Section 22 of the Act provides as follows:

The annual value of property consisting of any buildings or lands appurtenant thereto of which
the assessee is the owner, other than such portions of such property as he may occupy for the
purposes of any business or profession carried on by him, the profits of which are chargeable to
income-tax, shall be chargeable to income tax under the head Income from House Property".

Conditions for income to be taxable as Income from House Property

1. There must be a Building or land appurtenant thereto
2. Assessee must be the owner of House Property
3. Assessee should not use the House Property for his own business or profession

The following points emerge from the above charging section:

(a) Tax is charged on income from the buildings or lands appurtenant thereto:
The buildings include residential buildings, buildings let out for business or profession or
auditoriums for entertainment programmes. The location of the building is immaterial. It
may be situated in India or abroad.
(b) Tax is charged on income from lands appurtenant to buildings:
Where the land is not appurtenant to a building the income from land can be charged as
business income or income from other sources, as the case may be. The lands appurtenant
to buildings include approach roads to and from public streets, courtyards, motor garage,
compound, play-ground and kitchen garden. In case of non residential buildings, car-
parking spaces, drying grounds or play-grounds shall be the lands appurtenant to buildings.
(c) Tax is charged from the owner of the buildings and land appurtenant thereto:
Where the recipient of the income from house property is not the owner of the building, the
income is not chargeable under this head but under the head Income from Business or
Other Sources.
For example, the income to a lessee from sub-letting a house or income to a mortgagee
from house property mortgaged to him is not chargeable under the head Income from
House Property.
The owner of the buildings may be the legal owner or beneficial owner. In ownership, the
ownership of building is considered and not the ownership of income. In certain cases the
income may not be received by the owner of the building, still he shall be liable to tax
because he is the owner of the building.
If the above conditions are satisfied than the annual value of the house property shall be
taxable.

Income from House Property is possible in these cases

Rental Income on a let out property

Annual Value of a property which is deemed to be let out for income tax purposes
( when you own more than one house property)
Annual Value of the property which is self occupied, which is Nil

GROSS ANNUAL VALUE

Tax under the head Income from house property is not a tax upon rent of a property. It is tax
on inherent capacity of a building to yield income. The standard selected as a measure of the
income to be taxed is annual income.

Calculation of gross annual value (GAV):

Step 1: Find out reasonable expected rent of the property.
Expected Rent: It is deemed to be the sum for which the property might reasonably be expected
to be let out from year to year.
Expected Rent -Municipal value or fair rent whichever is higher but subject to a maximum
of standard rent.
Fair rent: Rent fetched by a similar property in the same or similar locality.
Standard Rent: It is the maximum rent which a person can legally recover from his tenant
under a Rent Control Act.
If fair rent is not given, actual rent per month will be considered as fair rent.
(ii) Actual Rent is rent for let out period

Step 2: Find out rent actually received or receivable after excluding unrealized rent but
before deducting loss due to vacancy
Step 3: Higher of amount computed in Step 1 or Step 2 is taken
Step 4: Find out loss due to vacancy
Step 5: Step 3 minus Step 4 is gross annual value.

DEDUCTIONS - Against 'income from house properties'

Who can claim- All assessees

Sec 23(1) proviso- Taxes levied by local authority and borne by owner if
paid in relevant previous year
MUNICIPAL TAXES:
Municipal taxes (like house tax, service tax, local tax) levied by any local authority in respect of
the house property are deductible only if these taxes are borne and actually paid by
the owner during the previous year. It doesnt matter whether the taxes belong to the earlier
years, current year or coming years.
If property is situated in a foreign country, municipal taxes levied by foreign local authority are
deductible (if such taxes are paid by the owner).

Section 24 Deductions from House Property Income

Under section 24 of the Income Tax Act you are allowed to make certain deduction from the Net
Annual Value of your House Property. Net Annual Value is Gross Annual Value less Municipal
Taxes Paid. In case the property is let out, its rent received is your Gross Annual Value, whereas
in case of a deemed to be let out property, a reasonable rent of a similar place is your Gross
Annual Value. For a self occupied house property the Gross Annual Value is Nil.

STANDARD DEDUCTION [Sec. 24 (a)]:

Standard Deduction is 30% of the Net Annual Value calculated above. This 30% deduction is
allowed even when your actual expenditure on the property is higher or lower. Therefore this
deduction is irrespective of the actual expenditure you may have incurred on insurance, repairs,
electricity, water supply etc. For a self occupied house property, since the Annual Value
is Nil, the standard deduction is also zero on such a property.

