Unit5:INCOMEFROMHOUSEPROPERTY.

BASIS OF CHARGE
1.

2.

3.

4.

IncomechargeabletotaxundertheheadincomefromHousePropertyiscomputedonthe
basis of Annual Value of property consisting of building and land attached thereto.
Buildingisanenclosureofthebrickorstoneworkcoveredbyroof.Buildingisanenclosure
whichmayevenconsistofmudwalls.Landattachedtobuildingisthelandoccupiedwith
thebuilding.e.g.approachroad,compound,parkingspace,playgroundetc.
Only legal owner of the property is charged to tax under the head income from House
Property.Incomefromsublettingofhousepropertyistaxed,undertheheadIncomefrom
OtherSources.Legalownerincludesdeemedownersaswell.Eg.Ifpropertyistransferred
to spouse without adequate consideration or to a minor child (not being a married
daughter)thentransferorwillbedeemedownerofproperty.
Ifpersonistheownerofpropertywhichisusedbyhimforhisbusinessorprofession(&
not for residence) and income of such business or profession is taxable under the head
Profits&GainsfromBusiness,thenAnnualValueofsuchapropertyisnottaxableatall,
undertheheadincomefromhouseproperty.
Propertymaybeeitherletoutpropertyorselfoccupiedproperty.However,whenannual
value is to be calculated method of calculating is same in both the cases. However,
method of calculating taxable income is different in case of selfoccupied & let out
properties.

DefinitionofAnnualValue
As per Section 2(2) Annual Value, in relation to any property, means its annual value as
determinedundersection23;
Undersection23AnnualValueisdefinedas:
Forthepurposeofsection22,theannualvalueofanypropertyshalldeemedtobe
(a) thesumforwhichthepropertymightreasonablybeexpectedtoletfromyeartoyear;or
(b) where the property or any part of the property is let and the actual rent received or
receivablebytheownerinrespectthereofisinexcessofthesumreferredtoinclause(a),
theamountsoreceivedorreceivable;or
(c) wherethepropertyoranypartofthepropertyisletandwasvacantduringthewholeor
any part of the previous year and owing to such vacancy the actual rent received or
receivablebytheownerinrespectthereofislessthanthesumreferredtoinclause(a),
theamountsoreceivedorreceivable.

TAXABILITYOFLETOUTPROPERTY

Whetherpropertyisletoutforresidentialorbusinesspurposethereisnodifferenceinfinding
taxableincomeunderthishead.
Under this head taxable income is always calculated on Gross Annual Value (GAV). Gross
AnnualValueistobecalculatedasfollows:
32

CalculateReasonableLettingValue(RLV)first.
ReasonableLettingValueshouldbecalculatedasfollows:
1) CompareFairRent&GrossMunicipalValuation.Higherofthetwoshouldbeconsidered.
2) FindoutStandardRent.
ReasonableLettingValuewillbelowerof(1)&(2).

GrossAnnualValuewillbe
1) ReasonableLettingValue(RLV)or
2) ActualRent,whicheverishigher

1. Fair Rent: It is the rent prevailing in that particular locality. It depends upon area of
property,location,etc.Itwillalwaysbegiveninthequestion.Inactualpracticefairrentis
assessedbyincometaxvaluers.

2. MunicipalValuation:Thisisthevaluationcarriedoutbymunicipalauthoritieseveryyear
regarding all properties in their jurisdiction. This valuation is carried out by municipal
authorities to calculate correct amount of property tax, sewage tax, water tax etc.
Municipalvaluationisoftwotypes:
a) GrossMunicipalValuation
b) NetMunicipalValuation

GrossMunicipalValuation
100

()10%ofG.M.V.

10

NetMunicipalValuation

90

(Netrateablevalue)

MunicipaltaxesarerecoveredonNetValuationinMumbai,Kolkata,Delhi,Chennai.
Allremainingareas:MunicipaltaxesarerecoveredonGrossValuation.
e.g.

