Income From House Property Notes For CA CSCMA Students

Income from House Property-
Notes by Munshigiri Education – One Step Solution for CA/CS/CMA Students

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CONCEPT 1: Charging Section of ‘Income from House Property’ (Section 22)
What is taxable under Income from House Property?
The Net annual value (NAV) of a property consisting of any buildings or lands
appurtenant thereto of which assessee is the owner shall be chargeable to tax under
the head Income from house property.
Such Net Annual Value shall be reduced by standard deduction and interest paid or
payable on any loan for acquisition or construction or renovation or repair of such
property, in order to calculate Income from House Property.
We must keep in mind the following points:-
1) What is taxed is not the annual rent but the annual value. The annual value of a
House Property is the Rent earning capacity of that house property in a year. The
annual value of the property may or may not be equal to the annual rent. The
concept of Annual Value is explained in Concept 2.
2) Following are some examples of lands appurtenant thereto:-

i. Garden given as rent along with the house.
ii. Parking area in the vicinity of the house given in rent along with house.
iii. Backyard of a House
Note: - Any income from a plot (i.e.) a piece of land shall not be taxable under the
head of Income from house property. Such an income shall be taxable under the
head ‘Income from Business or Profession’ or ‘Income from Other Sources’.
3) The annual value of a house property shall be taxable in the hands of owner or
deemed owner of such house property only. Therefore, rent received by tenant
from sub- letting of the house property shall be taxable under the head ‘Income
from Other Sources’. The Concept of deemed owner is explained later in this
chapter.
Prepared by CA. S. Shekhar

Email ID- shekharca89@gmail.com
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4) The Annual Value of a property shall not be chargeable to tax under the head
Income from House property if that house property is used by the owner for the
purpose of carrying out his business or profession, the income from which is
chargeable under the head ‘Income from Business and profession’.
CONCEPT 2:- How to calculate ‘Net Annual Value’ and Income under the head
‘Income from House Property’?
Situation1:- When the house property is let out for whole or any part of the year.
Step (a) Calculate Gross Annual Value (GAV)
Municipal
Value of the
House
Property
Higher of the
two
Lower of the two
(Will be called as
Fair Rent of
Expected Rent or
the House Higher of the two
Standard Reasonable Rent)
Property less loss due to
Rent of the =
vacancy
House
Property Actual rent (After
deducting Unrealised
rent but before
deducting loss due to GROSS
vacancy) ANNUAL
VALUE (GAV)

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Step (b) Calculate Net Annual Value (NAV)
Particulars Amount
Gross Annual Value (from (a)) ***
Less:- Municipal Taxes ***
NET ANNUAL VALUE 
Step (c) Calculate Income from house property
Particulars Amount
Net Annual Value (NAV) (from (b)) ***
Less:- Standard deduction @ 30% of NAV ***
Less:- Interest on Capital Borrowed for acquisition or ***
construction or renovation or repair of House Property
Income from House Property (IHP) ***
Concepts explained in brief:-
i. Municipal Value of the House Property: - It is the value determined by municipal

authorities for the purpose of charging municipal taxes on house properties. Such
value is calculated by municipal corporations after taking into consideration the
annual letting value of such property, its location and other considerations which
it considers necessary.
ii. Fair Rent of the House Property: - It is rent which a similar property can fetch
from the same or similar locality, if let out for whole year.
iii. Standard Rent of the House Property:- Standard rent for a property is fixed for a
property under the Rent Control Act. An owner of a house property is not
supposed to charge a rent more than the standard rent fixed for such property.
Note 1:- Higher among the Municipal Value and the Fair Rent shall be the
Expected Rent (reasonable rent) of the property, however subject to a maximum of
Standard Rent.

