1. Income from House Property

2. Basis of charge Basis of charge Annual value
of building or land appurtenant thereto
of which the assessee is the owner.
Building
Superstructure (includes a single unit)
for residential purposes
for commercial purposes (offices, factories, godowns)
Exception
Building used by the owner for own business or profession, whose income will be taxed under the head “Profits and gains of business or profession”.
Example - a property consisting of residential quarters let out by an assessee to his employees and such letting out is subservient and incidental to the carrying on of assessee’s business.

3. Basis of charge
Land appurtenant to the building - Land which is connected to the building. - Land which is in the immediate vicinity of the building. Examples : compounds, playground, parking spaces, garages, gardens, approach roads. Exceptions - Vacant plot of land (not appurtenant to building), whose income will be taxed under the head “Income from other sources.” - Land appurtenant to building used by the owner for own business or profession, whose income will be taxed under the head “Profits and gains of business or profession”.

4. Persons liable to tax under the head “Income from house property” – owner of property
Under Section 22, owner of the property is chargeable to tax.
Owner may be –
- legal owner
- deemed owner
Legal owner is the person who is entitled to receive income from the property in his own right. Risk and reward associated with the property borne by the owner. Sub tenant not owner of house property.
Registration of the sale deed is not necessary.
Ownership includes both freehold and leasehold rights.
The person who owns the building need not also be the owner of the land upon which it stands.

5. Annual value of property – Section 23(1)
For the purposes of section 22, the annual value of any property shall be deemed to be-
the sum for which the property might reasonably be expected to let from year to year.
“To let” is to grant use of for rent or license fee or for hire.
Guiding factor is the inherent capacity of the property to yield income from year to year.
Factors to be considered in determining notional income –
- Actual realisation by way of license fee
- Location of the property
Demand and supply for the property
Municipal valuation

6. …Annual value of property – Section 23(1)
Annual letting value (ALV) is the higher of fair rent (FR) and municipal value (MV) but restricted to standard rent (SR).
Annual value cannot exceed SR but it can be lower than SR, where SR is more than the higher of FR and MV.
Fair rent means rent which similar property in the same locality would fetch.
Municipal value is the value determined by the municipal authorities for levying municipal taxes on house property.
The standard rent is the rent fixed by the Rent Control Act.

7. …Annual value of property – Section 23(1)
where the property or any part of the property is let, the annual value will be taken to be –
- the sum referred to in clause (a) or
the actual rent received or receivable by the owner
whichever is higher.
(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable.
For the purpose of clause (b) and (c) above, “actual rent received or receivable” will not include, the amount of rent which the owner cannot realise in the circumstances prescribed in Rule 4 of the Income Tax Rules [Explanation to Section 23(1)].

8. …Annual value of property – Section 23(1)
Under Rule 4, the amount of rent which the owner cannot realise shall be equal to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where, -
(i) the tenancy is bonafide.
the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property.
The defaulting tenant is not in occupation of any other property of the assessee.
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.

9. Annual value of property – Section 23(1) - proviso
Deduction of property taxes
From the bonafide letting value determined earlier, the taxes levied by any local authority in respect of the property shall be deducted. The amount so determined is the annual value of a house property.
However, the deduction for local taxes levied by a local authority will be allowed in the previous year in which the taxes are actually paid by the assessee.
Even if in a previous year, taxes relating to more than one year are paid, the entire amount will be allowed as a deduction in the year of payment.
Note : Taxes levied by the State Government e.g. repair cess, State education cess etc., not being taxes levied by a local authority, are not deductible.

10. Self occupied property – Sec. 23(2), 23(3), 23(4)
Pre-requisites for claiming a property as self-occupied property (SOP)
1. The house property should be self-occupied for own residence throughout the previous year (if house property is let out even for a part of the year, SOP status is lost.
If house property is unoccupied due to owner’s employment elsewhere. (No other reason for vacancy would be allowed).
Where a person is the owner of more than one self occupied property
At the option of the assessee, any one house property will be considered as SOP and the others will be treated as deemed to be let out property (DLOP).
How to select a SOP
The house property with the highest Gross Annual Value (GAV) to be selected.

11. Self occupied property – Sec. 23(2), 23(3), 23(4)
Section 23(2) – Self occupied or unoccupied
A. The annual value of a house or part of a house shall be taken to be “nil” if –
(a) is in the occupation of the owner for the purposes of his own residence; or
it cannot actually be occupied by the owner due to his employment, business or profession carried on at any other place, and he has to reside at that other place in a building not belonging to him.
Note :
No deduction for municipal taxes is allowed in respect of self-occupied property.

12. …Self occupied property – Sec. 23(2), 23(3), 23(4)
Section23(3) – Self occupied for part of the year and let out for part of the year
B. The annual value of a house or a part of a house, referred to in (A) above, shall not be taken to be Nil if -
(a) the house or part of the house is actually let during the whole or any part of the previous year; or
any other benefit therefrom is derived by the owner.
The annual value in respect of such a house will be computed u/s 23(1).
The annual value for the whole year shall be compared with the actual rent for the let out period and the higher of the two will be the gross annual value.
Property taxes for the whole year will be allowed as deduction, if paid by the owner during the previous year.