Thane

Mumbai
GrossValuation
2,00,000

3,00,000
Municipaltax
10%

10%
Municipaltax
20,000

27,000
ThisclassificationofGross&NetrateablevalueisonlyfromMunicipaltaxespointof
view.
IncometaxrulestakeintoaccountonlyGrossMunicipalValue.

3. StandardRent:StandardRentistherentfixedbygovernmentasperrentcontrolact.

HowtoCalculateGAVwhenpropertyissubjecttovacancy?
Step1:CalculateRLVasusual

Step2:1)EvenafterexcludingRentforvacancyperiodifactualrentismorethenRLV,then

actualrentwillbeGrossAnnualValue.

2)IfactualrentexcludingrentforvacancyperiodislessthanRLVonlybecauseof
33

vacancythanActualRentwillbeGAVorelseRLVwillbeGAV.

HowToCalculateGrossAnnualValueifthereisanyunrealisedrent?
Step1:CalculateRLVasusual
Step2:CalculateActualRentunrealisedRent

GAVwillbehigheroftheamountinstep1&step2.

HowtoCalculateGrossAnnualValueifthereisvacancyaswellasunrealisedrent?
Step1:CalculateRLVasusual.
Step2:CalculateActualRentUnrealisedRent.
(for12monthswithoutvacancy)
Step3:TakehigheroftheamountcalculatedinStep1&Step2andfromthatdeduct
ActualRentforVacancyPeriod.
PROBLEMS

CalculateGrossAnnualValueincaseofthefollowing:

I
II
III
IV
1.FairRent

85,000 20,000
25,000
20,000
GrossMunicipalValuation
95,000 18,000
28,000
20,000
ActualRent

90,000
18,000
30,000
24,000
CalculateGrossAnnualValue

A
B
C
D
2.FairRent

1,00,000
90,00045,00080,000
GrossMunicipalValuation
90,0001,00,0001,20,00080,000
ActualRentpermonth
5,0009,00012,0006,000
UnrealisedRent
10,0005,00015,0002,000

3.
Particulars
MunicipalValue
Fairrent
Actualrent(p.a.)
Unrealisedrentofthepreviousyear201011whichcouldnotbe
realisedandconditionsofrule4aresatisfied

4.
Particulars
Municipalvalue(perannum)
Fairrent(perannum)
Actualrent(perannum)
Propertyremainsvacant(innumberofmonth)
34

X
60
65
72
1

Y
61
66
57
11/2

(` inthousands)
X
Y
60
60
68
68
66
66

2
6
(` inthousands)
Z
A
60
80
64.5
78
72
72
5
3

5.
Particulars
MunicipalValue
Fairrent
Actualrentifpropertyisletout
throughoutthepreviousyear201213
Unrealisedrentofthepreviousyear20112012
Periodwhenthepropertyremainsvacant
(innumberofmonths)

X
140
145

Y
140
145

168
14
1

168
42
1

(` in000)
A
B
140 140
145 145

168 180
70 105
3
4

Deductions under Section 23 and 24 in case of Let Out Property

1.
2.
3.
4.

5.

Deduction under Sec.23 : Municipal taxes or local taxes.

Amount paid during the year is allowed as deduction.
Amount paid by the owner is allowed as deduction.
Amount paid by the tenant is not allowed.
If local taxes are outstanding at the end of the year then deduction for outstanding
amount is not allowed, but when the same outstanding amount is paid in the next year
one can claim deduction in the next year on payment basis.
This deduction is allowed on payment basis and not on accrual basis.
PROBLEMS

1. Municipaltaxesfortheyear `20,000outofwhichhalftheamountistobebornebythe
tenant.Ownerhaspaidonly `8,000.Interestonloan`40,000.CalculateMunicipaltaxes
allowableasdeduction.

2.Grossannualvalue `2,00,000.Municipaltaxes `40,000.Ownersshare75%outofwhich

1/3isstillunpaid.CalculateMunicipaltaxesallowableasdeduction.

3.FindoutNetAnnualValueforthefollowingletoutpropertyforA.Y.20142015.
(a)
(b)
(c)
(d)
(e)

Propertyconsistsof2residentialunits.
Actualrent`2,000permonthperunit.
Fairrent`1,500permonthperunit.
MunicipalRateableValue`40,000total.
Localtaxeschargedat4%.

