CHAPTER 1-INTRODUCTION OF INCOME FROM HOUSE PROPERTY

Income from house property is one among the taxable heads of income as per
the Income Tax act. It constitutes the income earned from a property by his/her owner.
Property hereby refers to any building (house, office building, godown, factory, hall, shop,
auditorium, etc.) and/or any land attached to the building (e.g. Compound, garage, garden, car
parking space, playground, gymkhana, etc.).
This is the only head of income, which taxes notional income (except under some circumstances
under capital gains, income from other sources). The taxability may not necessarily be of actual
rent or income received but the potential income, which the property is capable of yielding.
While self-occupied and rental properties are within the purview under this head, income from
vacant house is dealt with under the head income from other sources.
Under the Income Tax Act what is taxed under the head Income from House Property is the
inherent capacity of the property to earn income called the Annual Value of the property. The
above is taxed in the hands of the owner of the property.

DEFINITION
The annual value of property, consisting of any buildings or lands appurtenant thereto of which
the assessee is the owner, other than such portions of such property as he may occupy for the
purposes of any business or profession carried on by him, the profits of which are chargeable to
income tax, shall be chargeable to income tax under the head "Income from House Property".

Meaning of House Property:House property consists of any building or land appurtenant thereto of which the assesse is the
owner. The appurtenant lands may be in the form of a courtyard or compound forming part of the
building. But such land is to be distinguished from an open plot of land, which is not charged
under this head but under the head Income from Other sources or Business Income, as the
case may be. Besides, house property includes flats, shops, office space, factory sheds,
agricultural land and farm houses. Further, house property includes all type of house properties,
i.e., residential houses, godowns, cinema building, workshop building, hotel building, etc.
Example:- Mr. X has one big house. It includes vast open area within its boundaries. The house
has been let out at a rent of Rs. 1, 00,000 p.m., out of which rent of Rs. 25,000 p.m. is
attributable to the open land. In this case, entire rental income is taxable under the head house
property.
The annual value of property consisting of any building or land appurtenant (belonging) thereto,
except such property which is used by assessee for the purpose of business and profession, shall
be the taxable value.

Essential conditions for taxing income under this head

Income from house property is taxable in the hands of its legal owner in whose name the
property stands. Owner for this purpose means a person who can exercise the rights of the
owner not on behalf of the owner but in his own right. A person entitled to receive income from a
property in his own right is to be treated as its owner, even if no registered document is executed
in his name. The following three conditions must be satisfied before the income of the property
can be taxed under the head Income from House Property:
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 it should not be used by the owner for the
purpose of any business or profession carried on by him, the profit of which is chargeable to tax.
If the property is used for own business or profession, it shall not be chargeable to tax.
Ownership includes both free-hold and lease-hold rights and also includes deemed ownership.

Tax Chargeability [Sec. 22]

The annual value of property consisting of any building or lands appurtenant thereto of which the
assessee is the owner shall be subject to Income-tax under the head Income from House
Property after claiming deduction under Sec. 24, provided such property or any portion of such
property is not used by the assessee for the purpose of any business or profession, carried on by
him, the profits of which are chargeable to Income-tax.

Determination of Annual Value[Sec 23]

What is Annual Value? Income from house property is taxable on the basis of annual value. Even
if the property is not let out, notional rent receivable is taxable as its annual value. As per Sec.
23(1)(a) the annual value of any property shall be the sum for which the property might
reasonably be expected to be let out from year-to-year. 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 [Sec. 23(1)

As per the Act the annual value is the value after deduction of Municipal taxes, if any, paid by
the owner. But for the sake of convenience, the annual value may be determined in the following
steps: Step I: Determine the gross annual value.
Step II: From the gross annual value compared in Step I, deduct Municipal tax actually paid by
the owner during the previous year.
The balance shall be the net annual value which, as per the Income-tax Act is the annual value.
Example:- Mrs. X has let out one house property @ Rs. 62,000 p.m., Municipal Valuation Rs.
72,000 p.m., Fair Rent Rs. 90,000 p.m., Standard rent Rs. 1,00,000 p.m., Municipal Tax paid Rs.
40,000.Compute Net Annual Value
Solution: - Computation of Income under the head House Property:
Particulars

Rs.

Gross Annual Value

10,80,000

Working Note:

Rs.

a) Fair Rent (Rs. 90,000 *12)

10,80,000

b) Municipal Value (Rs. 72,000 *12)

8,64,000

c) Higher of a) or b)

10,80,000

d) Standard Rent (Rs. 1,00,000 *12)

12,00,000

e) Expected Rent (Lower of c or d)

10,80,000

f) Rent received/receivable (Rs. 62,000

*12)
7,44,000
Gross Annual Value shall be higher of e) or
f) 1
10,80,000
Less: Municipal Tax

40,000

Net Annual Value

10,40,000

Unrealized Rent
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For tax purposes, it is possible to deduct unrealized rent from your rent received, and thereby
avoid paying tax on such unrealized income.
Unrealized rent is the rent not paid by the tenant in your property in a particular financial year. In
other words, the rent is due, but, the tenant has not paid the rentfor any reason.
Example 1: You have put one of your properties on rent, and your rent received is 10,000 per
month or 120,000 per year. You are liable to pay tax on this income. However, let's say, your
tenant was going through a financial crisis and was not able to pay you rent for three months. In
such a scenario, you can deduct 30,000 (10,000 x 3) from the rental income, and you need to
pay tax only the 90,000 which you have actually received.
Conditions for Unrealized Rent
To be able to deduct unrealized rent from your rental income, there are four conditions.
Tenancy is bona fide or authentic
You should have enough proof to show the tenant was staying in your property. The proof can be
in the form of a written agreement, and rent receipts issued, etc.
Defaulting tenant has vacated
You have removed the defaulting tenant from the property because of non-payment of rent.
Moreover, if he is not ready to vacate, you have taken adequate legal steps on your part to make
sure he vacates the property.
Defaulting tenant does not live in any other property of the owner
The defaulting tenant should not be living in another property of the same owner. This condition
is to avoid any informal arrangement between the owner and the tenant to save taxes.
Legal steps for recovery
The final condition is that as an owner, you have taken enough legal steps to recover the
unrealized rent from the tenant. Alternatively, if legal steps have not been taken, the owner
should convince the income tax official that there is no point in taking any legal steps. For
example, the tenant has gone entirely bankrupt, and plus he has a lot of other debts, so any legal
proceedings will be a waste of time.
As long as these four conditions are realized, you can deduct unrealized rent from rent received
for tax purposes.

