Income from house property

Chapter – 4
Unit – 3
BASIS OF CHARGE (SECTION 22)
Thus, three conditions are to be satisfied for
property income to be taxable under this head:
1. The property should consist of buildings or
lands appurtenant thereto.
2. The assessee should be the owner of the
property.
3. The property 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 income-tax.
 Annual value
The annual value of a property, consisting of any
buildings or lands appurtenant thereto, of which
the assessee is the owner, is chargeable to tax
under the head ‘Income from house property’.
It has been defined as the amount for which the
property may reasonably be expected to be let
out from year to year.

Lands Appurtenant : means land connected to building(like compounds,

courtyards, backyards, playgrounds, kitchen garden, motor garage, stable or
coach home, cattle-shed.)
 Exempted Annual value
However, if a house property, or any
portion thereof, is occupied by the
assessee, for the purpose of any business
or profession, carried on by him, the
profits of which are chargeable to
income-tax, the value of such property is
not chargeable to tax under this head.
Rental income from a vacant plot of land
(not appurtenant to a building)
Is not chargeable to tax under the head ‘Income from
house property’, but is taxable under the head
‘Income from other sources’,
 owner (or deemed owner)

It is only the owner (or deemed owner) of house

property who is liable to tax on income under this
head. Owner may be an individual, firm, company,
cooperative society or association of persons. The
property may be let out to a third party either for
residential purposes or for business purposes. Annual
value of property is assessed to tax in the hands of the
owner even if he is not in receipt of the income.
Income from subletting is not
taxable under section 22.
Deemed owner(Section 27)
Persons who are not legal owners are to be treated as
deemed owners of house property for the purpose of tax
liability under this head.
Where the house property has been transfers to his or
her spouse (except in connection with an agreement to live
apart) or to a minor child (except a married daughter)
without adequate consideration, he is deemed as the owner
of the property for tax purposes.
However, if an individual transfers cash to his or her spouse
or minor child, and the transferee acquires a house
property out of the gifted amount, the transferor shall not
be treated as the deemed owner of the house property.
 A member of a co-operative society, company or
association of persons, to whom a property (or a part
thereof) is allotted or leased under a house building
scheme of the society, company or association, is
deemed to be the owner of such property.
Incase of part performance of contract (possession of
property has been transferred to individual, but the
title yet to be transferred).
Where the property has been constructed on a lease
hold land.
Where the ownership of the property is under dispute.
Property used for own business or
profession
If an employer builds quarters for residential use by his
employees and the letting out of these quarters is
considered as incidental to his business, the income
from such property is not taxable under this head,
because the property in this case is considered to be
used by the owner for his own business. It shall,
therefore, be taxed as business income.
Composite rent
Is the rent charged in case where the assessee let out,
but also provides other facilities like Furniture, P&M,
Lift, security, power back –up.
House property in a foreign
country
 A resident assessee is taxable under section 22 in
respect of annual value of a property in a foreign
country.
 A resident but not ordinarily resident or a nonresident
is, however, chargeable under section 22 in respect of
income of a house property situated aboard, provided
income is received in India during the previous year.
PROPERTY INCOMES EXEMPT FROM
TAX
1. Income from a farm house [section 2(1A) (c) and section 10(1)].
2. Annual value of 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 approved scientific research association
[section 10(21)].
5. Property income of an educational institution and hospital
[section 10(23C)].
6. Property income of a registered trade union [section 10(24)].
7. Income from property held for charitable purposes [section 11].
8. Property income of a political party [section 13A].
9. Income from property used for own business or profession [section 22].
10. Annual value of one self occupied property [section 23(2)].
COMPUTATION OF INCOME FROM
LET OUT HOUSE PROPERTY
Gross Annual Value [Section 23(1)]
Particulars ` `
MUNICIPAL RENTAL VALUE (MRV) ---
FAIR RENTAL VALUE (market value of a similar ---
property in the same area) (FRV)
MRV or FRV (WEH) ---
STANDARD RENT (payable under the Rent Control ---
Act.) (SR)
EXPECTED RENT (i.e. WEH or SR)WEL ---
Annual Rent – Unrealised Rent ---
ANNUAL RENTAL VALUE (ARV) (Expected Rent or ---
Annual Rent )WEH
Less: Vacancy period ---
(Vacancy period X Actual Rent for the vacancy period)
GROSS ANNUAL VALUE (GAV) ---
Municipal Valuation
Municipal or local authorities determine the income
earning capacity of the property to calculate the
amount of house tax to be paid by the owner of the
property.

