/y 2023-2024.
Rs.
Municipal Value 2,00,000
Fair Rent 2,52,000
Standard Rent 2,40,000
Actual rent (Per month) 23,000
Municipal taxes 20% of Municipal value
Municipal tax paid during the year 50% of tax levied
R had borrowed a sum of Rs. 12,00,000 @ 10% p.a. on 1-7-2020 and the
construction of the property was completed on 28-02-2022.

2. Computation of self-occupied property or could not be self-occupied owing to

employment. [Section 23(2)]
The annual value of a self-occupied property can be adopted as Nil. Deduction u/s 24 is
not available except in respect of interest on loans borrowed up to a maximum of
Rs.30,000 *(Rs. 2,00,000 where the property is acquired or constructed with
capital borrowed on or after April 1, 1999, and such acquisition or construction is
completed within 3 years of the end of the financial year in which the capital was
borrowed). Therefore, computation in the case of self-occupied property shall be -

Annual value as per sec. 23(2) Nil

Less: Interest on loan borrowed or Rs. 30,000,
(2,00,000)
Whichever is less xx
Loss from house property xx

Q.5: X has a house property in Delhi. He stays with his family in this house. The rent of
a similar property in the neighbourhoods is Rs. 56,000 per annum. The municipal value
is Rs. 45,000. Municipal tax is Rs. 5,000. The house was constructed in 2019 with a
loan of Rs. 12,00,000 taken from HDFC. During the previous year, X refunded Rs.
2,80,000 which includes Rs. 2,08,000 as current year interest. Compute the Income
under the head “Income from House Property” for the assessment year 2023-24.

3. House property which is let and was vacant during the whole or part of the
previous year: According to section 23(1), the annual value of such house property
shall be deemed to be: -
Situation 1
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 despite vacancy
period.
In this case, gross annual value shall be:

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the sum for which the property might reasonably be expected to let from year to year; or
actual rent received or receivable,
whichever is higher.

Q.6: Municipal value of a house is Rs. 3,00,000, Fair rent, is Rs. 4,00,000, and
Standard rent is Rs. 3,60,000. The house property has been let for Rs. 27,500 p.m. and
was vacant for three months during the previous year 2022-2023. Municipal taxes paid
during the year were Rs. 60,000. Compute the annual value for the assessment year
2023-24.

4. 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
of section 23(1) relating to letting our property. In this case, the period of occupation or
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 a
full year.

Q.7: X owns a house property in Delhi. 60% of the house property is self-occupied for
residence and 40% is let out on a monthly rent of Rs. 5,000. The let-out portion was
also self-occupied from 1-10-2022 to 31-12-2022. However, w.e.f. 1-1-2023 the entire
house was let out for Rs. 12,500 p.m. The construction of the house property was
completed on 31-12-2022.
The following expenses were incurred for the above house property during the year
ending on 31-3-2023.
Rs.
Municipal tax paid:
For financial year 2021-22 5,000
For financial year 2022-23 10,000
For financial year 2023-24 15,000
Insurance premium paid 3,000
Land revenue due 6,000
Interest on money borrowed for
construction of house property 18,000
Calculate income under the head house property of X for the A/y 2023-24.

Computation of Deemed to be let-out property:

Where an assessee owns more than two house properties meant for self-occupied, he
can opt for one such property as self-occupied. This option can be changed year after
year in a manner beneficial to the assessee. Generally, the house with the higher gross
annual value shall be treated as self-occupied so that the house with a lesser gross
annual value shall be liable to tax as deemed let-out property. However, another aspect
that must be considered before exercising this option is the amount of interest on the
loan borrowed in respect of each property.

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Subsequent recovery of unrealised rent
Recovery of unrealised rent allowed as deduction upto assessment year 2001-02
(Section 25A): Where a deduction has been claimed and allowed to the assessee in
respect of unrealised rent in assessment year 2001-02 or prior to that and subsequently
the assessee realises any amount in respect of such rent, the amounts so realised
shall be deemed to be income chargeable under the head “Income from house
property” and accordingly charged to tax as the income of that previous year,
irrespective of the fact whether the assessee is the owner of the property in that year or
not. No deduction under section 23 or section 24 whatsoever will be allowed to the
assessee from such unrealised rent recovered.
Recovery of unrealised rent already reduced from the annual value for
assessment year 2002-03 and onwards (Section 25AA): Where the assessee cannot
realise rent from a property let to a tenant and subsequently the assessee has realised
and amount in respect of such rent, the amount so realised shall be deemed to be
income chargeable under the head “Income from house property” and accordingly
charged to income-tax as the income of that previous year in which such rent is realised
whether or not the assessee is the owner of that property in that previous year.

