INCOME FROM HOUSE PROPERTY DR. N.K.GUPTA

CHARGEABILITY (SEC. 22) THE ANNUAL VALUE OF PROPERTY CONSISTING OF ANY BUILDING OR LAND APPURTENANT THERETO OF WHICH THE ASSESSEE IS THE OWNER , SHALL BE CHARGEABLE UNDER THE HEAD ‘INCOME FROM HOUSE PROPERTY’.

ESSENTIAL CONDITIONS THE PROPERTY MUST CONSIST OF BUILDINGS AND LAND APPURTENANT THERETO THE ASSESSEE MUST BE THE OWNER OF THE PROPERTY THE PROPERTY MAY BE USED FOR ANY PURPOSE OTHER THAN FOR HIS OWN BUSINESS OR PROFESSION

OWNERSHIP (MEANING) THE ASSESSEE MUST BE HAVING THE OWNERSHIP OF THE PROPERTY. THE OWNERSHIP MUST BE BACKED BY DOCUMENTARY EVIDENCES. HOWEVER, IT INCLUDES DEEMED OWNERSHIP.

DEEMED OWNERSHIP (SEC. 27) TRANSFER TO SPOUSE TRANSFER TO MINOR CHILD EXCEPT MINOR MARRIED DAUGHTER HOLDER OF AN IMPARTIBLE ESTATE MEMBER OF A CO-OPERATIVE SOCIETY RIGHT IN PROPERTY FOR AT LEAST 12 YEARS

CONTD. POSSESSION OF A HOUSE PROPERTY UNDER SECTION 53A OF TRANSFER OF PROPERTY ACT, 1882 MEANS THE SALE DEED IS NOT REGISTERED IN THE NAME OF THE ASSESSEE. HOWEVER, THE SALE CONSIDERATION HAS BEEN PAID. FOR EXAMPLE: POWER OF ATTORNEY, ETC.

TAX FREE INCOME FROM HOUSE PROPERTY INCOME FROM HOUSE PROPERTY IN THE VICINITY OF AGRICULTURAL LAND [SEC. 2(1A)(C)]; INCOME FROM ONE PALACE IN THE OCCUPATION OF A EX-RULER [SEC. 10(19A)] INCOME FROM HOUSE PROPERTY USED FOR OWN BUSINESS OR PROFESSION

TAX EXEMPT INCOMES (CONTD.) INCOME FROM HOUSE PROPERTY BELONGS TO: a. A LOCAL AUTHORITY [SEC. 10(20)] b. A SCIENTIFIC RESEARCH ASSOCIATION [SEC. 10(21)] c. A REGISTERED TRADE UNION [SEC. 10(24)] d. A POLITICAL PARTY [SEC. 13A] e. A CHARITABLE TRUST [SEC. 11(1)]

TAX EXEMPT INCOMES (CONTD.) ONE SELF OCCUPIED HOUSE PROPERTY [SEC 23(2)(a)] INCOME FROM SELF OCCUPIED PROPERTY WHICH COULD NOT BE USED DURING THE PREVIOUS YEAR [SEC. 23(2)(b)]

COMPUTATION OF INCOME FROM HOUSE PROPERTY GROSS ANNUAL VALUE LESS: UNREALISED RENT LESS: MUNICIPAL TAXES PAID ANNUAL VALUE LESS: STATUTORY DEDUCTION @ 30% OF ANNUAL VALUE LESS: INTEREST ON BORROWED MONEY FOR THE PURPOSES OF HOUSE PROPERTY__________ INCOME FROM HOUSE PROPERTY

DETERMINATION OF ANNUALVALUE [SEC. 23(1)] FIRST CALCULATE GROSS ANNUAL VALUE WHICH CAN BE CALCULATED AS FOLLOWS: FAIR RENT OR MUNICIPAL VALUE WHICHEVER IS HIGHER BUT SUBJECT TO STANDARD RENT (RENT DECIDED BY RENT CONTROL AUTHORITY) --------------------A ACTUAL ANNUAL RENT --------------------B GROSS ANNUAL VALUE WILL BE A OR B WHICH EVER IS HIGHER