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iv. Actual rent received or receivable: - It is the actual rent which the owner of the
House Property has received from the tenant for letting out his property to him.
Note 2:- Higher between the ‘Expected Rent’ and ‘Actual Rent’ shall be reduced by
loss due to vacancy in order to calculate Gross Annual Value (GAV) of the
Property.
Actual Rent shall be the rent had the property been let out for whole year as
reduced by unrealized rent but before reducing loss due to vacancy.
Note 3- Loss due to Vacancy: - A property might remain vacant for any period of time
during the year. It is obvious that the owner of the house property shall not receive any
rent during such period. Such a loss arising to the owner of the house property is called
‘loss due to vacancy’.
Note 4- Unrealised Rent: - It is the amount of rent which the landlord couldn’t realize
from the tenant due to any reason.
Note 5:- From the analysis of the meaning of Standard rent, it seems that the actual
rent of a property shall always be less than the Standard Rent because an owner of a
house property is not supposed to charge a rent more than the standard rent fixed for
such property. So, it seems that the Expected rent of a property will always be its Gross
Annual Value.
However this is not true. This is because the Rent control Act doesn’t apply on all
properties and thus there can be house properties where actual rent of the property can
be much more than the standard rent. Moreover, even if the owner of the house property
in contravention of Rent control Act charges a higher rent, such rent shall be taken as
Gross Annual Value.
v. Municipal Taxes: - From the Gross Annual Value, the Municipal Taxes levied by
Municipal Authorities shall be deducted to calculate Net Annual Value. For this the
following two conditions must be satisfied:-

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• Municipal Taxes must be borne by the owner of such house property.

• Municipal Taxes must be paid by him during the previous year.
Note 6:- If Municipal Taxes are paid by the tenant and then reimbursed by the
owner, then also such deduction is available.
vi. Standard deduction: - It is a deduction given at a flat rate of 30% of Net Annual
Value. After this deduction, the owner will not separately get any benefit of any
repair or maintenance or administrative cost incurred by him. It is this flat 30%
which is presumed to be the deduction for such costs which may be incurred by
the him. It is to be noted that even if the owner doesn’t incur any such expense,
he shall still be given standard deduction at 30% of Net Annual Value.
vii. Interest on Borrowed Capital: - In case the property is acquired, constructed,

repaired, renewed or reconstructed with borrowed capital then any amount of
interest payable during the year on such loan shall also be deducted from Net
Annual Value (NAV). When the property is let out then Interest on Borrowed
capital is allowed as deduction without any limit.
Other points to be noted:-
1) In case the assessee takes a fresh loan to repay the original loan taken for
acquisition, construction, repair, renovation or reconstruction of property, then
interest payable on such new loan to repay the old loan shall also be allowed as
deduction on account of Interest on borrowed capital.
2) Interest on unpaid interest is not allowed as deduction.
3) Interest on borrowed capital is allowed on Accrual basis. So, such interest will
be allowed as deduction even when it is due but not paid.
4) Interest on capital borrowed is allowed as deduction irrespective of the fact that

such interest or the principal is a charge on the property. In simple words, it is

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immaterial whether the assessee has obtained the loan by mortgaging the
property or not.
5) No deduction shall be allowed for any brokerage or commission charges paid or

payable for arranging the loan.
Example 1:- Calculate Income under the head ‘Income from House property’ of Mr. A
who is owner of the house property, in following different scenarios:-
(Amount in Rs.)
Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4 Scenario# 5

Municipal Value (MV) 120 105 135 120 115
Fair Rent (FR) 110 115 140 120 120
Standard Rent (SR) 130 95 160 110 118
Actual Rent (AR) 125 120 135 110 116
Municipal Taxes paid Nil 10 15 8 18
Maintenance Cost Nil 5 10 12 40
borne by Mr. A
Interest on Loan for 5 8 10 9 11
purchasing the
property
Solution:-
Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4 Scenario# 5

Expected Rent (ER)- 120 95 140 110 118
(Higher between MV & FR,
subject to maximum of SR)
Actual Rent (AR) 125 120 135 110 116
Gross Annual Value (GAV) 125 120 140 110 118
(Higher of ER & AR)
Less:- Municipal Taxes Nil 10 15 8 18
Net Annual Value (NAV) 125 110 125 102 100
Less:- Standard Deduction 37.50 33 37.50 30.60 30
@ 30% of NAV
Less:- Interest on Loan to 5 8 10 9 11
purchase the House
Income under the head 82.50 69 77.50 62.40 59
‘Income from House
property’

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Note: - Maintenance Cost borne by Mr. A shall be ignored and no deduction for the same shall
be allowed irrespective of the amount. Mr. A has been allowed a standard deduction at 30% of
Net Annual Value. Even in Scenario # 5, there is no option as such in hands of Mr. A to pick
30% of NAV or actual expense incurred by him, whichever is higher.
Example 2:- Calculate Income under the head ‘Income from House property’ of Mr. B
(Amount in Rs.)
Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4

