Tax on Income from House Property is the tax on income earned from rent by letting out house property on rent.
Income from House Property is charged to tax on a notional basis.
Income under the head house Property also include Income from letting out of Commercial Properties and all types of properties.
Note:Property for business not utilized for same taxable under income from house property
Deductions like Standard Deduction.
Deduction for Municipal Taxes paid and Deduction for Interest on Home Loan is also allowed under Income under the head House Property.
In this section we will be discussing the below topics:
Annual value is the basis of charges under the head income from house property:
- The basis of chargeability under the head income from house property is Annual Value.
- The property must consist of Building or Lands Appurtenant thereto.
- The assessee must be the owner of such property.
- The property may be used for any purpose other than the assessee’s business or profession.
Deemed Owner for a house property:
- Owner: An Individual shall be considered as owner of a property when the document of title to the
property is registered in his name.
- Deemed Owner: Under the following circumstances, Income from House Property is taxable in the hands of the Individual, even if the property is not registered in his name —
(a) Where the Property has been transferred to spouse for inadequate consideration other than in
pursuance of an agreement to live apart.
(b) Where the Property is transferred to a minor child for inadequate consideration (except a transfer
to minor married daughter)
(c) Where the Individual holds an impartible estate.
(d) Where the Individual is a member of Co-operative Society, Company, or other Association and has
been allotted a house property by virtue of his being a member, even though the property is registered
in the name of the Society / Company / Association.
(e) Where the property has been transferred to the individual’s name as part-performance of a contract
u/s 53A of the Transfer of Property Act, 1882. (i.e. Possession of the Property has been transferred to
Individual, but the Title Deeds have not yet been transferred).
(f) Where the Individual is a holder of a Power of Attorney enabling the right of possession or enjoyment
of the property.
(g) Where the property has been constructed on a leasehold land.
(h) Where the ownership of the Property is under dispute. (i) Where the property is taken on a lease for a period of not less than 12 years, then the lessee shall be
deemed as the owner of the property
Property Income is Exempt from Tax to Certain Persons:
|10(19A): An Ex-Ruler for his occupation (palace)|
|10(20): Local Authority.|
|10(21): Approved Scientific Research Association.|
|10(23B): Institution for the development of Khadi and Village Industries.|
|10(23BB): Khadi and Village Industries Boards.|
|10(23BBA): A body or authority for administering religious or charitable Trust or endowments.|
|10(23C): Certain Funds, educational institutions, hospitals etc.|
|10(24): Registered Trade Union.|
|10 (26B): Statutory Corporation or an institution or association financed by the Government for promoting in the interests of members of SC or ST.
|10(27) : Co-operative Society for promoting the interest of the members of SC or ST.|
|11 : Charitable Trust.|
|13A : Political Party.|
Recovery of Unrealised Rent:
Unrealized Rent means the rent not paid by the tenant to the owner and the same shall be deducted from the Actual Rent Receivable from the property before computing income from that property, provided the following conditions are satisfied :
- The tenancy is bonafide
- The defaulting tenant should have vacated the property
- The assessee has taken steps to compel the defaulting tenant to vacate the property
- The defaulting tenant is not in occupation of any other property owned by the assessee
- The assessee has taken all reasonable steps for recovery of unrealised rent or satisfies the Assessing Officer
that such steps would be useless.
- Chargeability: Recovery of Unrealized Rent is chargeable to tax as “Income from House Property”.
- Year of Taxability: Unrealized Rent recovered is taxable in the financial year in which it is recovered.
- Non-Subsistence of Ownership: It will be taxable in the hands of Individual even if he does not own the property to which such rent pertains.
- Deduction: No deduction will be allowed against such receipt.
Receipt of Arrears of Rent:
- Meaning: Arrears of Rent means the incremental rent relating to earlier financial years which has not been offered to tax in those financial years itself, but received during the current financial year,
- Chargeability: Receipt of Arrears of Rent will be chargeable to tax under the head Income from House Property only.
- Year of receipt: It is taxable as income of the financial year in which he receives the arrears of rent.
- Non-subsistence of ownership: It is taxable in the hands of the Individual even if he does not own the prop” at the time of receipt of arrears of rent.
- Deduction: A standard deduction of 30% of the amount of arrears received will be allowed as deduction.
Municipal Tax treatment under Income under the Head House Property:
- Municipal Tax includes services tax like Water Tax and Sewerage Tax levied by any local authority. It can
be claimed as a deduction from the Gross Annual Value of the Property.
(a)Paid by Owner. The tax shall be borne by the owner and tie same was paid by him during the previous
(b) Property let out: Municipal Tax can be claimed as a deduction only in respect of let out or deemed to
be let out properties (i.e. more than one property self occupied).
(c) Year of payment: Municipal Tax relating to earlier previous years, but paid during the current previous
year can be claimed as deduction only in the year of payment.
(d) Advance Taxes: Advance Municipal Tax paid shall not be allowed as deduction in the year of payment,
but can be claimed in the year in which it falls due.
(e) Borne by Tenant: Municipal taxes met by tenant are not allowed as deduction.
- Foreign Property: For a property situated outside India, Municipal Tax levied by foreign Local Authority
can be claimed as a deduction.
Deduction from Net Annual Value:
- Standard Deduction u/s 24(a)
Standard deduction of 30% of NAV (Net Annual Value) shall be allowed to the assessee.
- Interest on Loan u/s 24(b)
1. Purpose of loan: The loan shall be borrowed for the purpose of acquisition, construction, repairs, renewal
or reconstruction of the house property.