INTEREST ON BORROWED CAPITAL [Sec. 24 b]:

In case you take a home loan for purchase, construction, repair, renewal or reconstruction of
your house property the interest is allowed as a deduction from the Net Annual Value.
Deduction for interest on money borrowed is allowed on accrual basis (allowed even though
interest may not actually have been paid), so keep claiming your interest deductions each year
basis interest that is due (instead of interest that is paid). Further no deduction is allowed for any
brokerage or commission for arranging the loan.
In case of a self occupied house property, this deduction is allowed to be claimed and therefore,
you may in such a case have a loss under the head House Property. The total amount allowed
towards this deduction is Rs 2,00,000 beginning assessment year 2015-16.
In case of a let out or a deemed to be let out property, the entire interest is allowed as deduction
under section 24 till Financial Year 2016-17. From Financial Year 2017-18 deduction for
interest on let out property is Rs. 30,000/Rs. 2,00,000, subject to specified
conditions. You can start claiming this interest when the construction of your property is
complete.

So, Tax Benefits on HOME LOANS in FY 2016-17

Rs 2,00,000 deduction on interest paid for self occupied property A maximum
deduction of Rs 2,00,000 can be claimed for a property which is self-occupied. Self-
occupied means a property in which you live or your family lives or it is lying vacant.

Additional tax benefits under section 80EE Section 80EE has been revamped.
Section 80EE allows tax benefits for first time home buyers. Income tax deduction can
be claimed on home loan interest. The deduction allowed under this section is for
interest paid on home loan up to maximum Rs 50,000 per financial year. You can claim
this deduction until you have fully repaid the loan.
An additional deduction of Rs 50,000 on home loan interest can be claimed starting
financial year 2016-17. However to be able to claim this deduction, you must meet the
following conditions:
The loan must be taken between 1st April 2016 to 31st March 2017
As on the date of sanction of the loan the taxpayer should not own any property
The loan must be taken from a financial institution*
The value of the house must be less than Rs 50lakhs
 The loan must be for less than Rs 35lakhs
*Financial institution means co-operative banks, RBI licensed banks,housing finance company

If you meet these conditions, you can claim an additional deduction of Rs 50,000 for home
loan interest in addition to Rs 2lakhs. There is no time limit for which this deduction is
allowed, you can claim it for as long as you are repaying the loan.
Extension of time limit for completion of construction Sometimes, taxpayers take
home loans for under construction property. To claim Rs 2lakhs deduction on such home
loan interest, the construction of the property must be completed within 3 years. This
period of 3 years has been extended to 5 years starting 1st April 2016 (Period of 5
years is calculated from the end of the financial year in which loan is taken). Say if you
have taken a loan on 30th April 2015 for a construction linked property. The construction
must be complete by 31st March 2021.
You can start claiming interest deduction in the financial year in which construction of the
property is complete.

Pre-construction interest is allowed when you have taken a loan for purchase or construction
of a house property (not allowed in case of loan for repairs or reconstruction). The deduction for
this interest is allowed in 5 equal installments starting from the year in which the house is
purchased or the construction is completed. For example, if construction of your property
completed in FY 2016-17, on 25th June 2016, you can claim 1/5th of interest paid up till
31st March 2016 when you file your return for FY 2016-17.
Though pre-construction interest is allowed to be deducted on the basis of 1/5 th each year
beginning the year in which the construction is completed the total amount of
preconstruction interest and interest on housing loan that can be claimed in a year should
not exceed Rs 2,00,000 in any case.

Conditions for claiming Interest on home loan deduction You need to meet all the below
3 conditions to claim this deduction
Loan has been take after 1st April 1999 for purchase or construction

The acquisition or construction is completed within 5 years(3 Years till Financial Year
2015-16) from the end of the financial year in which the loan was taken
There is interest certificate available for the interest payable on the loan
Note that your interest deduction may be limited to Rs 30,000 if any one of these
conditions is met
Loan is borrowed before 1st April 1999 for purchase, construction, repairs or
reconstruction of house property
Loan is borrowed on or after 1 st April 1999 for repairs, renovation or reconstruction of
house property.