Municipal Value (MV) 120 105 135 105
Fair Rent (FR) 110 115 140 115
Standard Rent (SR) 130 95 160 95
Actual Rent (AR) (if let out whole year) 144 120 132 120
No. of Months Vacant Nil 1 2 3
Municipal Taxes paid Nil 7 10 7
Interest on Loan for purchasing the 8 9 15 9
property
Solution:-

(a) Expected Rent (ER)- (Higher between 120 95 140 95
MV & FR, subject to maximum of SR)
(b) Actual Rent (before loss due to 144 120 132 120
vacancy)
Higher of (a) or (b) 144 120 140 120
Less:- Loss due to vacancy Nil 10* 22 30
Gross Annual Value (GAV) 144 110 118 90
Less:- Municipal Taxes Nil 7 10 7
Net Annual Value (NAV) 144 103 108 83
Less:- Standard Deduction @ 30% of 43.20 30.90 32.40 24.90
NAV
Less:- Interest on Loan to purchase the 8 9 15 9
House
Income under the head ‘Income from 92.80 63.10 60.60 49.10
House property’
* Actual Rent, if let out whole year= Rs. 120
Monthly rent= 120/12= Rs.10

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No. of months vacant= 1
Loss due to vacancy= 1*10= Rs. 10/-
Example 3:- Calculate Income under the head ‘Income from House property’ of Mr. C
(Amount in Rs.)

Municipal Value (MV) 120 105 135 105
Fair Rent (FR) 110 115 140 115
Standard Rent (SR) 130 95 160 95
Actual Rent (AR) (if let out whole year) 144 120 132 120
Unrealised Rent Nil 30 12 5
No. of Months Vacant Nil 1 2 3
Municipal Taxes paid Nil 7 10 7
Interest on Loan for purchasing the 8 9 15 9
property
Solution:-

(a) Expected Rent (ER)- (Higher between 120 95 140 95
(b) Actual Rent (after unrealised rent but 144 90 120 115
before loss due to vacancy)
Higher of (a) or (b) 144 95 140 115
Less:- Loss due to vacancy Nil 10 22 30
Gross Annual Value (GAV) 144 85 118 85
Less:- Municipal Taxes Nil 7 10 7
Net Annual Value (NAV) 144 78 108 78
Less:- Standard Deduction @ 30% of 43.20 23.40 32.40 23.40
NAV
Less:- Interest on Loan to purchase the 8 9 15 9
House
Income under the head ‘Income from 92.80 45.60 60.60 45.60
House property’

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Situation 2:- When the house property is used by the owner for his residence
throughout the year.
When a house property is used by the owner for his residence throughout the year, then
Income from House property shall be calculated as follows:-
Particulars Amount
Gross Annual Value Nil
Less:- Municipal Taxes Nil
Net Annual Value Nil
Less:- Standard Deduction Nil
Less:- Interest on Capital Borrowed for acquisition or construction Calculated as per
or renovation or repair of House Property (Interest on Self occupied below para
Property)
Income or (Loss) from House Property (*****)
Since the assessee is using the property for his own residence and is making no direct
monetary benefit out of it, nothing will be taxed under the head Income from House
Property. Since nothing is taxed, the assessee will also not get the tax benefit of
Municipal tax paid or Standard Deduction.
However in order to encourage the citizens of the country to purchase their own house,
and to boost the banking system, the government has given the benefit of ‘Interest on
Self Occupied Property’ even when the property is used by the owner for his residence
throughout the year.
Interest on Self Occupied Property
Interest on Capital Borrowed for acquisition or construction or renovation or repair of

House Property shall be reduced from Net Annual value even when the property is used
by the assessee for his residence throughout the year. Since the property is self
occupied, the net annual value shall be Zero and the owner of the house property in
such a case will have loss under the head Income from House Property. However such a
loss or deduction shall not exceed Rs. 30,000.

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The above limit of Rs. 30,000 shall be increased to Rs. 2,00,000 (w.e.f AY 2015-16)
if all the below three conditions are fulfilled:-
1) Capital is borrowed on or after 1st April, 1999 for acquiring or construction of

house property.
2) The acquisition or construction of house property is completed within 3 years from

the end of the financial year in which such loan was taken. For example, if loan is
taken on 05th April, 2012, acquisition or construction should be over by 31st
March, 2016 (3 years form 31st March 2013).
3) The assessee (i.e. the owner of the house property) should furnish a certificate,
from the person to whom such interest is payable on the capital borrowed,
specifying the amount of such interest payable by the assessee for the purpose of
acquisition or construction of the property or conversion of the whole or part of
the capital borrowed which remains to be repaid as a new loan.
This is a procedural condition and it shall be presumed that the assessee has
furnished such a certificate even if the question is silent.
Example 4 (a):- Mr. A, owns a residential house which has been used by him for his self
occupancy. Following are the details of the house:-
Particulars Amount (Rs.)

