1 ANSWER BANK – INCOME FROM HOUSE PROPERTY

1. Computation of income from house property of Mr. Krishna for A.Y. 2017-18:
A. TAXABLE INCOME FROM SELF OCCUPIED PORTIONS (50% SOP):
Particulars Details Amount
Annual Value (Sec 23(2) Nil
Less: Deductions u/s 24:
 Interest on borrowed Capital 50% of 24000 (12,000)
Loss From House Property (12,000)

B. TAXABLE INCOME FROM LET OUT PORTIONS (50% Let out):

Particulars Details Amount
Gross Annual Value u/s 23(1) W.N. 1 1,08,000
Less: Municipal Tax paid by owner 50% of (12% of 2,44,000) (14,640
Net Annual Value [NAV] 93,360
Less: Deductions u/s 24:
a. Standard Deductions – 30% of NAV (28,008)
b. Interest on borrowed capital 50% of 24000 (12,000)
Taxable income from let out portions 53,352
Total Income of Mr. Krishna from Income from House Property:
Particulars Details Amount
Income from Let out portion 53,352
Income from Self occupied portions (12,000)
Income chargeable under head of house property 41,352
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W.N.1 Computations of Gross Annual value of Let out portions:
STEP -1 Computations of Expected rent:
 Municipal value [2,44,000 x 50%) : 1,22,000
 Fair Rent [2,35,000 x 50%) : 1,17,500
 Standard Rent [2,20,000 x 50%) : 1,10,000
Expected rent is higher of Municipal rent or fair rent but
Restricted to Standard Rent : 1,10,000

STEP -1I Computations of Actual Rent:

Actual rent receivable [12,000 x 9] : 1,08,000
2 ANSWER BANK – INCOME FROM HOUSE PROPERTY

STEP – III Computations of Gross Annual Value – Since Actual rent receivable less than
Expected rent owing to vacancy, therefore Sec 23(2) shall apply and GAV will be Actual
Rent receivable i.e. Rs. 1,08,000.
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2. Computation of income from house property of Mr. A for A.Y. 2017-18.
Particulars Rs. Rs.

Gross Annual value is nil (since house is self occupied) Sec 23(2) Nil
Less: Deduction under section 24(b)
 Interest paid on borrowed capital Rs.2000000 @ 12% 240000
 Pre-construction interest Rs.240000 /5 48000
288000
As per Sections 24(b), interest deduction restricted to loss under the 200000
head “income from house property” of Mr. A (200000)

Computation of income from house property of Mr. B for A.Y. 2017-18

Particulars Ground floor First floor
(self occupied)

Gross annual value (see note below) Nil 90000

Less: municipal taxes (for first floor) 4000
Net annual value (A) Nil 86000
Less: deduction under section 24
(a) 30% of net annual value 25800
(b) Interest on borrowed capital
 Current year interest :
Rs.1200000 x 10% = Rs.120000 60000 60000
 Pre-construction interest
Rs.1200000 x 10% x 9/12 = Rs.90000
Rs.90000 allowed in 5 equal installments
Rs.90000/5 = Rs.18000 per annum 9000 9000
Total deduction under section 24 (B) 69000 94800
Income from house property (A) – (B) (69000) (8800)
Loss under the head “income from house property” of Mr. B (77800)
(both ground floor and first door)
3 ANSWER BANK – INCOME FROM HOUSE PROPERTY

Note: Computation of gross annual value (GAV) of first floor of B’s House
If a single unit of property (in this case the first floor of B’s house) is let out for some
months and self-occupied for the other months, then the expected rent of the property
shall be taken into account for determining the annual value. The expected rent shall
be compared with the actual rent and whichever is higher shall be adopted as the
annual value. In this case, the actual rent shall be the rent for the period for which the
property was let out during the previous year.
The expected rent is the higher of fair rent and municipal value. This should be
considered for 9 months since the construction of property was completed only on
30.6.2016.
Expected rent = Rs.75000 being higher of –
Fair rent = 100000 x 9/12 = Rs.75000
Municipal value = 72000 x 9/12 = Rs.54000

Actual rent = Rs.90000 (Rs.15000 p.m. for 6 months from July to Dec -16)

Gross annual value = Rs.90000 (being higher of expected rent of Rs.75000 and
actual rent of Rs.90000)
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3. Computation of income from house property of Mrs. Indu for the A.Y. 2017-18
Particulars Rs. Rs.