Special provisions for arrears or rent received (Section 25B) (w.e.f. 1-4-2001)
Where the assessee is the owner of any property consisting of any building or lands
appurtenant thereto which has been let to a tenant; and has received any amount, by
way of arrears of rent from such property, not charged to income-tax for any previous
year; the amount so received, after deducting a sum equal to 30% of such amount, shall
be deemed to be the income chargeable under the head income from house property.
Further, it will be charged to income-tax as the income of that previous year in which
such rent is received, whether the assessee is the owner of that property in that year or
not.

Interest when not deductible from “Income from House Property” [Section 25]
Interest on borrowed money which is payable outside India shall not be allowed as
deduction u/s 24(b), unless the tax on the same has been paid or deducted at source
and in respect of which there is a person in India, who maybe treated as agent of the
recipient for such purpose.

Property owned by Co-owners [Section 26]

Sometimes the property consisting of building or the buildings and lands appurtenant
thereto is owned by two or more persons, who are known as co-owners. In such cases,
if their respective shares are definite and ascertainable.
Where the house property owned by the co-owners is self occupied by each of the co-
owner, the annual value of the property for each of such co-owner shall be nil and each
of the co-owner shall be entitled to the deduction of Rs.. 30,000/1,50,000 under section
24(b) on account of interest on borrowed money.
As regards, the property or part of the property which is owned by co-owners is let out,
the income from such property or part thereof shall be first computed as if this
property/part is owned by one owner and thereafter the income so computed shall be
apportioned amongst each co-owner as per their definite share.

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Can Net annual value be negative?
The NAV can be negative only when the municipal taxes paid by the owner are more
than the gross annual value.

Question on House property

Q.1 X owns six houses in Delhi details of which are as under.
Particulars I II III IV V VI
Municipal value 20,000 24,000 36,000 42,000 48,000 45,000
Fair Rental Value 24,000 24,000 40,000 42,000 50,000 50,000
Standard Rent N.A. 24,000 50,000 30,000 N.A. 48,000
Actual Rent 18,000 36,000 48,000 36,000 54,000 42,000
Compute the gross annual value of the above houses.

Q. 2: Municipal value of a house is Rs. 90,000, Fair rent Rs. 1,40,000, and Standard
rent Rs. 1,20,000. The house property has been let for Rs. 12,000 p.m. and was vacant
for one month during the previous year 2022-23. Municipal taxes paid during the year
were Rs. 40,000. Compute the annual value for the assessment year 2023-24.

Q. 3: Take the above question No. Q. 2. Assume the property was vacant for 3 months.
Determine the annual value for the assessment year 2023-24.

Q. 4: X, owns a building consisting of three identical units, the construction of which

was completed on 1-4-2022. The building was occupied from 1-4-2022 onwards. The
particulars about the three units for the year ended 31-3-2023 are given below:

Particulars Unit I Unit II Unit III

Fair rent 60,000 60,000 60,000
Rent received --- 72,000 ---
Municipal taxes: paid 3,000 5,000 3,000
Due date not yet paid 3,000 5,000 3,000
Land revenue due but outstanding 1,200 1,200 1,200
Ground rent due, not yet paid 2,400 2,400 2,400
Nature of occupation Self-occupied Let out Used for own
For residence for residence business.

On 1-4-2020, X borrowed a sum of Rs. 7,50,000 bearing interest at 8% per annum for
the construction of this building. The total cost of construction of the building was Rs.
12,00,000.
Compute the Income under the head “Income from House Property” for the assessment
year 2023-24.

Q. 5: Mr Sehgal owns a house in Bangalore construction of which was completed on 1-

7-2019. Half a portion is let out for residential purposes on a monthly rent of Rs. 10,000.
However, this portion remains vacant for three months during the previous year. 1/4th

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portion is used by Mr Sehgal for his profession while the remaining 1/4th portion is used
for his residence for the full year.
The other expenses regarding the house were: Rs.
1. Municipal taxes 20,000
2. Repairs 5,000
3. Interest on loan for the renovation of house 40,000
4. Fire Insurance Premium 10,000
Compute the Income under the head “Income from House Property” for the
assessment year 2023-24.