Municipal Value 3,50,000
Fair Rent 3,90,000
Standard Rent 3,60,000
Municipal tax paid 5,000
Interest paid during the FY 2015-16 on loan taken on 15th April, 2011 1,20,000
for purchase of property. Property was purchased on 20th Sept, 2011
Calculate the income or loss under the head ‘Income from House Property’ of Mr A, for
the FY 2015-16 (AY 2016-17).
b) What if the interest paid during the FY 2015-16 was 2,10,000?
c) In (a), if the house was purchased on 20th Sept 2015, will it make any difference?

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Solution:-
Income from House Property’ of Mr. A, for the FY 2015-16, shall be calculated as
follows:-
Particulars Amount (Rs.)

Expected Rent Nil
Actual Rent Nil
Gross Annual Value Nil
Less:- Municipal tax paid Nil
Net Annual Value Nil
Less:- Standard Deduction Nil
Less:- Interest on Self occupied property 1,20,000
LOSS UNDER THE HEAD INCOME FROM HOUSE PROPERTY 1,20,000
b) If the interest paid during the FY 2015-16 was 2,10,000:- The deduction of Interest on
Self occupied property is limited to Rs. 2,00,000 and hence loss under the head
Income under House property shall be equal to Rs. 2,00,000/-
The deduction of Interest on Self occupied property is allowed upto Rs. 2,00,000
because all the below three conditions are satisfied:-
1) Loan was taken after 1st April, 1999 (i.e. on 15th April, 2011)
2) House was purchased within 3 years from the end of the FY in which loan was
taken (i.e. within 31st March, 2015) (Purchased on 20th September, 2011).
3) Loan certificate has been furnished by the assessee (presumed)
c) If the house was purchased on 20th Sept 2015:- The assessee has failed to acquire the
house within 3 years from the end of the financial year in which loan was taken. The
assessee has failed to fulfill 2nd condition that would have allowed him the maximum
benefit of Rs. 2,00,000 as interest on borrowed capital. So the maximum deduction that
will be allowed to him is Rs. 30,000/-. So even though the Interest paid by him in FY
2015-16 was Rs. 1,20,000, the Loss under the head ‘Income from house property
will be Rs. 30,000/-
Situation 3:- When the house property could not be occupied by the owner owing to his
business or profession at any other place.

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Income from house property shall be calculated as per ‘Situation-2’, if all the below
conditions are satisfied:-
1) The Assessee is the owner of the house property.
2) The assessee couldn’t occupy the property as his business or profession is at any
other place.
3) It is not feasible for the assessee to commute between the place where his house is
and the place where his office is.
4) The house is vacant throughout the year.
5) No other benefit is derived from such property.
In simple words, if the above conditions are satisfied then it is presumed that the house
has been self- occupied and nothing shall be chargeable to tax under the head ‘Income
from House Property’ and the assessee will get only the benefit of ‘Interest on Self
occupied property’ (Rs. 30,000 or Rs. 2,00,000)
Situation 4:- When the assessee owns more than one house property and claims all of
them to be Self- Occupied. (Concept of Deemed to be let out)
Where an assessee has occupied more than one house property for his own residential
purpose, then only one house (according to his own choice) shall be considered as Self-
occupied and all other units will be considered as ‘deemed to be let –out’.
In case of property that is opted as ‘Self- Occupied’, the taxable amount shall be
computed as per Situation-2 (i.e. considering the house property as self occupied for
whole of the year)
In case of the property that is Deemed to be let out, the taxable amount shall be
computed as per Situation-1 (i.e. considering the house property as let out throughout
the year)
While making choice of which house to be considered as ‘self occupied’, the option that
is most beneficial to the assessee shall be taken.