4.Mr.Xistheownerofhousepropertyconstructionofwhichstartedon17thJune2002and
completed on 31st March 2004. This property consists of 5 residential units and 2
commercialunits. All of them were let out at a rent of ` 2,000 per month per residential
unit& `4,000permonthpercommercialunit.Itsmunicipalrateablevaluewas `2,70,000
Net,whereasFairValuewas`2,90,000.
35

Detailsofmunicipaltaxes:
Totaltax10%.50%ofwhichbornebytenantsand20%ofOwnersshareisstilloutstanding.
FindoutNetannualvalueforA.Y.20142015.

5.Mr.Xistheownerofhousepropertyconsistingof10residentialunits.Alltheflatswerelet
outfrom1stJune2009atamonthlyrentof`100perflat.Itsmunicipalrateablevaluewas`
20,000 whereas fair rent was ` 21,000. Municipal tax was fully paid by owner which was
10%.FindoutnetannualvalueforA.Y.20142015.

6. Residentialpropertyconsistingof2flats.Bothwereletoutatmonthlyrentof `2,000each
from1stApril2013.Fairrent `30,000.Municipalvalue25,000.Municipaltax10%,paidby
theownertotheextentof25%.FindoutNetAnnualvalueforA.Y.20142015

DeductionsunderSection24
1.Repairs:
Thisdeductionisallowedattherateof30%onNetannualValue.Actualamountincurredby
ownertowardsrepairsandmaintenanceandcollectionofrentarenottakenintoaccount.This
deductionisfixedandwillbeallowedevenifactualexpenditureonrepairsisNil.

2.InterestonLoan:
Interestonloantakenonlyfromapprovedfinancialinstitutionsiseligible.
Loanmusthavebeentakenforpurchase,repairsorconstructionofHouse.Ifloanistakenfor
anyotherpurposethendeductionisnotallowed.Deductionisallowedonaccrualbasis.
Outstandinginterestwhenpaidinthenextyearisnoteligiblefordeductioninthenextyear
if it was claimed on accrual basis earlier. In short, for a particular amount deduction can be
claimed only once. Interest paid on borrowed funds during construction period or before
acquisition ofthepropertyisallowedasdeductionin 5equalinstalmentscommencingfrom
thepreviousyearinwhichpropertywasconstructedoracquired.Preconstructionperiodstarts
fromthedateofobtainingofloan&itendson31stMarchofthepreviousyearprecedingthe
yearinwhichpropertyisacquiredordateofrepaymentofloanwhicheverisearlier.

LoanobtainedfromoutsideIndia
IfinterestonloanispaidoutofIndiaitistheresponsibilityofpayertodeducttax&deposititin
thegovernmenttreasuryandremitonlyremainingamounttolender.Ifhefailstodeducttax
thendeductionforInterestisnotallowedaspertheprovisionsofsection25.

TAXABILITYOFSELFOCCUPIEDPROPERTY
If house property is occupied by the owner himself, income of such a property is to be
computedinthefollowingmanner:
1. When assessee is the owner of only one self occupied property: In such a case annual
valueofsuchpropertyistakenasnilandnodeductionisallowedonitexceptintereston
borrowedfundsu/s24(b)forthepurposeofpurchase,construction,repairs,renovationof
such a property. However, this deduction is subject to a ceiling of maximum of ` 30,000.
36

However,ifpropertyisacquiredorconstructedwithcapitalborrowedonorafter1stApril
1999andsuchacquisitionorconstructioniscompletedwithin3yearsfromtheendofthe
financial year in which capital was borrowed, then deduction on this account will be
alloweduptomaximumof`1,50,000.
Interestonloanforselfoccupiedhouseproperty

Loanobtainedbefore1499

Loanobtainedonorafter1499

Maximumdeduction`30,000

Utilisedforpurchase/
Utilisedfor

Constructionof

repairsof

newhouse

existinghouse

Maximumdeduction
Maximum

`1,50,000

deduction
`30,000

Thus,inthiscase,ifatallanyincomeiscomputedforpropertyitwillbeanegativeincome,
i.e.losswhichcanbeadjustedagainstanyotherincomeforthesameyear.
If,assesseeistheownerofonlyonehousepropertywhichwasnotletout,butcouldnotbe
selfoccupied also, because of his employment outside & at the place of employment he is
staying in a rented house, property of which he is the owner will be treated as if it is self
occupied.i.e.itsannualvaluewillbetakentobeNil.

