INCOME FROM

HOUSE PROPERTY
Prince Jain
 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 Valuation
(ii) 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 *******
 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.
 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 120,000)
Hence, expected rent = Rs 120,000
(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 Rs 40,000
Net Annual Value 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)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.
 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. 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 120,000)
Hence, expected rent = Rs 120,000
(b) Actual rent received or receivable (12000*11)
= 132,000
Gross annual value = Higher of (a) or (b)
Therefore, gross annual value shall be Rs 132,000
Less: Municipal taxes paid Rs 40,000
Net Annual Value 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
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
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.
 Example
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
(b)Actual rent received/receivable for let out period
(Rs 18,000*8) Rs 144,000
Hence, Gross annual value is Rs 220,000
Less: Municipal tax paid is Rs 40,000
Net Annual value is 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 = Rs

24,000
Total interest allowable = 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 co-
owners. When the share of each co-owner is
definite and ascertainable, it has been
provided that each of the owners will be
assessed individually in respect of share of
income from the property.
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.
 Expected changes in Direct Tax
Code
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 Expected changes in Direct Tax
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