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Example 5:- Mr. A, owns 4 houses, the details of which are given below:-
Particulars House 1 House 2 House 3 House 4

Location Delhi Chennai Mumbai Kolkata
Stay of Mr. A 3 Months 3 Months 3 Months 3 Months
Status when Mr. A doesn’t stay Vacant Vacant Vacant Vacant
Municipal Value (MV) 1,20,000 5,90,000 2,30,000 3,25,000
Fair Rent (FR) 1,30,000 5,10,000 2,30,000 3,35,000
Standard Rent (SR) 1,25,000 6,10,000 2,25,000 3,30,000
Actual Rent (AR) Nil Nil Nil Nil
Municipal Taxes paid 5,000 15,000 7,500 8,500
Interest on Loan payable for FY 2015- 15,000 75,000 12,500 32,500
16 for purchasing the property.
Loan Taken on 10th May 05 15th Nov 08 18th Mar 09 12th Jun 10
Property Purchased on 11th Mar 11 18th Oct 10 15th Mar 10 31st Dec 14
Calculate the Income under the hear ‘Income from House Property’ for the FY 2015-16
(AY 2016-17)
Solution: - Since none of the four houses are let out and all are used by the owner for
his own residence for some part of year, it is clear that this is the case of ‘more than one
house claimed as Self- occupied’.
So, as per option of the assessee one house will be considered as Self-Occupied and rest
as ‘deemed to be let out’. For making this choice, we shall 1st presume that all the
houses are deemed to be let out. If we consider so then following will be the situation:-

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Particulars House 1 House 2 House 3 House 4

Interest on Loan payable for FY 2015- 15,000 75,000 10,000 12,500
16 for purchasing the property.
Expected Rent (ER)- (Higher between 1,25,000 5,90,000 2,25,000 3,30,000

Actual Rent (AR) Nil Nil Nil Nil
Gross Annual Value (GAV) (Higher 1,25,000 5,90,000 2,25,000 3,30,000
of ER & AR)
Less:- Municipal Taxes 5,000 15,000 7,500 8,500
Net Annual Value (NAV) 1,20,000 5,75,000 2,17,500 3,21,500
Less:- Standard Deduction @ 30% of 36,000 1,72,500 65,250 96,450
NAV
Less:- Interest on Loan to purchase 15,000 75,000 12,500 32,500
the House (no limit will apply)
Income under the head ‘Income 69,000 3,27,500 1,39,750 1,92,550
from House property’
Now Mr. A has four options as follows:-
Option 1- House 1 is self occupied and House 2, 3, 4 Deemed to be let out
Following shall be the Income under ‘Income from House Property’ under different
situations:-
Particulars Option 1 Option 2 Option 3 Option 4

House 1 (15,000) 69,000 69,000 69,000
House 2 3,27,500 (75,000) 3,27,500 3,27,500
House 3 1,39,750 1,39,750 (12,500) 1,39,750
House 4 1,92,550 1,92,550 1,92,550 (30,000)
Total Income from House property 6,44,800 3,26,300 5,76,550 5,06,250

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Since the Income chargeable to tax is least in option # 3, House Number 3 shall be
considered as self occupied and House number 1, 2 & 4 shall be deemed to be let out
and Income chargeable under the head shall be Rs. 3,26,300
Situation 5:- When the property is let out for part of a year and self- occupied for part of
a year.
This situation is same as Situation 1 and income shall be computed as if the property is
let out and no other extra benefit is available. This can be explained with the help of
below example:-
Example 6:- Calculate Income under the head ‘Income from House property’ of Mr. A
who is owner of the house property, which is let out for 6 month and used by Mr. A for
his residence for 6 months.
Particulars Amount
Municipal Value (MV) 2,50,000
Fair Rent (FR) 2,60,000
Standard Rent (SR) 2,40,000
Actual Rent (AR) (For 6 months) 1,50,000
Municipal Taxes paid (For whole year) 10,000
Interest on Loan for purchasing the property (Throughout the year) 42,000
Date of taking the loan 01/04/1998
Solution:-
Since the assessee has let out the property for part of a year (i.e) 6 months and occupied
the same for rest part of the year, the rental income from house property shall be
calculated as follows:-
Particulars Amount
Expected Rent (ER)- (Higher between MV & FR, subject to maximum of 2,40,000
SR)
Actual Rent (AR) 1,50,000
Gross Annual Value (GAV) (Higher of ER & AR) 2,40,000
Less:- Municipal Taxes 5,000
Net Annual Value (NAV) 2,35,000
Less:- Standard Deduction @ 30% of NAV 70,500
Less:- Interest on Loan to purchase the House 42,000
Income under the head ‘Income from House property’ 1,22,500