COMPUTATION OF GROSS ANNUAL VALUE IN DIFFERENT CASES LET OUT PROPERTY FOR THE FULL YEAR GROSS ANNUAL VALUE WILL BE CALCULATED AS ABOVE LET OUT PROPERTY REMAINS VACANT FOR A PART OF THE YEAR GROSS ANNUAL VALUE WILL BE REDUCED BY ACTUAL RENT FOR THE VACANCY PERIOD

CONTD. SELF OCCUPIED PROPERTY FOR THE WHOLE YEAR IN THIS CASE ANNUAL VALUE WILL BE TAKEN AS NIL DEEMED LET OUT PROPERTY IF MORE THAN ONE PROPERTY IS SELF- OCCUPIED THEN ONLY ONE PROPERTY WILL BE TREATED AS SELF OCCUPIED WHILE OTHERS WILL BE TREATED AS DEEMED LET OUT

CONTD. PARTLY SELF OCCUPIED AND PARTLY LET OUT PROPERTY TREAT THIS PROPERTY AS MORE THAN ONE PROPERTY AND CALCULATE THE GROSS ANNUAL VALUE PROPORTIONATELY (OWNER OCCUPIED PORTION WILL BE TREATED AS SELF OCCUPIED AND TENANT OCCUPIED PORTION WILL BE TREATED AS LET OUT)

CONTD. PROPERTY LET OUT FOR A PART OF THE YEAR AND SELF OCCUPIED FOR ANOTHER PART THIS PROPERTY WILL BE TREATED AS IF LET OUT FOR THE WHOLE YEAR AND FAIR RENT WILL BE TAKEN FOR THE WHOLE YEAR BUT ACTUAL RENT WILL BE TAKEN FOR THE PERIOD LET

CONTD. PROPERTY OWNED BY CO-OWNERS DIFFERENT PORTIONS OWNED BY CO-OWNERS WILL BE VALUED AS IF IT IS A CASE OF DIFFERENT PROPERTIES. EACH SHARE WILL BE A UNIT ITSELF AND ANNUAL VALUE WILL BE CALCULATED ACCORDINGLY.

TREATMENT OF INTEREST IF THE ASSESSEE HAS BORROWED SOME MONEY FOR THE CONSTRUCTION, REPAIRING ETC. THEN ACTUAL INTEREST PAYABLE/PAID FOR THE CURRENT FINANCIAL YEAR WILL BE DEDUCTED IN FULL. IF ANY COMMISSION, ETC. IS PAID FOR ARRANGING THE LOAN THEN, IT WILL NOT BE ALLOWED.

PRE-CONSTRUCTION INTEREST INTEREST PAYABLE BY THE ASSESSEE IN RESPECT OF THE PERIOD BEFORE THE CONSTRUCTION WILL BE CALCULATED FROM THE DATE OF BORROWING TO 31ST MARCH IMMEDIATELY BEFORE THE DATE OF COMPLETION OR REPAYMENT OF LOAN WHICHEVER IS EARLIER.

PRE-CONSTRUCTION INTEREST CONTD. THE AMOUNT OF PRE-CONSTRUCTION INTEREST WILL BE ALLOWED IN FIVE ANNUAL EQUAL INSTALMENTS COMMENCING FROM THE PREVIOUS YEAR IN WHICH THE HOUSE IS ACQUIRED OR CONSTRUCTED

INTEREST IN CASE OF SELF-OCCUPIED PROPERTY WHERE THE PROPERTY IS ACQUIRED OR CONSTRUCTED WITH BORROWED MONEY ON OR AFTER 1-4-1999 AND SUCH CONSTRUCTION IS COMPLETED WITH IN THREE YEARS OF THE END OF THE FINANCIAL YEAR IN WHICH THE CAPITAL WAS BORROWED, THE DEDUCTION WILL BE RESTRICTED TO RS. 1,50,000 OTHERWISE RS. 30,000.

