INCOME FROM
HOUSE
PROPERTY
SHWETA GALA
FORUM KAPADIA
SALONI ZANZARI
PURAV NANAVATI
SAHIL SANGHVI
ADITYA TRIVEDI
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.
The holder of an impartible estate is a deemed
owner of all properties comprised in the estate.
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.
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 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.
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 philanthropic
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:
Actual rent received or receivable
Municipal Value
Fair rent of the property
Standard rent
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.
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)
(ii)
Municipal Valuation
Fair rent
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: The first step is to 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.
Municipal taxes paid
Step 2: Taxes levied by any local authority in
respect of the property i.e. municipal taxes
(including service taxes) to be deducted:
Municipal taxes levied by local authority are to
be deducted from the gross annual value, if the
following conditions are satisfied:
(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.
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%)
Interest on borrowed capital
Income from House Property
*******
*******
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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
Example
Municipal value of house is Rs 95,000, fair rent is
Rs 130,000 and standard rent is Rs 110,000. The
house property has been let for Rs 12000 p.m.
Municipal taxes during the year were Rs 40,000.
Compute annual value.
Example
Answer: (a) Expected rent shall be higher of municipal
value (Rs 95,000) or fair rent (Rs 130,000) but restricted to
standard rent (Rs 110,000)
Hence, expected rent =Rs 110,000
(b) Actual rent received or receivable
(12000*12) = 144,000.
Gross Annual value shall be higher of expected rent (Rs
120,000) or actual rent received/receivable (Rs 144,000)
Therefore, gross annual value shall be Rs 144,000
Less: Municipal taxes paid
Net Annual Value
Rs 40,000
Rs 104,000
(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)
(2)
The sum for which the property might reasonably
be expected to be let from year to year , or
actual rent received or receivable,
whichever is HIGHER.
Example
Municipal value of house is Rs 95,000, fair rent is
Rs 130,000 and standard rent is Rs 110,000. The
house property has been let for Rs 12000 p.m. and
was vacant for one month during the previous
year. Municipal taxes during the year were Rs
40000. Compute annual value.
Example
Answer:
(a) Expected rent shall be higher of municipal value
(Rs 95,000) or fair rent (Rs 130,000) but
restricted to standard rent (Rs 110,000)
Hence, expected rent = Rs 110,000
(b) Actual rent received or receivable
132,000
(12000*11) =
Gross annual value = Higher of (a) or (b)
Therefore, gross annual value shall be Rs 132,000
Less: Municipal taxes paid
Net Annual Value
Rs 40,000
Rs 92,000
(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.
Example
Municipal value of house is Rs 95,000, fair rent is
Rs 130,000 and standard rent is Rs 110,000. The
house property has been let for Rs 12000 p.m. and
was vacant for three months during the previous
year. Municipal taxes during the year were Rs
40000. Compute annual value.
Example
Answer:
Expected rent = Rs 110,000
Actual rent received/receivable (Rs 12,000*9) =
Rs 108,000
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.e. Rs 108,000)
Municipal taxes paid = Rs 40,000
Net Annual Value (Rs 108,000 Rs 40,000) = Rs
68,000
(C). House property which is
part of the year let and part of
the year self occupied
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.
Example
Ajay owns a house property in Delhi whose municipal
value is Rs 200,000 and the fair rent is Rs 240,000. The
standard rent is Rs 220,000. It was self occupied from
April to July and from August it was let out for Rs 18,000
p.m. Compute the annual value of the property if the
municipal tax paid during the previous year was
Rs
40,000.
Example
Answer:
Gross annual value shall be higher of the two
(a)Expected
rent (Municipal value Rs 200,000 or Fair
rent Rs 240,000, whichever is higher) but cannot
exceed standard rent (Rs 220,000) Rs 220,000
Actual rent received/receivable for let out period
(Rs 18,000*8) Rs 144,000
(b)
Hence, Gross annual value is Rs 220,000
Less: Municipal tax paid is
Net Annual value is
Rs 40,000
Rs 180,000
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.
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, irrespective of any expenditure
incurred.
Deduction from income
from House Property
(b) Interest on borrowed capital: Where the
property has been acquired, constructed,
repaired, renewed or reconstructed with
borrowed capital, the amount of interest
payable on such capital is allowed as a
deduction.
The amount of interest payable yearly should
be calculated separately and claimed as a
deduction every year. It is immaterial whether
the interest has been actually paid or not paid
during the year.
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.
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.
Example
Example:
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
Total interest allowable
= Rs 24,000
= Rs 84,000
(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
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 .
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.
Deduction in respect of one
self-occupied house where
annual value is Nil
Where annual value of one self-occupied house
is nil, the assessee will not be entitled to the
statutory 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 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*
Deduction in respect of one
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 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, 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***********
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, 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.
Arrears of rent received
Arrears of rent received
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.
House property owned
by Co- owners
If a house property is owned by two or more
persons, then such persons are known as coowners. 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.
When each of the co-owners of a property uses
it for his residence, each of them will also get
the concessional treatment in respect of one
self occupied property.
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 150,000 .
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.
Thank You!!!!