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Note: - Since the property is considered as let out, it is immaterial that loan was taken
on 01/04/1998 and Interest on borrowed capital shall be allowed without any limit.
Situation 6:- When part of the property is let out and part of the property is self-
occupied.
A house property may consist of independent parts or units, Example: - A two storeyed
house has three independent parts or units (i.e.) ground floor, 1st Floor and 2nd Floor. In
such a case there might be a situation in which ground floor is occupied by the owner
for his residence and 1st & 2nd Floor are let out to tenants.
In such a scenario, income from these independent parts or units shall be computed
separately. In the above example income from ground floor shall be calculated as per
situation 2 (i.e. Income from self occupied property) and income from 1st & 2nd floor shall
be calculated as per situation 1 (i.e. Income from property let out for any part of the
year)
Example 7:- Mr. X owns a residential house which has two equal sized independent
units: - Unit- I & Unit- II. Unit-I is occupied by Mr. X for his residence and Unit-II is let
out. The following are other details of the said house property:-
Municipal Value (MV) 4,50,000

Fair Rent (FR) 4,60,000
Standard Rent (SR) 4,40,000
Actual Rent (Of Unit-II) 19,000 per month
Loss due to vacancy 1 month
Unrealized rent 10,000
Municipal Taxes paid 12,000
Interest on Loan payable during FY 2015-16 for purchasing the 70,000
property
Date of taking the loan 01/07/1998

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Calculate the income under the hear ‘Income from House property of Mr. X for the FY
2015-16 (AY 2016-17)
Solution: - Income of Mr. X from Unit-I shall be calculated considering the same as self-
occupied and income from Unit-II shall calculated considering the same as let out, as
follows:-
Particulars Unit-I Unit-II

Status of the Property Self Occupied Let Out
(a) Expected Rent (ER)- (Higher between MV & FR, subject Nil 2,20,000
to maximum of SR) (See Note- 1)
(b) Actual Rent (after unrealised rent but before loss due to Nil 2,18,000
vacancy)
Higher of (a) or (b) Nil 2,20,000
Less:- Loss due to vacancy Nil 19,000
Gross Annual Value (GAV) Nil 2,01,000
Less:- Municipal Taxes Nil 6,000
Net Annual Value (NAV) Nil 1,95,000
Less:- Standard Deduction @ 30% of NAV Nil 58,500
Less:- Interest on Loan to purchase the House 30,000 35,000
Income/ (Loss) under the head ‘Income from House (30,000) 1,01,500
property’
Total Income under the head income from House property:- 1,01,500- 30,000= Rs.
71,500/-
Note 1:-
Particulars For Whole For Unit-II (50%)

residential house
Municipal Value (MV) 4,50,000 2,25,000
Fair Rent (FR) 4,60,000 2,30,000
Standard Rent (SR) 4,40,000 2,20,000
Municipal Taxes 12,000 6,000
Interest on Loan to purchase the 70,000 35,000
House

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Note 2:- In case of Unit-I, the deduction of Interest on Borrowed capital shall not exceed
Rs. 30,000 as the loan was taken before 01st April, 1999. However in case of Unit-II, no
such limit shall apply as Unit II is let out.
CONCEPT 3:- Joint Owners of a House Property
As discussed in Concept 1, the Net annual value (NAV) of a property consisting of any
buildings or lands appurtenant thereto of which assessee is the owner shall be
chargeable to tax under the head Income from house property.
A situation of Joint ownership occurs when the house property is owned by two or more
persons. All the owners will be individually called as Co- owners.
Now the question arises, on which owner’s hands will the Income from House Property
be taxed and how? The answer will lie on the fact that whether the Shares of Joint
owners is definite and ascertainable?
Where the Shares of Joint owners is definite and ascertainable: - The Income from
such property will be assessed in the hands of each co- owners separately and not as an
Association of Persons (AOP). For this purpose the Income from house property shall be
calculated in the proportion of his share in the property.
Example 8: - Mr. A & Mr. B jointly hold a property in Delhi (Equal owners, i.e. 50% to A
and 50% to B). The municipal value of the same is Rs. 2,00,000, Fair rent is Rs.
1,80,000, Standard Rent I Rs. 2,05,000 and actual rent is Rs. 2,10,000, Municipal taxes
paid= Rs. 10,000 & Interest paid on borrowed capital= Rs. 40,000. Calculate the income
from house property of Mr. A and Mr. B
Solution:-
Particulars For he A’s Share B’s Share

property (50%) (50%)
Municipal Value (MV) 2,00,000 1,00,000 1,00,000
Fair Rent (FR) 1,80,000 90,000 90,000
Standard Rent (SR) 2,05,000 1,02,500 1,02,500
Actual Rent (AR) 2,10,000 1,05,000 1,05,000