Section 25A(2) - Standard deduction of 30 per cent of arrears of rent or

unrealised rent received
UNREALIZED RENT:
Unrealized rent is the rent which the owner could not realize.
Unrealized rent shall be excluded from rent received/ receivable only if the following conditions
are satisfied [Conditions of Rule 4]:
1. The tenancy is bonafide.
2. The defaulting tenant has vacated, or steps have been taken to compel him to vacate the
property.
3. The defaulting tenant is not in occupation of any other property of the assessee.
4. 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.
Eligible Income Tax Benefits on a Home Loan for FY 2016-17:

Particulars Deduction Amount Conditions

on

Section 24 Home has been

Self Interest on Upto purchased/constructed
occupied home loan Rs.2,00,000 within 5 years
property

No Limit
Rented Interest on
property home loan

Section Principal Upto Deduction is allowed in

80C repayment, Rs.1,50,000 the year in which actual
stamp duty principal payment is paid
&
registratio
n charges

Section Interest on Upto Loan must be taken

80EE home loan Rs.50,000 between 1st April 2016
(in addition
to Rs 2lakhs) to 31st March 2017.

Taxpayer should not own

any property.

Loan taken from a

financial institution.

Value of the house must

be less than Rs 50 lakhs
Loan must be for less
than Rs 35 lakhs.
Type of House Self
Property Occupied Let Out Deemed Let Out

Gross annual Value NIL XXX XXX

Less: Municipal Taxes Not XXX XXX

or Taxes paid to local Applicable
authorities

Net Annual Value(NAV) Nil XXX XXX

Less: Standard Not 30% of NAV 30% of NAV

Deduction Applicable

Less: Interest on Restricted to No Limit No Limit

Housing Loan Rs 2 Lakhs (From FY (From FY 2017-18
2017-18 restricted to Rs 2
restricted to Lakhs)
Rs 2 Lakhs)

Income from House (XXX) XXX XXX

Property

Computation of Income under House Property

Example:-
A person has a monthly salary income of Rs. 75,000 during FY 2016-17. Till date he was
living in a rented flat and now decides to buy a home for himself for the 1st time. He
likes a 2 bedroom apartment in Lajpat nagar, Delhi that will cost him Rs. 45 lakhs.
Therefore, he takes a home loan of an amount of Rs. 30 lakhs from SBI at 12% p.a
interest for a duration of 16 years. Annual interest payment comes to Rs.2,35,000. He
also makes repayment of home loan of an amount of Rs. 2,00,000.

Annual Income from Salary Rs.9,00,000

Income/(Loss) from House property Rs.(2,00,000)

Gross Taxable Income Rs. 7,00,000

Less: Deduction allowable u/s 80C*** Rs.(1,50,000)

Less: Additional Deduction allowable u/s 80EE
(for 1st time home buyers) Rs.(35000)

Net Taxable Income Rs. 5,15,000

 ***Though he made a payment of Rs.2 lakhs towards principal repayment of home loan
but maximum amount that can be claimed under 80C is Rs.1,50,000.
***** Note in both the above examples, the period of construction of property has to be
completed within 5 years i.e. if a person takes a loan and starts constructing the property from
01 April, 2016 then the property has to be completed on or before 31st March, 2021. Once, the
construction is completed only then can he claim the interest amount in subsequent years.

Another Example:
Let say Rahul has house has a rental income of Rs 40,000 per month and he is paying home
loan interest of Rs 10 lakhs per annum. He has income from remaining heads of Rs 12 Lakhs
p.a. Calculate Income from house property for 2016-17.

Income from house property

Particulars FY 2016-17

Rental Income (40,000*12) 4,80,000

Less : Municipal Taxes Paid 10,000

 Less: Standard Deduction(30% * 4,80,000) 1,44,000

Less: Interest on House loan 10,00,000

Loss from house property eligible to be (6,74,000)

set off
(no limit)

Total Income and tax calculation

Particulars FY 2016-17

Income from remaining heads 12,00,000

Loss from house Property (6,74,000)

Total Taxable Income* 5,26,000

WHEN PROPERTY INCOME IS NOT CHARGEABLE TO TAX:

In the following cases, rental income is not chargeable to tax:
1. Income from farm house
2. Annual value of any one palace of an ex-ruler
3. Property income of a local authority
4. Property income of an approved scientific research association
5. Property income of an educational institution and hospital
6. Property income of a trade union
7. House property held for charitable purpose
8. Property income of a political party
9. Property used for own business or profession
10. One self-occupied property