13. …Self occupied property – Sec. 23(2), 23(3), 23(4)
Sec. 23(4) - Deemed to be let out
Where two or more houses are in the occupation of the owner for the purposes of his own residence, -
the annual value u/s 23(2) shall be taken to be “nil” only in respect of any one house of his choice;
the annual value of the other house or houses, used for self occupation by the owner shall be determined u/s 23(1) as if such house or houses had been let out.
Note : This option can be changed year after year in a manner beneficial to the assessee.

14. House property – a portion let out and a portion self-occupied
Income from any portion or part of a property which is let out shall be computed as income from “let out property” and the other portion or part which is self-occupied shall be computed as income from “self occupied property”.
Municipal valuation / fair rent / standard rent, if not given separately, shall be apportioned between the let out portion and self occupied portion either on plinth area or built up floor space or on any other reasonable basis.
Property taxes, if given on a consolidated basis can be bifurcated on a reasonable basis.

15. Property owned by co-owners – Sec. 26
Section 26
Where property –
- consisting of building or buildings and lands appurtenant thereto
- is owned by two or more persons and
- their respective shares are definite and ascertainable,
- such persons shall not, in respect of such property, be assessed as an association of persons,
- but the share of each such person in the income from the property as computed in accordance with sections 22 to 25 shall be included in his total income.
In other words, where the house property owned by co-owners is let out, the income from such property shall be computed as if the property is owned by one owner and thereafter the income so computed shall be apportioned amongst the co-owners as per their specific share.

16. …Property owned by co-owners – Sec. 26
Where the property is occupied throughout the year by the co-owners for their self occupation, the annual value falling to the share of each co-owner is to be taken at “nil”. [Explanation to Section 26]. Each co-owner shall be entitled to a deduction of Rs.30,000 / Rs.2,00,000 u/s 24(b) on account of interest on borrowed capital.

17. Income from a property owned by a partnership firm
Where an immovable property or properties is included in the assets of a firm, the income from such property should be assessed in the hands of the firm only.
Such property income cannot be assessed as income of the individual partner in respect of his share in the firm.

18. Deductions from house property income – Sec. 24
Section 24
a sum equal to thirty per cent of the net annual value (after deduction of municipal taxes)
This deduction is allowed, irrespective of the actual expenditure incurred.
(b) where the property has been -
acquired
constructed
repaired
renewed or
reconstructed
with borrowed capital,
the amount of any interest payable on such capital (Refer separate chart)
Interest relating to the year of completion of construction can be fully claimed in that year, irrespective of the date of completion.

19. Deductions from house property income – Sec. 24
Notes :
The ceiling prescribed for one self-occupied property in respect of interest on loan borrowed does not apply to deemed let out property.
Deduction u/s 24(b) for interest is available on accrual basis. Therefore interest accrued but not paid during the year can also be claimed as deduction.
Where a buyer enters into an arrangement with a seller to pay the sale price in installments along with interest due thereon, the seller becomes the lender in relation to the unpaid purchase price and the buyer becomes the borrower. In such a case, unpaid purchase price can be treated as capital borrowed for acquiring property and interest paid thereon can be allowed as deduction u/s 24.
Interest on unpaid interest is not deductible.

20. Deductions from house property income – Sec. 24
…Notes :
Loan should be taken for acquiring / constructing / repairing house property. Only in such cases, interest on loan is allowable as a deduction.
Interest on loan taken for any other purpose, by giving house property as security, is not an allowable deduction.
Brokerage and commission is not deductible.
Interest on fresh loan for repaying original loan is allowed as a deduction.

21. Summary charts – (i) Property let out throughout the previous year
Step No.
Particulars
Amount
Step 1
Step 2
Step 3
Step 4
Step 5
Computation of Gross Annual Value (GAV)
Compute Annual letting value (ALV)
ALV = higher of Municipal Value (MV) and Fair Rent (FR) but restricted to Standard Rent (SR)
Compute actual rent received / receivable
Actual rent received / receivable less unrealized rent as per Rule 4
GAV is higher of ALV and actual rent received / receivable
Less : Municipal taxes (paid during the previous year)
Net Annual Value (NAV) = (A-B) A B
---- C

22. Summary charts – (i) Property let out throughout the previous year (Contd.)
Step No.
Particulars
Amount
Step 6
Step 7
Less : Deductions u/s 24
30% of NAV D
Interest on borrowed capital (actual without limit) E
------
Income from House Property (C - D - E) F