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Expected rent (ER) (Higher of MV & 2,00,000 1,00,000 1,00,000

FR, Subject to maximum of SR)
GAV (Higher of AR & ER) 2,10,000 1,05,000 1,05,000
Less:- Municipal taxes 10,000 5,000 5,000
NAV 2,00,000 1,00,000 1,00,000
Less:- Standard Deduction @ 30% 60,000 30,000 30,000
Less:- Interest on Capital borrowed 40,000 20,000 20,000
Income from House Property 1,00,000 50,000 50,000
Income from House property of Mr. A= 50,000/-

Income from House property of Mr. B= 50,000/-
Where the Shares of Joint owners is not definite: - The Income from such property
will not be assessed in the hands of each co- owners separately but as an Association of
Persons (AOP).
In the above example if the share of A & B is no ascertainable, then the total income
from house property of Rs. 1,00,000 will be charged to tax considering A & B together
and forming a new AOP.
Concept 4:- Composite Rent
When the owner of the building, along with the rent of the building gets rent of other
assets which have been provided to the tenant along with the building (like furniture,
etc), or charges for some services provided to the tenant (like Security charges,
maintenance, air- condition charges, etc), then the total amount so received is called as
composite rent. The tax treatment of composite rent is as follows:-
a) When composite rent consist of rent of building and rent of other assets like
furniture, etc, and the two rents are inseparable, then the amount so received
shall be taxable under the head ‘Income from business or profession’ or ‘Income
from other source’.
b) When composite rent consist of rent of building and rent of other assets like
furniture, etc, and the two rents are separable, then the amount received towards
rent of building shall be taxable under the head ‘Income from house property’, and
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the amount received towards rent of other assets shall be taxable under the head
‘Income from other source’.
c) When composite rent consist of rent of building and service charges like security,
maintenance, etc, then the composite rent shall be split up and the amount which
relates to rent of building shall be taxable under the head ‘Income from house
property’, and the amount that relates to service charges shall be taxable under
the head ‘Income from business or profession’ or ‘Income from other source’.
Note 1:- Renting of building and renting of other assets like furniture, etc, shall be
considered as inseparable, when the landlord is not willing to give one thing in rent
without the other and he charges from the tenant one all inclusive amount for renting of
both the building and other assets.
Note 2:- The decision of taxability under the head ‘Income from business or profession’
or ‘Income from other source’ depends upon the repetitiveness of the transaction. For
example, if renting of building and renting of other assets like furniture, etc, is the main
business of the landlord and the two rents are inseparable, then the amount so received
shall be taxable under the head ‘Income from business or profession’.
Concept 5:- Some special cases
1) Interest on borrowed capital payable outside India:- When the assessee pays
interest on borrowed capital to any person outside India on which TDS was
deductible and the assessee doesn’t deduct such TDS or after deducting doesn’t
deposit the same, then such Interest shall not be deducted while computing
Income from House Property.
2) Rental Income received by any person from house property situated in India:-
Where any person, whether resident or not, receives rent from a property situated
in India, then such income shall be deemed to accrue in India and shall be taxable
in the hands of such person, irrespective of the location of that person.
3) Rental Income received by a person assessable in India, from a house property

located outside India:- Where an assessee who is assessable in India for the rent

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received in foreign currency, the rate of exchange for such foreign currency into
Indian Rupees shall be the Telegraphic Transfer Buying rate (TT buying rate) of
such currency as on the specified date. The specified date shall be last day of the
previous year (31st March).
Concept 6:- Recovery of Unrealised Rent
Where the assessee cannot realize rent from a property let to a tenant and, subsequently
the assessee has realised any amount in respect of such rent, the amount so realised
shall deemed to be income chargeable under the head ‘Income from House Property’ in
the previous year in which such amount has realised, whether or not the assessee is the
owner of that house property in that year.
Example 9:- Mr. X owns a residential house in Delhi the details of which for the financial
year 2015-16 are as follows:-
Particulars FY 2015-16 FY 2016-17

