INCOME FROM

HOUSE PROPERTY

By
BFIA – 3 Semester
rd
Kshitij gupta

ACCF Naman Seth

Sarthak Agarwal
Sagun Arora
Apurva Chandra
 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.
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 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.
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
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
(ii) 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
******* 24
under section Interest on borrowed
capital
Standard
*******
Deduction
Income
(@30%) from House Property *******
EXAMPLE
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.
(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
 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.
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 ***********