Unrealized rent recovered in future

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Note that if you get unrealized rent in the future, you will have to add it to your income and pay
tax on this rent.
Example 2: You have unrealized rent of 40,000 in a particular financial year, which you have
deducted from your rent received, and thus not paid any income tax on this amount. However, if
you can recover this amount next year, you will have to add this amount to your taxable income.
To summarize, you do not have to pay tax on unrealized rent as long as you meet certain
conditions. Use our tax calculator Indian Income Tax Calculator to determine how unrealized
rent affects your tax payable.

Deductions from income from house Property [Sec.24]

Serial No Particulars

Amount or Percentage Deduction

Standard deduction

30% of Net Annual Value

Property acquired/constructed after 1st

April, 1999 with borrowed capital
(deduction is allowed only where such
acquisition or construction is completed Rs. 1,50,000
within 3 years from the end of the
financial year in which capital was
borrowed)

In all other cases except in point 2.

Rs. 30,000

In case of let out property

Full deduction of interest on borrowed

capital.

Income chargeable under the head Income from house property shall be computed after
making the following deductions, namely:- source (As amended by Finance Act, 2013) :
Standard deductions:6

From the net annual value computed, the assesse shall be allowed a standard deduction of a sum
equal to 30% of the net annual value.
Interest on borrowed capital:Where the property has been acquired, constructed, repaired, renewed or reconstructed with
borrowed capital, the amount of any 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.[Circular No. 363, dated 24.06.1983] 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
the 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.
Interest will be aggregated from the date of borrowing till the end of the previous year prior to
the previous year in which the house is completed and not till the date of completion of
construction.

Interest when not deductible from Income from House Property [Sec. 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 no person in India, who may be treated as an agent of the recipient for such purpose.

Unrealized rent received subsequently to be charged to income-tax [Sec.

25AA]
Where the assessee could not realize rent from a property let to a tenant and the same was
allowed as deduction and, subsequently, the assessee has realized any amount in respect of such
rent, the amount so realized shall be deemed to be the 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 realized, whether or not the assessee is the owner of that
property in the previous year.
Special provisions for arrears of rent received [Sec. 25B] Where the assessee:
a) Is the owner of an property consisting of any buildings or lands appurtenant thereto which has
been let out to a tenant; and

b) 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.

Arrears of Rent Received Sec. 25B

Where the assessee is the owner of any property which has been let to a tenant and he receives
any amount by way of arrears of rent from such property which was not charged to tax earlier,
the amount so received shall be chargeable to tax under the head Income from House Property.
For example, the owner may have sought enhancement of rent from the tenant and same could
have been in dispute. Subsequently, as and when the additional rent is realized, the same is liable
to tax as it was not charged to tax in any earlier years. Such an amount is assessable under
Section 25B. It shall be charged to tax as the income of the previous year in which such rent is
received even if the assessee is no longer the owner of such property. In computing the income
chargeable to tax in respect of the arrears so received, 30% shall be allowed and consequently,
70% alone shall be chargeable to tax. The deduction of 30% is irrespective of the actual
expenditure incurred.
Unrealized rent is one which was deducted from the actual rent in any previous year for
calculating annual value. The basic difference between Sec. 25AA which deals with unrealized
rent received subsequently and Sec. 25B which deals with arrears of rent received is that 30% of
the amount is not available as deduction under section 25AA, whereas it is allowed as deduction
under section 25B.

Property owned by co-owners [Sec. 26]

Sometimes the property consisting of buildings or the buildings and land appurtenant thereto is
owned by two or more persons, who are known as co-owners. In such cases, if their
representative shares are definite and ascertainable, such persons shall not be assessed as an AOP
in respect of such property, but the share of each such person in the income from the property, as
computed in accordance with Sec. 22-25, shall be included in his total income as under:a) Where house property is self-occupied by each co-owner:- 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 of 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 Sec. 24(b) on account of interest on borrowed money.
b) Where the entire or part of the property is let out:- As regard, the property or part of the
property which is owned by co-owners is let out, the income from such property or part thereof
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shall be first computed as if this property or part thereof is owned by one owner and thereafter
the income so computed shall be apportioned amongst each co-owner as per their definite share.
Can Annual Value (Net Annual Value) be negative? The Annual Value (NAV) can be negative
only when Municipal taxes paid by the owner are more than the gross annual value.
Can there be any loss under the head income from house property? This brings us to the question
as to whether there can be any loss under this head?
In so far as income from a self-occupied property is concerned, the annual value is taken as nil.
No deductions are allowed except for interest on borrowed funds up to a maximum of Rs.
30,000/1,50,000. Naturally, therefore, there may be a loss in respect of such property up to a
maximum of Rs. 30,000/1,50,000, as the case may be.
II) In respect of any other type of house property, namely, a house property which is a fully let
out or let out during part of the year, 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 Sec. 24 in case of property deemed to be let out can be
more than net annual value.

Deemed Ownership [Sec. 27]

As per Sec. 27, though the following persons are not the legal owners of the property, yet
deemed to be the owners for the purpose of Sec. 22 to 26:
Deemed owner means a Person who transfers the property without adequate consideration to the
spouse / minor child OR the holder of impartible estate OR a member of co-operative society,
company, association of persons to whom the property is allotted or leased under it's House
building scheme OR a person who gets the control over property in part performance of the
contract of the nature referred in sec 53A of the Transfer of Property Act or by virtue of such
transactions as are referred in sec 269UA.

Transfer to a spouse/child [Sec. 27(i)]:

If an individual transfers any house property to his or her spouse/ minor child otherwise than for
adequate consideration, the transferor in that case is deemed to be the owner of the house
property so transferred. This would, however, not cover cases where property is transferred to a
spouse (or minor married daughter) in connection with an agreement to live apart.
Note:- Where the individual transfers cash to his/her spouse or minor child and the transferee
acquires a house property out of such cash, the transferor shall not be treated as deemed owner of
the house property. Such transaction will, however, attract clubbing provisions.

Holder of an impartible estate [Sec. 27(ii)]

The holder of an impartible estate shall be deemed to be the individual owner of all properties
comprised in the estate. The impartible estate, as the word itself suggests, is a property which is
not legally divisible.
Member of a Co-operative Society, etc. [Sec. 27(iii)] A member of a co-operative society,
company or other association of person 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.