2. Whenassesseeisownerofmorethanoneselfoccupiedhouses:Inthiscase,onlyone
houseaccordingtothechoiceoftheassesseewillbetreatedasselfoccupiedi.e.itsannual
valuewillbetakenasNilandremaininghouseshallbetreatedasdeemedtobeletoutand
accordinglyincomewillbecomputedforthat.
It is in the interest of the assessee to treat that house as selfoccupied of which Net
annual value is more. Wherever house is treated as deemed to be letout, all applicable
deductionswillbeallowedwhichareavailabletoletoutproperty.

3. When the property is let out for some period & Self occupied for some period: In this
case,computationshouldbemadeasifpropertyisletout.However,whilecalculatingGAV,
Actual Rent should not be considered for 12 months but only for the period for which
propertywasletout.Nootherbenefitofvacancyhoweverisallowed.

PROBLEMS

1.FindouttheGAVincaseofthefollowing:
a] FairRent`36,000p.a.
b] Municipalvalue`24,000p.a.
c] ActualRent`2,500p.m.
d] Propertyletoutupto31stJan.2014&thenselfoccupied.
37

2. FindoutGAVbasedoninformationinproblem1
a] IfActualRentwas`4,000p.m.

TAXATIONOFRENTARREARS

Anyarrearsofrent,whichwerenottaxedu/s23,receivedinasubsequentyear,shallbe
taxableasincomefromhousepropertyintheyearofreceipt,afterallowingadeductionof30%
of such amount towards repairs and collection charges. The amount shall be taxable
irrespective of whether the property is owned by the assessee in the year of receipt or not.
(Sec.25B).

TAXATIONOFUNREALISEDRENTALLOWEDASDEDUCTION
UPTOA.Y.200102&RECOVEREDLATER

Wheredeductionwasallowedinrespectofunrealisedrentfromtheannualvalueand
subsequently during any accounting year the assessee has realised any amount in respect of
such rent, the amount so realised will be deemed as income under the head Income from
House Property and will be charged to tax without making any deduction u/s 23 & 24,
irrespectiveofwhethertheassesseeistheownerofthatpropertyinthatyearornot.(Sec.25
AA)

However,ifassesseewasdisallowedanypartofunrealisedrentinearlieryearincome
chargeableinthecurrentyearshouldbecalculatedafterdeductingtheamountofunrealised
rentnotallowedasdeduction.

TAXATIONOFUNREALISEDRENTOFA.Y.200203(ORSUBSEQUENTYEAR)&RECOVERED
LATER

In this case, such recovery to the extent it was not included in annual value earlier shall be
deemed to be income chargeable under the head Income from house propertywhether or
notassesseeistheownerofthatpropertyintheyearofrecovery.

PROPERTYOWNEDBYCOOWNERS

Under Section 26, income of the property where there is a coownership shall be computed
firstasifpropertyisownedbyoneperson&thenitwillbedistributedamongcoownersasper
theiragreedproportion.i.e.Eachcoownershallincludehisshareinhistotalincome.

SETOFF&CARRYFORWARDOFLOSS

If income under the head Income from House Property results into loss such loss shall be
adjusted against income from any other head in the same year. If any part of loss remains
unadjusted even after this, it can be carried forward and set off in subsequent years against
incomefromhousepropertysubjecttoalimitof8assessmentyears(Section71B).
38


PROBLEMS

1. Mr.Rameshhasletoutthehousepropertyfor`75,000/MunicipalValuationofthehouse
is `60,000whereasfairrentofthepropertyis `60,000/Mr.Rameshhadborrowedof `
50,000/@15%on1stApril2013forthepurposeofhisdaughtersmarriage.Followingare
theexpensesincurredbyhimduringF.Y.20132014.
MunicipalTaxes

20%ofMunicipalValuation
Repairs

7,500
AnnualCharge

1,700
LandRevenue(outstanding)

500
Insurance

650
Collectioncharges

150
Annual charge of ` 1,700/ is payable by Mr. Ramesh to his mother as per will of his
father.
ComputethetaxableincomefortheAssessmentyear20142015.