2. Accrual basis: The interest will be allowed as a deduction on accrual basis, even though it is not paid during
the financial year.
3. Interest on interest: Interest on unpaid interest shall not be allowed as a deduction.
4. Brokerage: Any brokerage or commission paid for acquiring the loan will not be allowed as a deduction.
5. Prior period interest: Prior Period Interest shall be allowed in five equal installments commencing from
the financial year in which the property was acquired or construction was completed.
Note : Prior period interest means the interest from the date of borrowal of the loan upto the end of the
financial year immediately preceding the financial year in which acquisition was made or construction was
6. Interest on fresh loan to repay existing loan: Interest on any fresh loan taken to repay the existing loan
shall be allowed as a deduction. [Circular 28 / 20.9.1969]
7. Inadmissible interest: Interest payable outside India without deduction of tax at source and in respect of
which no person in India is treated as an agent u/s 163 shall NOT be an allowable expenditure. [Section25]
8. Certificate: The assessee should furnish a certificate from the person from whom the amount is borrowed.
Computation of Prior Period Interest:
Let us illustrate the steps with an example :
Loan taken on 1.7.08 Rs. 8,0,000 @ 9% p.a. Date of completion of construction 31.5.11. Loan amount remains
outstanding till date. Determine Prior Preiod and Interest u/s 24(b)
|Step 1: Identify the Date of Borrowal of Loan 1.7.08 (P.Y : 08-09)|
|Step 2: Identify the Date of Completion / Acquisition 31.5.11 (P.Y : 11-12)|
|Step 3: Identify Last Date of the Financial Year immediately 31.3.11 (P.Y : 10-11)|
|preceding the date of Completion / Acquisition.|
|Step 4: Prior Period = Calculated Period from Step 1 to Step 3 = 1.7.08-31.3.11 = 33 months|
|Step 5: Prior Period Interest = Prior Period as per Step 4 × Rate of|
|interest × Amount of Loan = 8,00,000 × 33/12 × 9/100 = 1,98,000|
|Step 6: Allowable Prior Period Interest = Prior Period Interest|
|as per Step 5/ 5 = 39,600|
Current Year Interest = 8,00,000 × 9% × 12 months = 72,000
∴ In to u/s 24(b) = CYI + 1/5 PCPI
72,000 + 1/5 ×
= 72,000 + 39,600 × 1,98,000
= Rs. 1,11,600 /-
Annual Value under Income from House Property:
|PROPERTY USED FOR||ANNUAL VALUE||Deductions Allowed||Section|
|1. Self occupied House Property or self occupied property kept vacant||Nil||u/s 24(b), subject to the
fulfillment of conditions
|2. Property let out for the whole year||To be computed||All deductions||23(1)(a)/(b)|
|3. Let out property kept vacant for the whole
|Nil||All deductions except Sec.
|4. Let out property kept vacant for the part of
|To be computed||All deductions||23(1)(c)|
|5. Two or more self-occupied House Property.
Compute as if they are let-out property. Take
the combination which will minimize total
income from house property.
• One property at the option of the assessee
to be treated as self-occupied
• Other property/(ies) shall be deemed to
have been let out
|Nil||To be computed
Sec.24(b), subject to the
fulfillment of conditions
All Deductions 23(4)
COMPUTATION OF INCOME FROM HOUSE PROPERTY
|GROSS ANNUAL VALUE||xxx|
|Less: Municipal Taxes paid during the year||xxx|
|NET ANNUAL VALUE||xxx|
|Less: Standard Deduction @ 30% of NAV u/s 24(a)||xxx|
|Less: Interest on Loan u/s 24(b)||xxx|
|Add: Recovery of Unrealized Rent u/s 25 AA||xxx|
|Income from House Property before considering Arrears of Rent||xxx|
|Add: Arrears of Rent Received||xxx|
|Less: Deduction u/s 25B: 30% of Arrears Received||xxx|
|NET INCOME FROM HOUSE PROPERTY||xxx|
COMPUTATION OF GROSS ANNUAL VALUE
|1. Municipal Value||xxx|
|2. Fair Rental Value or Notional Rental Value||xxx|
|3. Higher of (1) and (2)||xxx|
|4. Standard Rent (if applicable)||xxx|
|5. Reasonable Expected Rent= Lower of Step (3) and (4)||xxx|
|6. Annual Rent (total rent assuming the property to be let out throughout||xxx|
|the previous year)||xxx|
|7. Deduct: Unrealized Rent as per Rule 4||xxx|
|8. Actual Rent= Step (6) – (7)||xxx|
|9. Higher of Reasonable Expected Rent (Step 5) & Actual Rent (Step 8)||xxx|
|10. Deduct: Vacancy Allowance (proportionately on the basis of Annual Rent in Step 6)||xxx|
|11. GROSS ANNUAL VALUE||xxx|
Conditions for the admissibilty of Interest on Loan taken for Self-Occupied Property:
- Loan taken for acquisition or construction of house property on or after 01.04.99 and the same was completed within 3 years from the end of the financial year in which capital was borrowed, interest paid or payable, subject to a maximum of Rs. 1,50,000 (= Current year + 1/5th of prior-period interest)
- Loan taken prior to 1.4.99 for acquisition or construction or loan taken for repair, renovation or reconstruction at any point of time, interest paid or payable subject to a maximum of Rs. 30,000 (= Current year + 1/5th of prior-period interest)
- Loan taken on or after 1.4.99 for acquisition or construction of house property, and the same was not completed within 3 years from the end of the financial year in which capital was borrowed, interest paid or payable, subject to a maximum of Rs. 30,000 (= Current year + 1/5th of prior-period interest)