Person in possession of a property [Sec. 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 sec. 53A of the Transfer of Property Act
shall be the deemed owner of that house property. This would cover cases where the a)
possession of property has been handed over to the buyer; b) sale consideration source (As
amended by Finance Act, 2013): www.trpscheme.com has been paid or promised to be paid to
the seller by the buyer; c) sale deed has not been executed like power of attorney/agreement to
sell/will, etc., have been executed. The buyer would be deemed to be the owner of the property,
although it is not registered in his name. Person having right in a property for a period not less
than 12 years [Sec. 27(iiib)] A person who acquires any right in or with respect to any building or
part thereof, by virtue of any transaction as is referred to in sec. 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. This will not cover the case where any right by way of lease is acquired on month-tomonth basis or for a period not exceeding one year.

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CHAPTER 2 : TYPES OF HOUSE PROPERTY

SELF OCCUPIED PROPERTY
A self Occupied property is one which is used by the person for his own residential purpose.If a
person has occupied more than one property for his residential purpose then only one house is
treated as self occupied and others are treated as "Deemed to be let out".If a person uses his
property for carrying on the business and profession then income from such property is not
chargeable to tax under House Property.

Definition of a Self occupied property (SOP)

A self occupied property is one which is owned and used by you for your own residential
purpose. You have to occupy the property throughout the year. Thus, a property or a house not
occupied by the owner for his/her residence cannot be treated as a self-occupied property.
There is an exception to the above rule. If the following conditions are satisfied then the
property can be treated as self-occupied and the annual value of a property (considered while
calculating Income from House Property) will be NIL.
If you (tax payer) own a property;
If such property cannot be occupied by you, by reason of the fact that owing to your
employment, business or profession carried on at any other place (other than the place where
your self occupied property is there), you have to reside at other place in a building not owned by
you;
If the property mentioned in (a) above is not let-out at any time during the year. (The property
should not be let-out fully or part thereof);
No other benefit derived from such property.
(The Gross Annual Value (GAV), also called just the Annual Value, of a property is used in
calculating the tax or rent which should be applied to the property).
Let us now understand few more points on Self-occupied property, like
What if I have one or more self-occupied properties? Which one should I choose as self-occupied
property?
Is my HRA fully taxable if I have a self-occupied property?
How much can I claim as Income tax deduction under Section 24b, on the Interest amount paid
for my home loan?

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If my self-occupied property is partly Let-out, what are the tax implications? Can I consider it as
both let-out as well as SOP for claiming tax deductions?
My self-occupied property is jointly owned (co-owned) then what are the tax implications?

Self occupied house property for business purpose?

If you use your SOP house for carrying on your business/profession then income from such
property is not chargeable to tax under the head Income from House property. (This is covered
under the head Profits & Gains of Business & Profession).
Self Occupied Property & HRA (House Rent Allowance)
If you live in your own house, the HRA given by your company is fully taxable. In this case, you
are not entitled for HRA and the entire HRA amount is taxable. There are few exceptions to this,
as below.
What if you own a house and you are employed in a different place/city? In this case, you can
claim HRA exemption.
You may occupy a rented house and you may also have a own property in the same city/town.
Then, in this case, are you entitled for HRA exemption? Is it taxable? First thing is , your selfoccupied property will be treated as a let-out property (even if it is left vacant). Secondly, you
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are entitled to receive HRA and it is not taxable. But, do remember that this is a tricky situation.
Your reasons for staying in a rented house should be reasonable and justifiable (during tax
scrutiny, if any).
Another scenario can be you stay in a rented property in a different city (due to your
employment/business requirements) and your family (parents) stays in your own self occupied
property. Under this scenario, you can definitely claim HRA exemption. Your own house is
treated as SOP and annual value is treated as NIL. Even if your own property is kept vacant, it is
still treated as SOP only.

Self Occupied House/Property Home Loan Income Tax Benefits

I f you have taken a loan to purchase your Self occupied property, you are eligible for few
income tax benefits/tax deductions.
The Interest payable on home loan of a selfoccupied property can be claimed as tax
deduction. Under Section 24 (b) of The Income Tax Act. Tax Deduction on home
loan interest for a selfoccupied property is up to Rs 2 lakh.
Under Section 80C Deduction on repayment of principal amount on home loan is up toRs 1.5
lakh.
To acquire self occupied property, If you go for a joint home loan along with your spouse in the
ratio of lets say 50: 50, then both of you can claim these benefits separately. So the combined
limit will be Rs 3 lakh (principal component) under Section 80C and 4 lakh (Interest component)
under Section 24.
(If you take home loan for repair/renovation/reconstruction of your self occupied house, then the
maximum Tax deduction limit on account of interest is Rs 30,000 only)

Self Occupied Property A portion of it is Self-occupied & another portion is Letout: Tax implications
This scenario can be like this You have bought a two- storey (floors) building through a home
loan. You have occupied one floor and rented out the other one throughout the year. In this case,
income of each portion has to be computed separately, as if the let-out portion were Let-out
property and the Self-occupied portion were SOP.

How to claim housing loan interest on this partly let out property? The home loan interest
amount can be apportioned (shared) between the let-out portion and SOP.

Example: Mr Kejriwal owns a Duplex Flat in New Delhi, which has two floors with separate
entry for each floor. He has given one floor on rent and another one is self-occupied by him. His
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housing loan interest amount is Rs 5 Lakh in a Financial Year. Can he claim interest amount for
let-out and self-occupied portions separately?
The answer is, YES. The property is treated as 50% let-out and 50% as SOP. The total interest
amount has to be divided equally i.e., Rs 2.5 Lakh per portion.
The maximum interest amount that he can claim u/s 24 (b) for self occupied property is Rs 2
Lakh only. So, out of Rs 2.5 Lakh, he can only claim Rs 2 Lakh as tax deduction.
There is no maximum ceiling limit (on interest amount) for Let-out portion. So, He can go ahead
and claim the entire Rs 2.5 Lakh as tax deduction.
(Kindly note that the apportionment of the interest amount can be done based on plinth area (or)
built-up floor area (or) any other reasonable basis).

Self Occupied Property Partly Let out & Partly Self occupied (Time-basis)
If your property is self-occupied for part of the year & let-out for remaining part of the year, then
the income from your House property shall be calculated for the whole year as Deemed Let-out
Property only. There wont be any ceiling limit to claim tax deduction on payment of interest
amount on your home loan. So, it is not treated as Self Occupied Property.