COMPOSITE RENT IF OWNER CHARGES RENT INCLUSIVE OF SERVICES THEN IT IS KNOWN AS COMPOSITE RENT. IF RENT OF THE PROPERTY CAN BE RECOGNISED SEPRATELY THEN, IT WILL BE CALCULTED IN THIS HEAD OTHERWISE IT WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES OR BUSINESS AND PROFESSION AS THE CASE MAY BE

RECOVERY OF UNREALISED RENT WHERE A DEDUCTION HAS BEEN CLAIMED AND ALLOWED IN RESPECT OF UNREALISED RENT IN ASSESSEMENT YEAR 2001-02 OR PRIOR TO THAT AND SUBSEQUENTLY THE ASSESSEE REALISES THE AMOUNT, THE AMOUNT SO REALISED WILL BE TREATED AS INCOME OF THE YEAR OF RECEIPT IRRESPECTIVE OF THE OWNERSHIP OF THE ASSESSEE.

CONTD. WHERE THE UNREALISED RENT IS RECOVERED WITH RESPECT OF ASSESSEMENT YEAR 2002-03 ONWARDS AND REALISED SUBSEQUENTLY THEN IT WILL BE TAXABLE DURING THE YEAR OF RECEIPT, HOWEVER STATUTORY DEDUCTION OF 30 % WILL BE ALLOWED.

SOME ILLUSTRATIONS 1. COMPUTE THE ANNUAL VALUE IN THE FOLLOWING CASES A B Rs. Rs. FAIR RENT 2,40,000 1,30,000 ACTUAL RENT 2,16,000 1,80,000 UNREALISED RENT 36,000 30,000 MUNICIPAL TAX PAID 30,000 20,000

SOLUTION 1. A B Rs. Rs GROSS ANNUAL VALUE 2,40,000 1,80,000 LESS: UNREALISED RENT 36,000 30,000 LESS: MUNICIPAL TAXES 30,000 20,000 ANNUAL VALUE 1,74,000 1,30,000

ILLUSTRATION 2 MR. A OWNS A HOUSE IN DELHI. FROM THE FOLLOWING PARTICULARS GIVEN BELOW, COMPUTE THE INCOME FROM THE HOUSE PROPERTY FOR THE ASSESSMENT YEAR 2010-11. MUNICIPAL VALUE 2,20,000 FAIR RENT 2,62,000 STANDARD RENT 2,45,000 ACTUAL RENT (PER MONTH) 24,000 MUNICIPAL TAXES PAID 22,000 EXPENSES ON REPAIRS 10,000 INSURANCE PREMIUM 4,000

CONTD. A HAD BORROWED A SUM OF RS.10,00,000 @ 12% P.A. ON 1.7.2006 AND THE CONSTRUCTION OF THE HOUSE WAS COMPLETED ON 28. 2.2009.

SOLUTION 2 GROSS ANNUAL VALUE SHALL BE HIGHER OF THE FOLLOWING TWO: M.V. RS. 2,20,000 OR F.R.V. RS. 2,62,000 BUT RESTRICTED TO STANDARD RENT, OR 2,45,000 ACTUAL RENT (24,000 X 12) (BEING GROSS ANNUAL VALUE) 2,88,000 LESS: MUNICIPAL TAXES PAID 22,000 NET ANNUAL VALUE 2,66,000 LESS: DEDUCTIONS U/S 24 i) 30% OF N.A.V 79,800 ii) INTEREST ON BORROWED MONEY 1,62,000 2,41,800 INCOME FROM HOUSE PROPERTY 24,200

CONTD. NOTE: CALCULATION OF INTEREST: PRE-CONSTRUCTION PERIOD 10,00,000 X 12/100 X 21/12 X 1/5 42,000 ii) CURRENT YEAR INTEREST 10,00,000 X 12/100 1,20,000 1,62,000

ILLUSTRATION 3 Y HAS A HOUSE WHICH HAS TWO IDENTICAL UNITS. ONE OF THE UNITS IS SELF-OCCUPIED THROUGHOUT THE PREVIOUS YEAR AND THE OTHER UNIT IS LET OUT THROUGHOUT THE PREVIOUS YEAR ON A RENT OF RS. 5,000 P.M. MUNICIPAL TAXES FOR THE COMPLETE HOUSE AMOUNTING TO RS. 6,000 HAVE BEEN PAID DURING THE PREVIOUS YEAR. THE CONSTRUCTION OF THE PROPERTY WAS COMPLETED ON 1-1-1992. DETERMINE THE INCOME FROM HOUSE PROPERTY FOR THE A.Y. 2010-11.

