INCOME FROM HOUSE PROPERTY
POINTS TO BE COVERED :
 How to compute income chargeable under the head ‘Income from house Property’ generally?
 Definition of relevant terms in taxation of income from house property
 How to compute Income from House Property in different cases of letting out of property.
 Treatment of unrealized rent
 Treatment of arrear rent
 Treatment of income from house Property In case of deemed ownership
 What is Composite rent and how is it charged to tax
 Exemptions
How to compute income chargeable under the head ‘Income from house Property’ generally?
1. Gross Annual value (GAV)
XXXXX
2. Less : Taxes borne by the owner and paid to the local authority
(xxx)
________
XXXXXX
3. Net Annual value (1-2) (NAV)
4. Less: Deductions
a. Statutory deductions @ 30% of NAV
b. Interest on borrowed capital
XXX
XXX
5. Income under the head ‘INCOME FROM HOUSE PROPERTY’ (3-4)
_______
XXXX
XXXXX
Definition of relevant terms in taxation of income from house property
1. ANNUAL VALUE
2. STATUTORY DEDUCTION
3. INTEREST ON BORROWED CAPITAL
4. SELF OCCUPIED
5. UNREALISED RENT
6. ARREARS OF RENT
1. ANNUAL VALUE
Determined using the below steps :
1. Higher of FAIR RENT and GROSS MUNICIPAL VALUATION.
2. Lower of figure in STEP 1 and STANDARD RENT.( Resulting figure in this step can be called as Expected Rent)
3. Higher of the figure in STEP 2 or ACTUAL RENT received or receivable.
Notes :
a. Fair rent : Rent for a similar property in the same locality as assessed by the Income tax authorities
b. Gross Municipal Valuation : Valuation carried out by the Municipal authorities every year regarding properties in their
Jurisdiction.
c. Standard Rent : Rent fixed for the property as per Rent Control Act
2. STANDARD DEDUCTION
Deduction at the rate of 30% of Net Annual Value ( as calculated in the Format) while computing income chargeable under
the head Income from house Property
3. INTEREST ON BORROWED CAPITAL
• Interest on loan taken for purchase ,construction, renovation, repairs, addition and alteration of the house property is allowed
as a deduction without any limit and it is allowed from the financial year in which acquisition ,construction etc. is completed.
• Interest for pre-construction period is allowed in five equal annual installments starting from the year in which such construction
is completed.
• Interest on loan taken to repay the original loan is also allowed if the original loan was taken for the purpose specified above.
4. SELF OCCUPIED PROPERTY
House property occupied by the owner himself and hence not let out is called a self occupied property
5. UNREALISED RENT
That part of the rent which the owner cannot realize and hence shall not form part of the rent receivable
considered for the calculation of chargeable income for tax.
6. ARREARS OF RENT
Rent pertaining to earlier months which are received during the current previous year.
How to compute Income from House Property in different cases of letting out of property.
Different cases of letting out property
1) Houses which are let out through out the year
2) Houses which are partly let out and partly vacant or vacant throughout the year
3) Houses which are self occupied
4) Houses which are partly let out and partly self occupied and may or may not be vacant
5) More than one house which are self occupied
6) House property divided into different portions
1) Houses which are let out through out the year
Annual value shall be taken as higher of expected rent and actual rent received/receivable
2) Houses which are partly let out and partly vacant or vacant throughout the year
Annual value shall be taken as higher of expected rent and actual rent received/receivable
If the actual rent is lesser than the expected rent only because of the fact that the property was vacant , then actual rent should
be taken as the Annual Value
3) Houses which are self occupied
• NAV shall be NIL
• No statutory deduction
• Interest deduction can be allowed up to a limit of Rs.30000/-
• However, interest deduction can be allowed up to Rs.150000/- if following conditions are satisfied :
1. Loan taken after 1/4/1999
2. Loan taken only for purchase or construction (not for repairs )
3. Purchase/construction completed within 3 years from the end of the year in which loan was taken
4. Assesse had submitted a certificate conforming the amount of interest
4) Houses which are partly let out and partly self occupied and may or may not be vacant
GAV should be found out as if the house is let out through out the year
5) More than one house which are self occupied
• NAV of any 1 house shall be computed as the house is self occupied and its interest is allowed up to
Rs.30000/Rs.150000
• GAV of the other house shall be computed as it is let out throughout the year and GAV shall be expected rent of
whole year. Standard deductions @ 30% and interest deduction is allowed
6) House property divided into different portions
Every portion is considered to be a separate house and income shall be computed accordingly
TREATMENT OF UNREALIZED RENT
That part of the rent which the owner cannot realize and hence shall not form part of the rent receivable
Unrealized rent subsequently recovered by the assesse shall be deemed to be income from house property whether or not the
assesse is the owner of the property in the year of recovery.
TREATMENT OF ARREAR RENT
Arrears of rent recovered by the assesse shall be deemed to be income from house property whether or not the
assesse is the owner of the property in the year of recovery.
Treatment of income from house Property In case of deemed ownership
Generally the income from house Property is taxable in the hands of owner.Howeverunder certain situations Income is taxable in
the hands of some other person referred to as deemed owner
1. In the case of gift to spouse or minor child ,transferor shall be deemed as owner
2. Holder of an impartible asset is deemed as the owner of all the properties comprised in that estate
3. Any income allotted to any member of the company or society from a house property owned by the company or co-operative
society will be taxed in the hands of that member
4. The lessee of a building in case building is leased out for not less than 12 years is deemed as owner
5. A person who is allowed to take or retain the possession of any building or part thereof in part performance of the contract of
the nature referred to in Section 53A of the Transfer of Property Act shall be deemed as owner.
What is Composite rent and how is it charged to tax
If rent is paid for the house property and also for the facilities provided in that, the rent so paid is called composite
rent.
If in the case of Composite rent, the rent paid is separable, then the rent paid for House property is taxed under the
head Income from house Property and the rent for facilities is charged under the head income from other
sources/business or profession
If the rent is inseparable, it shall be charged under business or profession /Other sources
EXEMPTIONS
1. Income from farm building
2. Property held for charitable purposes
3. Property used for own business/profession
4. Self occupied house
5. One palace of Ex-ruler
6. House property owned by local authority /registered trade union