Latest news: Budget 2016-17 Home Loan Tax Benefits & Self Occupied
Property :
Existing rule: To claim tax benefits on home loan of a Self-occupied Property, the construction
has to be completed within 3 years from the end of the Financial Year in which the capital
(home loan) borrowed.
New Provision (effective AY 2017-18) :
In view of the fact that housing projects often take longer time for completion, it is proposed that
clause (b) of section 24 be amended to provide that the Deduction under the said provision on
account of Interest paid on Home Loan for acquisition or construction of a self-occupied house
property shall be available if the acquisition or construction is completed within FIVE years
from the end of the financial year in which capital was borrowed.
This amendment will take effect from 1st day of April, 2017 and will, accordingly apply in
relation to assessment year 2017-2018 and subsequent years.

More than one Self Occupied House Property

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In case you own more than 1 House Property and both or all are self occupied and not let out
which means either youve made one of them your residence and use the other one for some of
your own purpose(not business or profession, since that is covered under the head Profits &
Gains of Business & Profession). Your family, children stay there or you use the other one as a
holiday home. In this case you will be allowed to treat only one of the properties as Self
Occupied and all others are considered to be deemed to be Let Out. Or simply, you income for
this house property will be calculated as if it has been let out.
Any one property can be chosen as Self Occupied Property The Tax Department wants you to
assume only one of the properties to be self occupied and therefore the Gross Annual Value of
such a house will be nil. And Interest on Borrowed Money (for purchase or construction) up to
Rs 1, 50,000 or Rs 30,000 (if taken for repairs or reconstruction) shall be allowed to be deducted.

LET OUT HOUSE PROPERTY

Deemed Let out property means that the property has not been given on Rent but because the
assessee owns more than 1 property - all the other properties except the one who is self occupied
by him would be treated as deemed let out property
The property which is lying vacant will be treated as deemed let out property and will be
assessed for tax under the head 'Income from house property. The income from such property
will be taken on notional basis based on existing market rent on such property. You will be
entitled to all deductions from the income which is normally admissible in case of let out
property.

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1. Where the property is let out the previous year [sec 23{1}(a/b)]
Where the property is let out for the whole year, the GAV would be the higher of
Annual letting value (ALV) &
Actual rent received or receivable during the year
The ALV is the higher of fair rent (FR) & municipal value (MV), but restricted to standard rent
(SR).
ALV as per sec 23(1)(a) cannot exceed standard rent (SR) but it can be lower than standard rent,
in case where standard rent is more than the higher of MV and FR.
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Municipal value is the value determined by municipal authorities for living municipal taxes on
house property.
Fair rent means rent with similar property in the same locality would fetch.
The standard rent is fixed by the Rent Control Act.
From the GAV computed above, municipal taxes paid by the owner during the previous year are
to be deducted to arrive at the NAV.

2. Where let out property is vacant for part of the year [sec 23{1}(c)]
Where let out property is vacant for part of the year and owing to the vacancy, the actual rent is
lower than the ALV, then the actual rent received or receivable will be GAV of the property.

3. In case of self occupied property or unoccupied property [sec23 (2)]

Where the property is self occupied for own residence or unoccupied during the previous year ,
its annual value will be NIL provided no other benefit is derived by the owner from such
property.
Benefit of exemption of one self occupied house is available only to an individual or HUF
The expression unoccupied property refers to a property which cannot be occupied by the
owner by reason of his employment, business or profession at a different place and he resides at
such other place in a building not belonging to him.
No deduction for municipal tax allowed in respect of such property.

4. Where a house property is let out for part of the year and self occupied for
part of the year [sec 23(3)]
If a single unit of a property is self occupied for a part of the year and let out for remaining part
of the year, then the ALV for whole year shall be taken into account for determining GAV.
The ALV for the whole year shall be compared with actual rent for the let out period and
whichever is higher shall be adopted as GAV.
However, property taxes for the whole year are allowed as deduction provided it is paid by the
owner during the P.Y.
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5. In case of deemed to be let out property [sec23 (4)]

Where the assesse owns more than one property for self occupation, then the income from any
one such property, at the option of the assesse shall be computed under the self occupied
property category and its annual value will be NIL. The other self occupied/unoccupied
properties shall be treated as deemed let out property
This option can be changed hereafter in a manner beneficial to the assesse
In case of deemed let out property,ALV shall be taken as the GAV
The question of considering the actual rent received/receivable does not arise consequently no
adjustment is necessary on account of property remaining vacant on unrealized rent.
Municipal taxes actually paid by the owner during the previous year can be claimed as
deduction.

6. In case of house property, a portion let out and a portion self occupied
Income from any portion or part of a property which is let out shall be computed separately
under the let out property category and the other portion /part which is self occupied shall be
computed under the self occupied property category.
There is no need to treat the whole property as a single unit for computation of income from
house property
Property taxes, if given on consolidated basis can be bifurcated as attributable to each portion or
floor on a reasonable basis.

Income from House property which is let out and interest from
preconstruction stage
Mr. Rajan constructed a house property for which he borrowed a loan of Rs.2 lakhs at 12% per
annum on 1.10.2007. The construction of the house was completed by end of January, 2009.
Interest pertaining to the period from 1.10.2007 to 31.3.2008 amounts to Rs.12,000. The house
property has been let-out for Rs.6,000 per month from September, 2012. Municipal taxes paid
during the previous year 2012-13 is Rs.7,500. Repairs incurred Rs.12,500. Insurance premium
due for the year but outstanding is Rs.1,500. Current year interest on the loan of Rs 24,000 is
outstanding. Computation of income from house property is as follows:

18

Particulars

Amount Rs.

Amount Rs.

Gross Annual Value

12,000 *6

72,000

Less : Municipal taxes paid

7,500

Net Annual Value

64,500

Less : Deduction u/s 24

(i) 30% of Net Annual Value

29,350

(ii) Interest on Loan

24,000

(iii) Interest from pre construction

period

2,400

55,750
Income from House Property

8,750

Interest pertaining to the period from 1.10.2007 to 31.3.2008 amounts to Rs.12,000. This amount
should have been claimed in equal installments over a period of 5 years commencing from the
year 2008-09 which is the year of completion of construction, relevant to the assessment year
2009-2010 and ending with assessment year 2014-15. Therefore, deduction of 1/5 of interest i.e
2400 (1/5 of 12,000) can be claimed for each of the assessment year 2009-2010 to assessment
year 2014-15. No deduction can be claimed for the assessment year 2015-16 and afterwards.

What is the difference between self-occupied and let out house property?
A Self Occupied House Property is the one which you use as your own residence. This property
may also be used by your children, spouse and / or parents. Even if your House Property is
vacant, it will be considered as your Self Occupied property.
19

For the purpose of Income Tax, if more than one Self Occupied properties are owned by a
person, than only one of them will be taken as Self Occupied. The remaining House Property
will be considered as Deemed Let Out. So the property will be taken as rented property even if it
is not given on rent. Of course you have the option to select which property you want to take as
Self Occupied.
For the purpose of Income Tax, if a House Property is given on rent for the whole year or a part
of the year, than it is considered as Let out House Property.

