1
AASHISH JAIN
SRI VENKATESWARA COLLEGE
Income from House Property
“If earning rent from any building come here”
Tax under this head not on actual rent rather it is on the rent which can be earned from the building.
But tax is not charged for the period it remains vacant. Also, no tax is charged for only two building
self – occupied for residence. Certain deductions are provided from the rent on account of
expenditure incurred for earning rent.
SECTION CONTENTS
22 Basis of charge
23 Annual value
24 Deductions – Standard Deduction, Interest on
borrowed capital
25 Interest on borrowed capital payable outside India
25 AA Recovery of unrealized rent
25 B Special provisions for arrears of rent received
26 Co – ownership
27 Deemed Owner
Basis of charge
Section 22
i) Annual value of building and land appurtenant thereto is taxable under this head.
Notes:
1. Even if letting out is the business of the assessee, still rental income of building is
taxable under head house property only.
2. However, in following cases rental income of building is not taxable under this head.
a) If the building is let out to carry on the business more efficiently, then it shall be
taxable under head PGBP eg. Residential quarters let out to employees.
b) In case of composite rent if it is inseparable.
ii) If building is occupied by asessee for his own business or profession then nothing shall be
taxable.
iii) Income under this head shall be taxable only if assessee is owner of the building.
Deemed Owner
Section 27
1) In the case of transfer to spouse or minor child (not being a minor married daughter), without
adequate consideration, transferor shall be deemed as owner.
2) Holder of Impartiable estate is deemed as owner.
3) In the case of allotment or lease under a house building scheme of society, company or other
association, the person to whom building has been allotted shall be deemed as owner.
4) The person who acquired house without registration in part performance of a contract u/s
53A, transfer of property Act, 1882 is deemed as owner.
2
AASHISH JAIN
SRI VENKATESWARA COLLEGE
Disputed ownership – if the title of ownership is disputed in a court of law, the income shall
be taxable in the hands of recipient.
Methods of computation
Gross Annual Value XX
Less: Municipal Tax paid by owner (XX)
Annual Value (Net Annual Value) XX
Less: Deductions u/s 24
a) Standard deduction @ 30% (XX)
b) Interest on borrowed capital (XX)
Income from House Property XX
Deductions
Section 24
i) Standard deduction: 30% of the net annual value shall be allowed as deduction from net
annual vale.
If NAV is negative then standard deduction shall be Nil.
ii) Interest on borrowed capital: the loan may be taken for purchase, construction, repair,
renewal or reconstruction of the building. Deduction is allowed on accrual basis, even if
not actually paid.
Notes:
Interest of Pre – construction period
If loan is taken prior to completion of construction or purchase of house.
Interest for the period prior to the previous year in which the property has been acquired
or construction is completed is deductible in 5 equal instalments.
The deduction shall be given first in the year in which property is acquired or construction
is completed & in future 4 years.
If loan is still outstanding in the year of completion/purchase, interest for the period
starting from the year of purchase/construction, shall be fully deducted in the year of
accrual.
iii) No deduction is allowed for any brokerage or commission for arranging loan.
iv) Interest on fresh loan taken to repay the original loan is allowed as deduction.
v) Interest on unpaid interest is not deductible.
vi) Section 25: Interest on borrowed capital, payable outside India shall be allowed deduction
if:
a) Tax on the same has been paid & deducted at source or
b) In respect of such income any person in India may be treated as agent.
3
AASHISH JAIN
SRI VENKATESWARA COLLEGE
Annual Value
Section 23
A) Building let out throughout the previous year
Municipal Value Fair Rental Value Standard Rent Actual Rent
Whichever is
Higher
Whichever is
lower
Whichever is
Higher
B) Self – occupied building: NIL
Deductions from such property:
In respect of such property interest on capital borrowed for purchase, construction, repair,
renewal or reconstruction is deductible up to Rs 30,000.
However, if
Loan is taken or after 1-4-1999 for purchase or construction and
Construction is completed within 5 years from the end of the financial year in which
capital was borrowed,
The total deduction of interest shall not exceed Rs 2,00,000.
C) Deemed to be let out property
In case there is more than two self – occupied property then except two houses remaining
houses shall be Deemed to be Let Out, at the option of the assessee.
Unrealised Rent
Actual rent shall not include the rent which was payable but not paid by tenant & so proved to be lost
& irrecoverable if
i) Tenant is Bonafide.
ii) Defaulting tenant has vacated property or steps have been taken to compel him to vacate
the property and
iii) The defaulting tenant is not in occupation of any other property of the assessee and
iv) The assessee has taken all reasonable steps to institute legal proceedings for the recovery
of the unpaid rent or satisfies the assessing officer that legal proceedings would be
useless.
4
AASHISH JAIN
SRI VENKATESWARA COLLEGE
Recovery of unrealized rent
Section 25 AA
1. Where the assesee can’t realise rent from a property let to a tenant and
2. Subsequently the assessee has realized any amount in respect of such rent,
3. Amount so realized shall be deemed to be income chargeable under this head & accordingly
charged to income tax as the income of that previous year in which rent is realized
4. Whether or not the assessee is the owner of that property in that previous year.
Special provision for arrears of rent received
Section 25B
I) If any assessee has let out any building & land appurtenant thereto and
II) Has received any amount, by way of arrears of rent from such property, not charged to
income tax for any previous year
III) Shall be deemed to be income of the previous year in which such rent is received
IV) After deducting 30% of such amount
V) Whether assessee is owner of that property or not.
Co – ownership
Section 26
If property is co – owned by two or more persons and
The share of co – owner is definite
Then the share of each such person shall be included in his income
Explanation: If the property is self – occupied by co – owner,
Then annual value of such property for co – owner shall be taken to be Nil and
Each of the co – owner shall be entitled to the deduction of Rs 30,000/2,00,000.