House property in USA:

Gross Annual Value - Rent received (treated as fair rent) ($2000
p.m. x Rs.60 per USD x 12 months) 14,40,000
Less: Municipal taxes paid ($1500 x Rs.60 per USD) 90,000
Net annual value (NAV) 13,50,000
Less: Deduction under section 24
 Standard Deductions - 30% of NAV 405000 945000
4 ANSWER BANK – INCOME FROM HOUSE PROPERTY

House property in Mumbai (let out portion – first floor)

[A ] Expected rent (lower of standard rent and fair rent)
 Standard rent (Rs.11000 x 12) Rs.132000
 Fair rent (Rs.10000x 12) Rs.120000 1,20,000
[B ] Actual rent received (10000x12) 1,20,000
Gross annual value (higher of expected rent and actual 1,20,000
rent) 3,750
Less: Municipal taxes paid (50% of Rs.7500) 1,16,250
Net annual value (NAV)
Less: Deduction under section 24
a. 30% of NAV Rs.34875
b. Interest on housing loan
(50% of Rs.24000) Rs.12000 46875 69375

Income from house property in Mumbai (self occupied

portion – Ground floor)
Gross annual value Nil
Less: municipal taxes Nil
Net annual value (NAV) Nil
Less: Deduction under section 24
30% of NAV Nil (-)12000
Interest on housing loan (50% of Rs.24000) 12,000

Income from house property 10,02,375

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4. In this case, Nisha has more than one house property for self occupation. As per section
24(4), nisha can avail the benefit of self-occupation (i.e., benefit of “NIL” annual value)
only in respect of one of the house properties, at her option. The other house property
would be treated as “deemed let out” property, in respect of which the expected rent
would be the gross annual value. Nisha should, therefore, consider the most beneficial
option while deciding which house property should be treated by her as self-occupied.
 5 ANSWER BANK – INCOME FROM HOUSE PROPERTY

Options I: House I – self occupied and house II – deemed to be let out]

1st House 2nd House
SOP Deemed to be let out
Gross Annual value [ W.N.1] Nil 1,65,000
Less: Municipal Tax paid [ 8% of 1,15,000] Nil (9,200)
Net annual Value [NAV] Nil 1,55,800
Less : Deductions u/s 24
a) Standard deductions – 30% of NAV Nil (46,740)
b) Interest on borrowed capital Nil (55,000)
Income from House Property Nil 54060
Total Income in case of Options I 54060

Options II: House I – Deemed to be let out and house II – SOP]

1st House 2nd House
Deemed to be let out SOP
Gross Annual value [ W.N.1] 1,00,000 Nil
Less: Municipal Tax paid [W.N.4] - Nil
Net annual Value [NAV] 1,00,000 Nil
Less : Deductions u/s 24
a) Standard deductions – 30% of NAV (30,000) Nil
b) Interest on borrowed capital Nil 30,000
Income from House Property 70,0000 (30,000)
Total Income in case of Options II 40,000
Note 1: Option 2 is more beneficial, Nisha should opt to treat house II as self-
occupied and house I as deemed to be let out, in which case, her income from house
property would be Rs.40000 for the A.Y. 2017-18.
Note 2: Please show computations of Gross annual value of each house
Note 3: Since loan taken for repair of house. As per Sec 24(b), if loan taken for repair
of house of self occupied property then maximum interest allowed only upto Rs.
30,000
Note 4: In case of 1st house municipal tax is payable and not paid, therefore same is
not allowed.
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6 ANSWER BANK – INCOME FROM HOUSE PROPERTY