COMPUTATION OF INCOME FROM LET OUT PROPERTY

After arriving at rate able value and annual value, if the property is let-out (given for rent /lease),
the following deductions for which the owner is eligible:
Repair Charges (restricted to 30% of annual value of the property).
Interest on borrowed capital for the purpose of acquisition, construction, reconstruction, repairs,
renovation etc.

Format for computation of income from Let out property is shown below:
Ratable (Gross Annual ) value of the property

xxx

LESS: Municipal taxes actually paid , like:

water tax,sewewrage benefit tax

xxx

Annual value of the property

xxx
xxx

LESS: Allowable deductions u/s 24

repair/collection charges restricted to 30% of annual
value of the property, irrespective of amount spent or not xxx
Interest on loan borrowed for construction

xxx

Taxable Property Income

xxx
xxxx

20

Why a tax on vacant property?

Though the tax under the head income from house property is supposed to be on income, this
is a tax levied not on rent but on the inherent capacity of a building to yield income. This is
termed as annual value and it has been defined as the sum for which the property might
reasonably be expected to be let out year to year.
Its understood that you typically cannot let out a property in which you live. Therefore, a
preferential treatment is given to one self-occupied house property, which has not been actually
let out at any time and the annual value of that particular property is taken as nil. So, if you
have one house, which you occupy, its annual value will be considered as nil. But if you own
more than one house and are using all of them for self-occupation, you are entitled to exercise
an option. You can choose which of the properties should be considered for nil value for taxation.
Based on your choice, the annual value of the other-self occupied house properties will be
determined on a notional basis as if these had been let out.

How to calculate annual value?

If you have a vacant property and need to calculate its annual value, you first need to find out its
notional annual value. This would be the standard rent, if the property is under the jurisdiction of
the Rent Control Legislation, or the rent based on the municipal value of the property, or the rent
equivalent to what other similar properties are fetching in the same locality.
Before arriving at the net annual value, you can claim few deductions, such as municipal taxes.
This can be done if the property was vacant, or let out partially or for whole of the previous year.
The municipal taxes must be borne by the landlord, not by the tenant, and must be paid during
the year itself.
The other permissible deduction is standard deduction of 30% of the annual value. If you have
taken a home loan for the vacant property, the entire interest paid on the borrowed capital for that
particular year is allowed as deduction on an accrual basis. The loan could be for the purpose of
purchase, construction, repair, renewal or reconstruction of the house.

21

CHAPTER 3 DEDUCTIONS AND EXEMPTIONS:-

1. Income from house property is wholly exempt from tax in following situations Income
from any farmhouse forming part of agricultural income;
2. Annual value of any one palace in the occupation of an ex-ruler; Section 10(19A)
3. Property Income of a local authority; Section 10(20)
4. Property Income of an authority, constituted for the purpose of dealing with and
satisfying the need for housing accommodation or for the purposes of planning
development or improvement of cities, towns and villages or for both. (The Finance Act,
2002, w.e.f. 1.4.2003 shall delete this provision.);
5. Property income of any registered trade union; Section 10(24)
6. Property income of a member of a Scheduled Tribe;
7. Property income of a statutory corporation or an institution or association financed by the
Government for promoting the interests of the members either of the Scheduled Castes or
Scheduled tribes or both;
8. Property income of a corporation, established by the Central Govt. or any State Govt. for
promoting the interests of members of a minority group;
9. Property income of a cooperative society, formed for promoting the interests of the
members either of the Scheduled Castes or Scheduled tribes or both;
10. Property Income, derived from the letting of godowns or warehouses for storage,
processing or facilitating the marketing of commodities by an authority constituted under
any law for the marketing of commodities;
11. Property income of an institution for the development of Khadi and village Industries;
12. Self-occupied house property of an assessee, which has not been rented throughout the
previous year;
13. Income from house property held for any charitable purposes;
14. Property Income of any political party. Section 13A

Deductions permitted from Income from house property [Sec. 24]

22

Amount left after deduction of municipal taxes is net annual value. Following permissible
deductions are allowed from Annual Value in cases of let out properties (Section 24).
Deduction equal to 30% of the annual value, irrespective of any expenditure incurred by the
taxpayer (s.24(a)). No other allowance for depreciation, repairs, maintenance etc. would be
allowable.
Interest on borrowed capital (s.24(b)). Interest on borrowed capital is allowable as deduction on
accrual basis (even if account books are kept on cash basis) if capital is borrowed for the purpose
of purchase, construction, repair, renewal or reconstruction of the house property.

Some critical issues on deduction of interest:

The interest is deductible on payable basis i.e. on accrual basis. Hence it should be
claimed on yearly basis even if no payment has been made during the year.

For claiming interest, it is not necessary that the lender should have a charge on the
property for the principal amount or the interest amount.

Interest payable for outstanding interest is not deductible (Shew Kissan Bhatter v. CIT
(1973) 89 ITR 61 (SC).

Taxpayer cannot claim deduction for any brokerage or commission paid for arranging
loan either as a onetime arrangement or on periodical basis till the loan continues.

In terms of circular No. 28 dated 20th August 1969, if an assessee takes a fresh loan to
pay back the earlier loan, the interest on the fresh loan would be deductible.

Interest on borrowing can be claimed as deduction only by the person who has acquired
or constructed the property with borrowed fund. It is not available to the successor to the
property (if the successor has not utilized borrowed funds for acquisition, etc).

In case of Central Government employees, interest on house building advance taken

under the House Building Advance Rules (Ministry of Works and Housing) would be
deductible on the basis of accrual of interest which would start running from the date of
drawl of advance. The interest that accrues in terms of rule 6 of the House Building
Advance Rules is on the balances outstanding on the last day of each month (Circular No.
363, dated June 24, 1983).
23

Interest for pre-construction period: In such a case, interest paid/ payable before the final
completion of construction or acquisition of the property will be aggregated and allowed
for five successive financial years starting with the year in which the acquisition or
construction is completed. Please note that this deduction is not allowable if the loan is
utilized for repairs, renewal or reconstruction.

Interest payable to Nonresident:

As per section 25, interest chargeable under the Income tax Act, which is payable outside
India on which tax has not been paid or deducted (and in respect of which there is no
person in India, who may be treated as an agent under section 163) shall not be deducted
in computing the income chargeable under the head Income from house property

Set off and carry forward of loss in cases of house property:

Where the property has been let out, loss from one house property can be set off against
the income from another house property. The remaining loss, if any, will be set off against
incomes under any other heads like salary, business etc. In case the loss does not get
wiped out completely, the balance will be carried forward. (Sections 70 and 71).