2. ShriKailashownsahousepropertyknownasGokulDhamsituatedatGandhidham,Gujarat.
Municipal rateable value of the house is ` 3,000/. Municipal taxes are 30% of Municipal
rateable value. During the previous year he could not occupy this house because of his
employmentinMumbai.Houseremainedvacantandnootherbenefitisderivedfromthis
house.Hepaidinterestof `35,000toHDFConloanborrowedforthepurposeofacquiring
thishouse.HeisemployedwithM/sExactEnterprisesonamonthlysalaryof`7,500/.
Youarerequiredtocomputehistaxableincomeforassessmentyear20142015assuming:
(a) That the H.D.F.C. Loan taken and acquisition of House property was prior to 1st
April,2000
(b) ThattheH.D.F.C.LoantakenandacquisitionofHousepropertywason1stApril,2000.

3. ShriBholaownstwohousepropertiesinMumbaiofwhichheusessecondpropertyforhis
personaluse.Histotalincomefromsourcesotherthanpropertyis `30,000.Thefollowing
aretheparticularsinrespectoftheproperties:

BuildingNo.1
BuildingNo.2
Yearofconstruction
1977
1999
MunicipalRateablevalue
36,000
16,000
RentReceived(for10months)
52,000
Selfoccupied
LocalTaxes
4,000
4,000
ActualRepairs
2,000
200
GroundRent
400

FireInsurancePremium
Nil
300
Vacancy
2months
N.A.
Collectioncharges
3,000
Nil
ComputethetotalincomeofShriBholafortheassessmentyear20142015.Also
computehistotalincomeifmunicipalvalueofBuildingNo.1isa)`60,000b)`70,000
39

4. Mr. Sanjay owns a house property at Delhi. Following details are available regarding this

property:
(a) ActualRentreceivedperannumfromthetenants

17,000
(b) Municipaltaxesperannum

4,600
(c) Municipalrateablevalue

20,000
(d) Legalexpensesincurredinrespectoftakinglegalproceedings
againstonetenantforrecoveryofrent.

1,250
(e) Bankcommissiononrealisationofoutstationcheque
115
(f) Conveyancecharges,typingchargesincurredinconnection
withcollectionofrent

1,210
(g) AmountofLandrevenueactuallypaidotherthanprevious
year.

250
(h) Commissionpaidtoabrokerforarrangingtheloanfor
purchaseoftheabovehouseproperty

2,340
(i) Insurancepremiumpaidtoinsurethelossofrent
850
(j) Unrealisedrent(conditionsfulfilled)

2,000
YouarerequiredtocomputetheincomefromHouseProperty,fromtheaboveinformation.

5.Rajaniowns2housesinDelhi.ThehouseNo.1isselfoccupiedwithotherfour(4)coowners
whereasthehouseNo.2ofwhichsheistheonlyownerisletoutat`3,200/p.m.
Computeherincomefromhousepropertywiththehelpoffollowingfurtherinformation
fortheassessmentyear201415.

HouseNo.1 HouseNo.2
`
`

Fairrent
60,000
38,000
MunicipalRateableValue(Net)
50,000
36,000
FireinsurancePremium
3,500
6,000
UnrealisedRent(conditionsfulfilled)

1,000
Expenditureonrepairs
425
1,000
MunicipalTax
1,100
10%
Interestonloan(forboth,acquiredbefore1.4.99)
12,000
40,000
Duringthepreviousyear20132014RajanicouldnotoccupyhouseNo.1for3monthsdue
toheroverseasvisit.