SOLUTION UNIT I UNIT II (LET OUT) (SELF-OCCUPIED) Rs. Rs. GROSS ANNUAL VALUE 60,000 NIL LESS: MUNICIPAL TAXES 3,000 - NET ANNUAL VALUE 57,000 NIL LESS: STATUTORY DEDUCTION @ 30% 17,100 NIL INCOME FROM HOUSE PROPERTY 39,900 NIL

ILLUSTRATION 4 IN THE PREVIOUS QUESTION, ILLUSTRATION 3, IF SELF OCCUPIED PORTION WAS LET OUT FOR THREE MONTHS, THEN WHAT WILL BE THE INCOME FROM HOUSE PROPERTY?

SOLUTION UNIT I UNIT II (LET OUT) (SELF-OCCUPIED) Rs. Rs. GROSS ANNUAL VALUE 60,000 60,000 LESS: MUNICIPAL TAXES 3,000 3,000 NET ANNUAL VALUE 57,000 57,000 LESS: STATUTORY DEDUCTION @ 30% 17,100 17,100 INCOME FROM HOUSE PROPERTY 39,900 39,900

ILLUSTRATION 5 WHAT WILL BE THE INCOME FROM HOUSE PROPERTY IF IN THE PREVIOUS QUESTION, ILLUSTRATION 4, THE LET OUT PORTION IS SELF-OCCUPIED FOR 3 MONTHS?

SOLUTION SINCE UNIT I, IS PART OF THE YEAR LET OUT AND PART OF THE YEAR SELF-OCCUPIED, THE PERIOD OF OCCUPATION OF THIS UNIT FOR OWN RESIDENCE SHALL BE IRRELEVANT AND THE ANNUAL VALUE OF SUCH UNIT SHALL BE DETERMINED AS IF IT IS LET. HENCE, THE EXPECTED RENT AS PER SEC. 23(1)(a) SHALL BE TAKEN FOR THE FULL YEAR BUT THE ACTUAL RENT SHALL BE TAKEN FOR THE PERIOD LET.

CONTD. IN THE ABOVE QUESTION, THE EXPECTED RENT WILL BE TAKEN ON THE BASIS OF ACTUAL RENT WHICH CAN BE ASSUMED AS FAIR RENT IN THE ABSENCE OF ANY OTHER INFORMATION AVAILABLE. HENCE, THERE WILL BE NO CHANGE IN THE ANSWER AS THE EXPECTED RENT WILL BE RS. 60,000 ALTHOUGH THE ACTUAL RENT RECEIVED AND RECEIVABLE SHALL BE RS. 45,000 i.e. RS. 5,000 X 9.

ILLUSTRATION 6 X HAS A HOUSE PROPERTY SITUATED IN DELHI. FROM THE FOLLOWING PARTICULARS SUBMITTED TO YOU, COMPUTE THE INCOME FROM HOUSE PROPERTY FOR THE ASSESSMENT YEAR 2010-11. MUNICIAPAL VALUATION 90,000 FAIR RENT 1,10,000 STANDARD RENT 1,00,000 THE HOUSE PROPERTY WAS LET OUT W.E.F. 1-4-2009 FOR RS. 8,000 P.M. WHICH WAS VACATED BY TENANT ON 30-9-2009.

CONTD. IT REMAINED VACANT FOR 2 MONTHS. AND W.E.F. 1-12-2009, IT WAS LET OUT FOR Rs.11,000 P.M. MUNICIPAL TAXES PAID - 20% OF MUNICIPAL VALUATION INSURANCE PREMIUM PAID - RS. 3,000 INTEREST ON MONEY BORROWED FOR PURCHASE OF HOUSE PROPERTY - RS. 30,000

SOLUTION COMPUTATION OF GROSS ANNUAL VALUE WHICH SHALL BE HIGHER OF THE FOLLOWING TWO: EXPECTED RENT i.e. MUNICIPAL VALUE OR FAIR RENT WHICHEVER IS MORE i.e. RS. 1,10,000 BUT IT CANNOT EXCEED RS. 1,00,000 (i.e. STANDARD RENT). SO, IT SHOULD BE RS. 1,00,000 ACTUAL RENT RECEIVED OR RECEIVABLE 8,000 X 6 48,000 11,000 X 4 44,000 92,000 ANNUAL VALUE SHALL BE RS. 92,000 AS IT IS LESS THAN EXPECTED RENT OWING TO VACANCY.