In regard to carried forward losses, Section 71B will apply. Carried forward loss under
the head Income from house property shall be allowed to be carried forward and set off
in subsequent years (subject to a limit of 8 assessment years) against income from house
property.

PROPERTY FROM 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.
24

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.

(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.

CHAPTER 4:-CASE STUDY

25

Aditya, the Landlord

A case study on earning Income from Rent
How is rental income added to the owner's income tax return? Let's find out with this example.
Aditya has let out his apartment in Mumbai for Rs. 35,000 per month. It's time to file his tax
returns for this year and for that he needs to determine how much he owes the I-T Department.
These are the other expenses related to the house during the year:
He paid Rs.25, 000 in property taxes in November and spent Rs.8, 000 in repairs and Rs.30, 000
in electricity bills. He is also paying an interest of Rs.2,20,000 on the money borrowed to build
the house. Since the property is let out, the entire interest on the home loan can be claimed as a
deduction.
Aditya needs to find out the gross annual value of the property to calculate income from house
property. For a rented house, it is the annual rent collected. Rent collected must be higher than or
equal to the reasonable rent of the property as determined by the municipality. In Aditya's case,
the municipality has determined the reasonable rent to be Rs. 32,000. Therefore, the gross annual
value is Rs. 4, 20,000.
Subtract property tax payment to arrive at net annual value. Section 24 of the Income Tax Act
allows Aditya to claim a standard deduction of 30% on the net annual value. Aditya's home loan
interest is also fully deductible.
This is how his income from house property is calculated:

Gross Annual Value

4,20,000

Less: Property Taxes

-25,000

Net annual value

3,95,000

Less: standard deduction at 30%

-1,18,500

Less: Interest on money borrowed

-2,20,000

Income from house property

56,500

26

Note that Aditya's expenses on repairs and electricity are not allowed to be deducted. Also note
that if Aditya was getting rental income from more than one house property, he would have to
calculate for each one of them individually in the same manner as above.

What is your 'income from house property' when you/your family live(s) in it?
If you are using your property for residence throughout the year and it's not let out or used for
any other purpose, it is considered a self-occupied house property. The gross annual value of this
property is zero. There is no income from your house property.
Note: Since the gross annual value of a self-occupied house is zero, claiming the deduction on
home loan interest will result in a loss from house property. This loss can be adjusted against
your income from other heads.

Suresh the homeowner

Suresh borrowed money from the bank to fund his home purchase in Nagpur last year. He has
been living with his family in the house. Let's see how income from property is calculated.
Suresh made an interest payment of Rs.2, 16,000 this year and spent Rs.10, 000 on repairs. He
paid the municipality Rs.8, 000 in property taxes.
Suresh's income from house property is zero because he has been living in this house throughout
the year. Section 24 of the Income Tax Act lets Suresh claim a maximum deduction of Rs .2,
00,000.
Suresh makes a loss on this house property as calculated below.

Gross Annual Value

Less: Property Taxes

Net annual value

Less: Interest on money borrowed

-2,00,000

(Loss) on house property

-2,00,000
27

This loss can be deducted from Suresh's income from other heads for the year.

A.K. Mahindra Vs ITO (ITAT, Del) 44 ITD 430

Damages recovered by tenant by way of adjusting from rent payable- Not deductible.
ITO Vs Purshottam Lal Roongata Family Welfare Trust (ITAT, SB Jaipur) 58 ITD 19

Assessee-company was engaged in business of construction and development of

residential/commercial units. It had given some commercial units on lease and received
rent there from. Assessee claimed that leasing of residential/ commercial units was also
commercial utilization of immovable property and, hence, income derived there from was
to be assessed as income from business. Assessee failed to prove that lease rent received
by it was from exploitation of property by way of complex commercial activities
therefore income was assessable under head Income from house property.

Roma Builders (P.) Ltd. VS. Jt CIT (OSD) 131 ITD 91 (MUM.)

There was no manufacturing activity during the relevant previous year and it had sold its
machinery. But on the other hand, the lease of land and building was continuing. This
being so, the lease rental was clearly from neither exploitation of property which was
neither a complex commercial activity nor a lease of property along with machinery,
furniture and fittings. Therefore, such lease income had to be assessed under Income
from house property. Further, clearly the assessee was not carrying on any business
during the relevant previous year. Therefore, its claim that carry forward business losses
ought to have been considered for set off against lease rentals could not be accepted

Asst. CIT Vs. T&R Welding Products (India) Ltd. [2010] 129 TTJ 250
(CHENNAI)

Deemed owner Assessee-company acquired on lease office premises in question vide

agreement dated 30-3- 1995 Lease period was for ten years with option of further
28

renewal Assessee let out said premises for a rent for a period of five years with option
of renewal Whether since assessee was in possession of property with full transferable
rights and had been receiving rent from subtenant in his own capacity being owner of
property, lower authority rightly treated assessee as deemed owner under section 27(iiib)
Held, yes [In favor of revenue]

Tushar Pravinchandra Shah Vs. Dy CIT, Central Circle-1, Baroda [2011] 129
ITD 178 (AHD.)

Assessee had shown rental income of Rs. 1 lakh per annum for property having
constructed area of 1,23,490 sq ft based on an lease agreement entered into with lessee
Besides that assessee had also received interest-free deposits of Rs.67 crores which had
been diverted interest-free to assessees sister concerns. Approved valuer valued annual
letting value of total constructed area at Rs.75,63,360 which was admitted by assessee as
fair rental value of property under section 23 and on that basis, Assessing Officer,
determined income from house property. Assessing Officer also imposed penalty under
section 27 1(1)(c). Explanation offered by assessee was neither substantiated nor was
shown to be bona fide, Explanation (1) to section 271(1)(c) came into play and penalty
was rightly imposed upon assesse

Abdul Kareemia And Brothers vs Commissioner Of Income-Tax, ... on 14 December,

1982
Equivalent citations: 1984 145 ITR 442 AP

Author: J Reddy

Bench: B J Reddy, K Punnayya

JUDGMENT Jeevan Reddy, J.

1. The assessee is a partnership firm, M/s. Abdul Kareemia & Brothers. The partnership consist
of five partners, who are brothers. Originally, the partnership was formed in 1963 under a
partnership deed dated March 27, 1963. At that time, the fifth brother, was a minor and was
admitted to the benefits of the partnership. After the fifth brother became a major he opted to
continue as a partner and accordingly a partnership deed dated November 6, 1964, was executed
by all the five partner-brothers.