Fair Rental Value

It is the rent normally charged for similar house
properties in the same locality.
Standard Rent
Standard Rent is the maximum rent which a person can
legally recover from his tenant under a Rent Control Act.
This rule is applicable even if a tenant has lost his right to
apply for fixation of the standard rent. This means that if a
property is covered under the Rent Control Act, its
reasonable expected rent cannot exceed the standard rent.

Actual Rent
It is the most important factor in determining the annual value of a
let out house property. It does not include rent for the period during which the
property remains vacant. Moreover, it does not include the rent that the tax payer
is unable to realize, if certain conditions are satisfied. Sometimes a tenant pays a
composite rent for the property as well as certain benefits provided by the
landlord. Such composite rent is to be disintegrated and only that part of it which
is attributable to the letting out of the house property is to be considered in the
determination of the annual value..
Municipal Taxes
The property is let out during the whole or any part of
the previous year
• The Municipal taxes must be borne by the landlord
(If the Municipal taxes or any part thereof are borne
by the tenant, it will not be allowed).
• The Municipal taxes must be paid during the year
(Where the municipal taxes become due but have not
been actually paid, it will not be allowed. Similarly,
the year to which the taxes relate to, is also
immaterial).
 Income from Self occupied property
Particulars ` `
NAV NIL
Less: Deduction U/S 24
(a) Standard Deduction @ 30% of NAV NIL
(b) Interest on borrowed capital
(i) For Purchase / Construction of House
a. if loan is taken on or after 1-4-99 Max
The acquisition or construction shall be complete within 1,50,000
3years from the end of previous year in which capital was
borrowed
if the above conditions are not satisfied Max amount of
` 30,000

b. Purpose of loan shall be repair, reconstruction of loan Max ----

Capital is borrowed before 1.4.99 or 30,000
Income from self occupied property (----)
DEDUCTIONS UNDER SECTION 24

STATUTORY INTEREST ON
DEDUCTION BORROWED
AT 30% CAPITAL
Interest on borrowed capital
1. In case the property is let out, the entire amount of interest
accrued during the year is deductible. The loan may be for
construction/acquisition or repairs/renewals.
2. A fresh loan may be raised exclusively to repay the original
loan taken for purchase/ construction etc., of the property.
In such a case also, the interest on the fresh loan will be
allowable.
3. Interest payable on interest will not be allowed.
4. Brokerage or commission paid to arrange a loan for house
construction will not be allowed.
5. When interest is payable outside India, no deduction will
be allowed unless tax is deducted at source or someone in
India is treated as agent of the non-resident.
 Interest on Borrowed
Capital

Interest for the Preconstruction

PY (2009-10) period interest

Interest on borrowed Interest on pre-construction

capital form 01-04-09 period is allowed in 5 equal
to 31-03-10 Annual Installment form the
previous year in which house
was acquired or construction
was complete
 Interest on Pre-construction period

It is the period starting from :

 Date of borrowing the loan and ends on

 Date of repayment of loan or 31.3. immediately

prior to the date of completion of construction or
acquisition which ever is earlier .
DEEMED LET OUT PROPERTY
If an assessee occupies more than one self occupied
property, according to the assessee's choice one house
shall be treated as self occupied and other houses shall
be deemed to be let out.