5. Computation of income from house property of Mr. Raphael for A.Y. 2017-18
Particulars Rs. Rs.

1. Shopping complex
Gross annual value [Rs.30000x12] 360000
Less municipal taxes (8000)
Net annual value (NAV) 352000
Less: deductions under section 24
 30% of NAV 105600
 Interest on borrowed capital (see w.n below) 283333 388933
(36933)
Arrears of rent received taxable under section 25A 120000
Less: deduction @30% 36000 84000
47067
2. Self occupied residential house: [Sec 23(2)]
Annual value (since the house property is self- Nil
occupied)
Less: deduction under section 24
Interest on loan from SBI Rs.3 lakhs, restricted to 200000 (200000)
chargeable income from this house property
Income chargeable under the head house properly. (152933)

Working note : Interest on borrowed capital (shopping complex) Rs.

Interest for the Current year (10% of Rs.25 lakhs) 250000

Add: 1/5th of pre-construction interest (interest for the period from
1.8.2014 to 31.3.2015 for 8 months (Rs.166667 x 1/5) 33333
Interest deduction allowable under section 24 283333

Note:
1) In case all the conditions specified in section 80EE are satisfied, out of the remaining
interest of Rs.1 lakh (Rs.3 lakh- Rs.2 lakh) Mr. Raphael can claim deduction of
Rs.50000 towards interest paid for acquisition of self occupied resident house.
7 ANSWER BANK – INCOME FROM HOUSE PROPERTY

2) It has been assumed that loan Rs.25 lakhs has to be repaid after the five year period.
Hence, there has been no repayment upto 31.3.2017. Interest computation has been
made accordingly.
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6. Unrealized rent refers to the rent payable but not paid by the tenant and which the
owner is also not able to realize from the tenant. As per explanation below section 23
(1), the amount of rent which he owner can not realize shall not be included in the
actual rent while determining the annual value of the property, subject to fulfillment
of following conditions:
a) The tenancy must be bonafide;
b) The defaulting tenant has vacated the property or steps have been taken to compel him
to vacate the property ;
c) The defaulting tenant does not occupy any other property of the assessee; and
d) The assessee has taken all reasonable steps to institute legal proceedings for the
recovery of upaid rent or satisfies the assessing officer that the legal proceedings
would be useless.
If the conditions mentioned above are satisfied, then, the actual rent should be
reduced by the unrealized rent and thereafter, compared with the expected rent (being
the higher of fair rent and municipal value, but restricted to standard rent) for
computing the gross annual value.
As per section 25A, the unrealized rent, then realized in any subsequent year, shall be
deemed to be the income chargeable under the head income from house property in
the previous year in the which such rent is realized, whether or not the assessee is the
owner of the property in that previous year. a sum of 30% of the unrealized rent shall
be allowed as deduction.
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7. Applicability of section 22 for chargeability of income tax for –

(I) HOUSE PROPERTY SITUATED IN FOREIGN COUNTRY: A resident
assessee is taxable under section 22 in respect of annual value of a house property
situated in foreign country. A resident but not ordinarily resident or a non resident is
taxable in respect of income from such property if the income is received in India
during the previous year. Once incidence of tax is attracted under section 22 , the
annual value will be computed as if the property is situated in India.
8 ANSWER BANK – INCOME FROM HOUSE PROPERTY