29

2. Three house properties were purchased in the names of these brothers. The first sale deed is
dated August 12, 1960, while the second and third sale deeds are dated February 6, 1966, and
July 3, 1967. The total consideration under these three sale deeds is Rs. 1,10,000. The cost of the
properties was debited in the books of the firm, though they were purchased in the joint names of
the five partners. Right from 1963, these properties were being treated as the properties of the
firm, whereupon the firm was claiming depreciation as well. The income from these house
properties was treated as the income of the firm and was divided amount the partners along with
the other partnership income. On March 31, 1969, entries were made in the firm books of
accounts, purporting to transfer these three houses to the give brothers individually, each to the
extent of one-fifth share. On that basis, a claim was made for the assessment year 1969-70 that
the income from these house properties cannot be included in the firm's income and that income
from these houses should be treated as the income of the brothers in the proportion of one-fifth
each. It was rejected by the ITO and that order became final. Even for the subsequent years the
properties were treated as the firm's properties and assessed as such.
3. For the assessment year 1973-74, the assessees again raised a contention that the income from
these properties cannot be treated as the income of the partnership firm, but must be treated as
individual income of the five brothers. The ITO rejected the same holding that these properties
appeared as the assets of the firm right up to 1969, and that the partnership firm has been
claiming depreciation on the value of the buildings utilized and that the plea of the assessee put
forward on the basis of the entries dated March 31, 1969, was already rejected for the assessment
year 1969-70, which order has become final. The ITO further observed that even repairs for these
houses were undertaken by the firm and, therefore, these houses must continue to be treated as
the firm's properties. On appeal, the AAC reiterated the ITO's finding holding that mere entries in
the account books of the firm cannot have the effect of transferring the firm's properties to the
individual partners. He also took note of the fact that on April 1, 1973, the partners executed a
deed dividing these house properties among themselves in specified shares, and observed that at
any rate up to March 31, 1973, these properties were being treated as the firm's properties and
must be assessed as such in the hands of the assessee. When the matter came before the Tribunal,
it agreed with the AAC.
It found that the cost of the properties was debited in the books of the firm though they were
purchased in the names of the five partners and that the properties were acquired with the funds
of the partnership firm. The Tribunal further found that though the properties were purchased in

30

the name of the brothers, they were always treated as the firm's properties until April 1, 1973,
when the partition deed was executed among the partners.
The Tribunal posed the question "The short question before us is whether the properties
admittedly once owned by the firm as such ceased to be so owned by it by reason of the entries
made in the account books of the firm" and answered it in the negative following the decision of
the Allahabad High Court in Ram Narain & Brothers v. CIT [1969] 73 ITR 423, whereupon the
assessee applied to the Tribunal to refer the following question for the opinion of this court under
s. 256 of the I.T. Act :

"Whether, on the facts and in the circumstances of the case, the Tribunal is right in
concluding that the properties purchased in the names of the partners belong to the firm,
whether a separate instrument in writing is necessary when properties purchased stand in
the names of the partners."

4. The Tribunal allowed the said application and made the reference. But the questions referred
by it are different from the question which the assessee asked to be referred. The question now
referred to us is the following:

"1. Whether the properties treated as owned by the firm as such ceased to be so owned by

it by reason of the entries made in the account books of the firm?

2. Whether, even though the property was treated as owned by the firm as such, can it be
held to have been owned by its partners, with definite and ascertainable shares, so as to
constitute themselves into an association of persons so that the share of each partner in
the income from the property is includible in his total income?

5. The questions referred to us are premised on the assumption that the properties once belonged
to the firm. The question posed is whether by making entries in the account books of the firm,
these properties can be treated to have become the properties of the partners in their individual
capacity, thereby ceasing to be the firm's properties. Mr. S. Dasaratharama Reddy, learned
counsel for the assessee, concedes that if the properties are taken as having belonged to the firm
at one time and if they are sought to be transferred to the partners in their individual capacity, a
registered document is necessary as held by the Allahabad High Court and other High Courts and
that merely by making entries in the firm's account books, the firm's properties cannot be
31

converted into individual properties of the partners. But, what Mr. S. Dasaratharami Reddi argues
is, that the very assumption underlying the Tribunal's judgment and the questions referred to this
court is wrong. His case is that these properties were purchased in the individual names of the
five partners and that the sale deeds do not in any manner show that they were purchased for the
or on behalf of the firm and that there is nothing to show that these properties became the
properties of the partnership firm.
6. Firstly, we are not prepared to allow the counsel to shift the very basis of the questions
referred to us. The questions referred to us are premised on the assumption that the properties
once belonged to the firm and our answer is solicited on the questions whether by making entries
in the firm's account books these properties can be treated as the separate properties of the
partners. The second questions also is based on the same premise, namely, whether the property
owned by the firm can at the same time be taken to be owned by the partners wants to put his
property into the partnership firm, a registered conveyance is not necessary. It is equally well
settled by the decision of the Supreme Court in Narayanappa's case, , that a partner cannot at any
given point of time claim any of the firm's properties to be his notwithstanding the fact that at
one time they belonged to him and that he had put the properties into the assets of the firm. It has
been found by the Tribunal and also the lower authorities as a fact that right from the inception of
the firm, these properties were treated as the firm's properties and the firm claimed depreciation
on these properties also and that the income from these properties was treated as the firm's
income and accordingly divided between the partners. Another significant finding is that the
properties were also acquired with the funds of the firm and the cost of these properties was
debited in the books of the firm. From all these circumstances, the departmental authorities and
the Tribunal concluded and, in our opinion, rightly, that these properties became and were treated
as the properties of the firm. Once that is so, it is not disputed that by merely making entries in
the account books of the firm, the firm's properties cannot become and cannot be treated to have
become the separate properties of the partners. Similarly, so long as they are the firm's properties,
no partner can predicate that he owns a particular property or that he owns a specified share in
the particular property or properties, as the case may be.
7. For the above reasons, both the questions referred to us are answered in the negative and in
favor of the Department, against the assessee. No costs.