6. Mr. Sushil is the owner of two house properties namely Shanti Niketan at Nasik and
ShantiDhamatNagpur.HefurnishesyouthefollowinginformationforthePreviousYear
20132014:

ShantiNiketan
ShantiDham

atNasik
atNagpur
`
`

MunicipalValuation
39,000
31,000
MunicipalTaxespaid
7,835
4,440
FairRentalvalue
45,000
39,000
40

FireInsurance
900
800
GroundRent
567
440
Interesttakenforconstructionpriorto
35,000
32,000
1.4.2000

AdviceMr.SushiltakingintoconsiderationtheprovisionsofIncomeTaxAct,andcompute
thetaxableincomeundertheheadIncomefromHouseProperty.

7. Mr.MangeshistheownerofahousepropertyinNagpur.Ithasbeenletoutfor `90,000

Composite Rent. The tax payable by the owner comes to ` 10,000 but the landlord has
takenanagreementfromthetenantstatingthatthetenantwouldpaytaxdirectlytothe
Municipal Authorities. The landlord, however, bears the following expenses on tenants
amenities:
`
WaterCharges

1,000
LiftMaintenance

1,000
SalaryofGardner

1,200
LightingofStairs

800
Thelandlordclaimsthefollowingdeductions:
Repairs

30,000
LandRevenue

1,000
Collectioncharges

2,000
Legal expenses incurred on purchase of land on which house property is situated `
24,000.
Computetaxableincomefromhouseproperty

8. Mr.Gharwalaistheownerofvarioushouseproperties.Thedetailsofwhichforthe
previousyear201314isasfollows:
a) PropertyIisletoutonamonthlyrentof`7,500.Thefairrentofthepropertyis`8,500
p.m.andmunicipalvaluationis `80,000.MunicipalTaxpaidamounted `8,000p.a.out
ofwhich50%ofthetaxisbornebytenant.Thehouseremainedvacantfor2months
duringtheyear.Mr.Gharwalahadtakenloanforconstructionofthispropertyonwhich
interestpaidamountedto`35,000.
b) PropertyIIisoccupiedbyhimselfforhisownresidence.Themunicipalvaluationofthe
propertyis`1,20,000andFairRent`15,000p.m.TheMunicipaltaxesof`12,000were
paidbyhimon29thMarch2014.Hehadconstructedthispropertyafter1stApril2007.
TheConstructionstartedon142007andwascompletedon31stMarch2008.Loanof`
2,00,000@12%p.a.wastakenon1stApril2007andisstilloutstanding.Interestispaid
regularly.
c) PropertyIIIwasinheritedbyhimfromhisfatherwhichisalsokeptbyhimforhisown
residence. The Municipal valuation of the property is ` 46,000 and Fair Rent ` 48,000
Mr. Gharwala paid municipal taxes of ` 4,600 on 10th April 2013 for above house
property.Heagreedtopay `1,200p.a.asannualchargetohissister.Interestonloan
for this house property paid was ` 6,000 to Mr. Ponting of Australia without any TDS
andthereisnoagentofMr.PontinginIndiaforthepurposeofIncometax.
41

d) He also owns an open plot of land which was given on rent during the year for rent of `
20,000.
e) Hehadtakenaroomonrentforhisofficeworkattherentof `1,500p.m.However,
insteadofhimselfusingtheroomhesubletthisroomtoanotherpersonattherateof`
2,000p.m.duringthewholeofPreviousYear201314.
ComputehisGrossTotalIncomefortheAssessmentYear201415.

9. Mr.GovindaandhisfivebrothersbecameownerofthehousePushpakafterthedeathof

theirfatheron2232010.Asperthewilloftheirfathereachbrotherisrequiredtopay `
20,000/inlumpsumtotheirsisterMrs.Anjaliasagainstthishouse&thesesixbrothersto
sharethebenefitsofthishouseequally.Followingadditionalinformationisprovided:
Rentreceived

`94,000
MunicipalValuation

`80,000
FairRentalvalue

` 1,05,000
`17,840
Repairs

Insurance

`4,200
Municipaltaxes

`21,000
GroundRent

`3,000
ComputethetaxableincomeofMr.Govindafortheassessmentyear20142015underthe
headincomefromhouseproperty.

42