CONTD. Rs. GROSS ANNUAL VALUE 92,000 LESS: MUNICIPAL TAXES PAID 18,000 NET ANNUAL VALUE 74,000 LESS: DEDUCTIONS U/S 24 A) STATUTORY DEDUCTION @ 30% 22,200 B) INTEREST 30,000 52,200 INCOME FROM HOUSE PROPERTY 21,800

ILLUSTRATION 7 Y OWNS A HOUSE IN DELHI. DURING THE PREVIOUS YEAR 2009-10, 3/4TH PORTION OF THE HOUSE WAS SELF-OCCUPIED FOR FULL YEAR AND 1/4TH PORTION WAS LET OUT FOR RESIDENTIAL PURPOSES FROM 1-4-2009 TO 31-12-2009 ON A RENT OF RS. 700 P.M. FROM 1-1-2010, THIS PORTION WAS ALSO USED FOR OWN RESIDENCE. MUNICIPAL VALUATION OF THE HOUSE IS RS. 20,000. HE INCURRED THE FOLLOWING EXPENDITURE IN RESPECT OF THE HOUSE PROPERTY:

CONTD. MUNICIPAL TAXES DUE RS. 6,000; REPAIRS RS. 2,000; FIRE INSURANCE PREMIUM RS. 3,500; LAND REVENUE RS. 4,000; GROUND RENT RS. 200 WERE PAID DURING THE YEAR. A LOAN OF RS. 1,00,000 WAS TAKEN ON 1-4-2002 @ 9% P.A. FOR THE CONSTRUCTION OF THE HOUSE WHICH WAS COMPLETED ON 28-3-2003. NOTHING WAS REPAID ON LOAN ACCOUNT SO FAR. FIND OUT HIS INCOME FROM HOUSE PROPERTY FOR THE A.Y. 2010-11.

SOLUTION THERE ARE TWO UNITS OF THE HOUSE . UNIT I WITH 3/4TH FLOOR AREA IS SELF-OCCUPIED THROUGHOUT THE YEAR AND NO BENEFIT IS DERIVED FROM THAT UNIT, HENCE IT WILL BE CONSIDERED SELF-OCCUPIED AND ITS ANNUAL VALUE SHALL BE NIL. UNIT 2 WITH FLOOR AREA OF 1/4TH IS THOUGH SELF-OCCUPIED BUT PART OF THE YEAR LET OUT. HENCE, THE ANNUAL VALUE OF UNIT 2 SHALL BE DETERMINED AS PER SECTION 23(1).

CONTD. UNIT I (3/4TH FLOOR AREA) ANNUAL VALUE NIL LESS: DEDUCTIONS U/S 24(B) INTEREST 75% OF RS. 9,000 6,750 INCOME FROM SELF-OCCUPIED - 6750

CONTD. GROSS ANNUAL VALUE HIGHER OF THE FOLLOWING TWO: UNIT II (1/4TH FLOOR AREA) GROSS ANNUAL VALUE HIGHER OF THE FOLLOWING TWO: EXPECTED RENT 8,400 ACTUAL RENT RECEIVED OR RECEIVABLE (700 X 9) 6,300 GROSS ANNUAL VALUE 8,400 LESS: DEDUCTIONS U/S 24 STATUTORY DEDUCTION @ 30% 2,520 INTEREST (¼) 2,250 4,770 3,630

CONTD. INCOME FROM HOUSE PROPERTY UNIT I - 6750 UNIT II 3,630 LOSS OF Rs. 3,120

THANKS sirnkgupta@yahoo.com