(II) HOUSE PROPERTY WITH DISPUTED OWNERSHIP: If the title of

ownership of the house property is under dispute in a court of law, the decision about
who is the owner lies with the income tax department. The assessment cannot be held
up for such dispute. Generally, a person who receives the income or who enjoys the
possession of the house property as owner, though his claim is under dispute, is
assessable to tax under section 22.
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8. Section 27 provides certain cases, where the legal ownership may vest with one
person whereas the taxability is cast on another person who is deemed to be the
owner. In these specific cases, the charge of tax is on the deemed owner and not on
the legal owner. The exceptions are given below:
I. In case of transfer of house property to spouse (not being a transfer in connection
with an agreement to live apart) or minor child (not being a married daughter)
without adequate consideration – transferor is the deemed owner.
II. Holder of an impartible estate – shall be deemed to be the individual owner of all the
properties comprised in the estate.
III. A member of a co- operative society/ company AOP to whom a building or part
thereof is allotted or leased under a house building scheme – shall be deemed to be
the owner of building or part thereof.
IV. A person who is allowed to take or retain possession of any building or part thereof
is the deemed owner of such building or part thereof if such possession is obtained in
part performance of a contract of the nature referred to in section 53A of the transfer
of property act, 1882.
V. A person who acquires any rights (excluding any rights by way of a lease from
month to month or for a period not exceeding one year) in or with respect to any
building or part thereof, by virtue of any such transaction as is referred to in section
269UA(f).
Therefore, legal ownership itself is not the criteria for assessment of income under the
head “income from house property”.
Also, the provisions of section 25A dealing with receipt of unrealized rent and arrears
of rent also fall in this category. The receipt is considered as income under the head
“house property” though the recipient may not have legal ownership of the property to
which the receipt relates.
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9 ANSWER BANK – INCOME FROM HOUSE PROPERTY

9. In case of resident individual, his global income is taxable in India. Therefore, income
earned by residents from house properties situated in foreign countries is taxable in
India.
(i) If the income from house properties situated outside India is chargeable to tax in India
the annual value of such property would be computed as if the property is situated in
India. Further, municipal taxes paid under the laws of that country can also be
deducted while arriving at the annual value of the property. The madras high court in
CIT V. venugopala Reddlar held that while computing taxable income. No distinction
should be made between a house property situated in India and a house properly
situated abroad.
(ii) If the property is used for agricultural purposes, the annual value of such property
would be treated as “agricultural income” as per section 2(1A)(C)and it is exempt
under section 10(1) of the act, however, if the house property is used for purpose
other than agriculture the annual value of such property cannot be treated agricultural
income.
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10. Sub-letting receipt in the hands of Y can be assessed as “income from other sources”
or as “profits and gains from business or profession” depending upon the facts and
circumstances of each case. It is not assessable as income from house property.
II. No, Mr. Y’s claim is not valid. The income from letting out of house built on
leasehold land is assessable as “income from house property” since ownership of land
is not a pre-requisite for assessment of income under this head. 30% of net annual
value is allowed as deduction under section 24.
III. Where the assessee uses his property for business, it is not assessable under the head
“income from house property”. He is entitled to depreciation under section 32(1)(ii)
on the building.
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11. As per section 25A, where the assessee receives any amount by way of arrears of rent
or realizes unrealized rent in respect of any property consisting of buildings or land
appurtenant thereto of which he is the owner, the amount so received shall be
chargeable to tax under the head “income from house property”. 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
10 ANSWER BANK – INCOME FROM HOUSE PROPERTY

chargeable to tax in respect of the arrears of rent and unrealized rent so received, 30%
shall be allowed as a deduction, irrespective of the actual expenditure incurred.
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12. Interest on borrowed capital is allowed as deduction u/s 24(b): As per section 24(b),
interest payable on loans borrowed for the purpose of acquisition, construction,
repairs, renewal or reconstruction of house property can be claimed as deduction.
Interest payable on borrowed capital for the period prior to the previous year in which
the property has been acquired or constructed, can be claimed as deduction ever a
period of 5 years in equal annual installments commencing from the year of
acquisition or completion of construction.
It is stated that the construction is completed only in May, 2017. Hence, deduction in
respect of interest on housing loan cannot be claimed in the [PY16-17] AY 2017-18.
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II. Deductions u/s 80C is available, where there is any payment for the purpose of
purchase or construction of a residential house property, the income from which is
chargeable to tax under the head income from house property. Such payment covers
repayment of any amount borrowed from the national housing bank.

However, deduction is prima facie eligible only if the income from such property is
chargeable to tax under the head “income from house property”. During the
assessment year 2017-18, there is no such income chargeable under this head. Hence,
deduction under section 80C cannot be claimed for A.Y. 2017-18.
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