32

Example 1: ABC owns 3 house properties situated in Delhi

The particulars of the houses are as under:

House 1

House 2

House 3

Municipal value

1,20,000

1,70,000

2,00,000

Fair Rent

1,60,000

2,00,000

2,40,000

Standard Rent

1,40,000

2,20,000

Actual Rent(per month)

12,000

18,000

21,000

Period of vacancy

Nil

1 Month

6 Months

20% of Municipal
40,000
Municipal taxes for the year value

50,000

Municipal tax paid during

24,000
the year

30,000

80,000

Solution:
House I: As the house property is let out throughout the previous year the annual value shall be
determined as per clauses (a) and (b) of sec.23(1)

33

Particulars

Amount (Rs)

Step I:- Compute gross annual value

The gross annual value shall be higher of the following two:
a) Rs.1,20,000 or Rs.1,60,000 Whichever is higher but
subject to maximum Rs. 1,40,000
b)Actual rent received or receivable, i.e.,Rs 12,000*12
Gross Annual Value

1,44,000

Step II:-Deductions
Less:-Municipal tax paid during the previous year

24,000

Net Annual Value

1,20,000

Less:-Statutory Deduction@30%

36,000

Income From House Property

84,000

House II:
Particulars

Amount(Rs)

Step I:- Determination of value as per Sec. 23(1)(a)

Municipal Value

Rs.1,70,000

Fair rent

Rs.2,00,000

Standard rent

Rs.2,20,000

Value as per Sec. 23(1)(a)

2,00,000

Step II:- Actual rent receivable/received (18000*11)= Rs. 1,98,000

1,98,000

34

Since the actual rent received / receivable in spite of vacancy is more than the value determined
as per clause (a), sec. 23(1)(c) will not be applicable and the gross annual value shall be
Rs.1,98,000 being higher of the amount determined as per Sec. 23 (1)(a) and Sec. 23(1)(b).

Particulars

Amount
(Rs)

Gross Annual Value

1,98,000

Less:- Municipal tax Paid

80,000

Net Annual value

1,18,000

Less:-Statutory deduction @30%

35,400

Income From House Property

82,600

House III:Amount
(Rs)

Particulars
Computation of Gross Annual Value
Step I: Determination of value as per Sec. 23(1)(a)
It will be Rs. 2,00,000 or Rs.2,40,000 whichever is high as standard rate
is not applicable in this case
Value as per Sec. 23(1)(a)

2,40,000

Step II: Actual rent received/receivable (21,000*6)

1,26,000

Since the property is let out and was vacant for part of the year and the actual rent received is
less than the value determined u/s 23(1) (a), Sec. 23(1) (c) would be applicable.
Therefore, the gross annual value shall be the actual rent received or receivable,
Amount
(Rs)

Particulars

35

Gross Annual Value

1,26,000

Less:- Municipal tax Paid

30,000

Net Annual value

96,000

Less:-Statutory deduction @30%

28,800

Income From House Property

67,200

Note :-where the owner is assessable in India for the rent received in foreign currency ,the rate of
exchange conversion of such foreign currency into Indian rupee shall be the Telegraphic Transfer
Buying Rate (TT Buying Rate) of such currency on the specified date.

36

CHAPTER 5:-CONCLUSION & FAQs

FAQs ON INCOME FROM HOUSE PROPERTY
1.Is rental income from sub-letting chargeable to tax under the head Income
from house property?
Rental income in the hands of owner is charged to tax under the head Income from house
property. Rental income of a person other than the owner cannot be charged to tax under the
head Income from house property. Hence, rental income received by a tenant from sub-letting
cannot be charged to tax under the head Income from house property. Such income is taxable
under the head Income from other sources or profits and gains from business or profession, as
the case may be.

2.Under which head is the rental income from a shop charged to tax?
Rental income from a property, being building or land appurtenant thereto, of which the taxpayer
is the owner is charged to tax under the head Income from house property. To tax the rental
income under the head Income from house property, the rented property should be building or
land appurtenant thereto. Shop being a building, rental income will be charged to tax under the
head Income from house property.

37

3.What is the tax treatment of composite rent when the composite rent
pertains to letting of building along with other assets?
Composite rent includes rent of building and rent towards other assets or facilities. The tax
treatment of composite rent is as follows:(a) In a case where letting out of building and letting out of other assets are inseparable (i.e., both
the lettings are composite and not separable, e.g., letting of equipped theatre), entire rent (i.e.
composite rent) will be charged to tax under the head Profits and gains of business and
profession or Income from other sources, as the case may be. Nothing is charged to tax under
the head Income from house property..
(b) In a case where, letting out of building and letting out of other assets are separable (i.e., both
the lettings are separable, e.g., letting out of refrigerator along with residential bungalow), rent of
building will be charged to tax under the head Income from house property and rent of other
assets will be charged to tax under the head Profits and gains of business and profession or
Income from other sources, as the case may be. This rule is applicable, even if the owner
receives composite rent for both the lettings. In other words, in such a case, the composite rent is
to be allocated for letting out of building and for letting of other assets.

4. What is the tax treatment of composite rent when the composite rent
pertains to letting out of building along with charges for provision of services?
In such a case, composite rent includes rent of building and charges for different services (like
lift, watchman, water supply, etc.): In this situation, the composite rent is to be bifurcated and the
sum attributable to the use of property will be charged to tax under the head Income from house
property and charges for various services will be charged to tax under the head Profits and
gains of business and profession or Income from other sources (as the case may be).

5. Can a property not used for residence by the taxpayer be treated as self
occupied property?
A self-occupied property means a property which is occupied throughout the year by the owner
for his residence. Thus, a property not occupied by the owner for his residence cannot be treated
as a self occupied property. However, there is one exception to this rule. If the following
conditions are satisfied, then the property can be treated as self-occupied and the annual value of
a property will be Nil, even though the property is not occupied by the owner throughout the
year for his residence:
(a) The taxpayer owns a property;

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(b) Such property cannot actually be occupied by the him 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 other
place in a building not owned to him;
(c) The property mentioned in (a) above (or part thereof) is not actually let out at any time during
the year;
(d) No other benefit is derived from such property.

6. I own two houses. One is a farmhouse that I visit on weekends and the other
is in the city that I use on weekdays. Is it correct to treat both these residences
as self occupied?
No, for the purpose of Income-tax Law you can claim only one property as self occupied
property and other property will be deemed to be let-out property.
However, incomes from buildings situated in or near agricultural farms are considered exempt,
provided they are used as dwellings or as a store house or other out-building of the farm
owner/cultivator.

7. What is the tax treatment of arrears of rent?

The amount received on account of arrears of rent (not charged to tax earlier) will be charged to
tax after deducting a sum equal to 30% of such arrears. It is charged to tax in the year in which it
is received. Such amount is charged to tax whether or not the taxpayer owns the property in the
year of receipt.

Expected changes in Direct Tax Code

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