23. Summary charts – (ii) Let out property vacant for part of the year
Step No.
Particulars
Amount
Step 1
Step 2
Step 3
Step 4
Step 5
Computation of Gross Annual Value (GAV)
Compute Annual letting value (ALV)
ALV = higher of Municipal Value (MV) and Fair Rent (FR) but restricted to Standard Rent (SR)
Compute actual rent received / receivable
Actual rent received / receivable less unrealized rent as per Rule 4
If actual rent < ALV due to vacancy, actual rent = GAV
If actual rent < ALV due to other reasons, ALV=GAV
If actual rent > ALV despite vacancy, actual rent = GAV
Less : Municipal taxes (paid during the previous year)
Net Annual Value (NAV) = (A-B) A B
---- C

24. Summary charts – (ii) Let out property vacant for part of the year (contd.)
Step No.
Particulars
Amount
Step 6
Step 7
Less : Deductions u/s 24
30% of NAV D
Interest on borrowed capital (actual without limit) E
------
Income from House Property (C - D - E) F

25. Summary charts – (iii) Self occupied property or unoccupied property
Step No.
Particulars
Amount
Step 1
Step 2
Step 3
Annual value u/s 23(2)
Less : Deduction u/s 24
Interest on loan taken for acquisition or construction of house on or after and same was completed within 5 years from the end of the financial year in which capital was borrowed, interest paid or payable subject to a maximum of Rs.2,00,000 (including apportioned pre-construction interest)
In case of loan for acquisition or construction taken prior to 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
Income from House Property
Nil E -E

26. Summary charts – (iv) Property let out for part of the year and self occupied for part of the year
Step No.
Particulars
Amount
Step 1
Step 2
Step 3
Step 4
Step 5
Computation of GAV
Compute ALV for the whole year
ALV = Higher of MV and FR, but restricted to SR
Compute actual rent received / receivable
Actual rent received / receivable for the period let out less unrealized rent as per Rule 4
GAV is higher of ALV computed for the whole year and actual rent received / receivable computed for the let out period
Less : Municipal taxes (paid during the previous year)
Net annual value = (A – B) A B
---- C

27. Summary charts – (iv) Property let out for part of the year and self occupied for part of the year (contd.)
Step No.
Particulars
Amount
Step 6
Step 7
Less : Deductions u/s 24
30% of NAV D
Interest on borrowed capital (actual without limit) E
---
Income from House Property (C - D - E)
------ F

28. Summary charts – (v) Deemed to be let out property
Step No.
Particulars
Amount
Step 1
Step 2
Step 3
Step 4
Step 5
Computation of GAV
ALV is the GAV of house property
ALV = higher of MV and FR, but restricted to SR
Less : Municipal taxes paid during the year
Net annual value = (A – B)
Less : Deductions u/s 24
30% of NAV D
Interest on borrowed capital (actual without limit) E
---
Income from House Property (C – D – E) A B
---- C
----- F

29. Computation format LOP VLOP SOP DLOP Gross Annual Value (GAV)
Higher of –
(RLV or AR)
Less : VPR
Nil
RLV
Less : Municipal taxes borne and paid by owner
Yes No
Net Annual Value (NAV)
+HP
Less : Deductions
- Standard 30% of NAV
- Interest on borrowed capital
House property income
-HP
Contd.

30. …Computation format LOP VLOP SOP DLOP House property income +HP -HP
Add : Unrealised rent of prior year now recovered / arrears of rent received
Yes No
Less : Std. 30%
Taxable income from house property

31. Unrealised rent and arrears of rent received – Sec
Unrealised rent and arrears of rent received – Sec. 25A (as substituted w.e.f. AY )
Unrealised rent and arrears of rent –
in respect of let out property
received by an assessee
which has not been charged to income tax for any previous year
will be deemed to be income from house property
in the year of receipt.
Deduction of a sum equal to 30% of such amount will be allowed and the balance amount will be taxable as income from house property.
It is not necessary that the assessee must be owner of such house property in the year in which arrears of rent are received.

32. Loss from House Property
Loss in respect of house property, whether let out or self occupied, can be set off against any other head of income in the same assessment year [Sec. 71(1), 71(2)].
Loss arising on account of any deduction u/s 24, such as interest on borrowings for the purpose of acquiring the property will not be ignored and is eligible for set off in the same assessment year.
Loss under the head “Income from house property” which cannot be wholly set off against income from any other head of income in the same assessment year, will be allowed to be carried forward and set off against “Income from house property’’ of immediately succeeding 8 assessment years [Section 71B].
In cases where the property is self-occupied and not let out during any part of the previous year, the annual value of such self-occupied property will be taken at “nil” and no deduction u/s 24 will be allowed, except the deduction re. interest.

33. Cases where income from house property is exempt from tax
S. No.
Section
Particulars 1.
10(1)
Income from any farm house forming part of agricultural income 2.
10(19A)
Annual value of any one palace in the occupation of an ex-ruler 3.
10(20)
Income from house property of a local authority 4.
10(21)
Income from house property of an approved scientific research association 5.
10(23C)
Income from house property of universities, educational institutions etc. 6.
10(24)
Income from house property of any registered trade union 7. 11
Income from house property held for charitable or religious purpose 8.
13A
Income from house property of any political party 9. 22
Property used for own business or profession
10.
23(2)
One self-owned property of an individual / HUF