Municipal Value (MV) 3,60,000 3,60,000
Fair Rent (FR) 3,75,000 3,75,000
Standard Rent (SR) 3,50,000 3,50,000
Actual Rent (Of Unit-II) 30,000 p.m 30,000 p.m
Loss due to vacancy 2 months 1 month
Unrealized rent 12,000 5,000
Municipal Taxes paid 8,000 8,000
Interest on Loan capital borrowed 72,000 67,000
Date of taking the loan 01/10/2008 01/10/2008
Out of the rent which couldn’t be realised in FY 2015-16, Rs. 8,000 was realised in
December 2016. Calculate the Income under the head Income from other House
Property for FY 2015-16 & 2016-17.
Solution:-
Particulars FY 2015-16 FY 2016-17

Expected Rent (ER) (Higher of MV and FR, subject to 3,50,000 3,50,000
max of SR)
Actual Rent (AR) (After unrealised rent, before loss due 3,48,000 3,55,000
to vacancy)
Higher of ER & AR 3,50,000 3,55,000
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Less:- Loss due to vacancy 60,000 30,000

GAV 2,90,000 3,25,000
Less:- Municipal Taxes paid 8,000 8,000
NAV 2,82,000 3,17,000
Less:- Standard Deduction @ 30% 84,600 95,100
Less:- Interest on Loan capital borrowed 72,000 67,000
Add:- Recovery of Unrealised rent Nil 8,000
INCOME FROM HOUSE PROPERTY 1,25,400 1,62,900
Concept 7:- Arrear Rent of Earlier years
Rent of a house property might increase retrospectively from a past date due to which
the owner of the house property receives the arrears of rent of past period.
Example: - In a disputed case the court on 1st April 2015 fixes the rent of a property at
Rs. 1,000 per month with effect from April 2005. The actual rent charged from April
2005 till March 2015 was Rs. 800 per month. So, on 1st April, 2015, the owner of the
property is entitled to receive arrear rent of Rs. 24,000/- (200*12*10)
Taxability of Arrear Rent: - Any arrear rent received on or after 1st April, 2000 shall be
chargeable to tax under the hear ‘Income from House Property’ in the year of receipt if
the same is not charged to tax in earlier years, whether or not the assessee is the owner
of that house property in that year.
However deduction from annual value to the extent of 30% w.e.f. AY 2002-03 shall be
available from such rent.
Concept 8:- Deemed Owner
As per Income tax Act, the owner of house property means not just the person who is
legal owner of the house but the person who is entitled to receive the Income from House
property in his own right.
Example: - Mr. A is the legal owner of House property in Delhi. Mr. A enters into an
agreement with Mr. B that all the income from the property shall belong to Mr. B. Now
the effective owner of the property is not Mr. A but Mr. B. Mr. B is deemed owner.
Similarly, the following persons shall be deemed to be owners of the house property
(Deemed owners):-

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1) The person who has transferred the property without adequate consideration to
his or her spouse or to his or her minor child.
Exception:-
a) When house property is transferred by a person to his or her spouse in
connection to agreement to live apart.
b) When house property is transferred by a person to his or her married minor
daughter.
2) A member of a co- operative society, company or AOP to whom a building or part

of a building is allotted or leased under a house building scheme.
3) A person in possession of property in part performance of a contract. Example: - A

person who has paid the consideration and taken possession of the property as
per agreement for sale will become owner even though the transfer is not yet
registered in his favour.
4) A person having lease right in the property under a lease for period exceeding 12
years in aggregate including the term for which the lease may be extended.
5) The holder of impartible estate shall be deemed to be individual owner of all the
properties comprised in that estate.
Concept 9:- Interest of Pre Construction period
As we know the income from house property shall be chargeable to Income tax in the
hands of an assessee, under the head ‘Income from House Property’, only when the
assessee is the owner of such property.
However there may be an instance in which the assessee has started paying interest on
capital borrowed for purchase or construction of house property but such acquisition or
construction is not complete. In such an instance the assessee is not owner however he
is paying interest which is entitled to be deducted under the head ‘Income from House
Property’. Now the question arises on how will such interest be treated which computing
‘Income from House Property’.

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Example: - Assessee took a loan of Rs. 1,00,000/- on 1st April, 2014 and started paying
interest on loan from the same date. The rate of Interest is 10% p.a. The construction of
house is complete on 1st April, 2015. Now the interest paid from 1st April, 2014 to 31st
March, 2015 (i.e. 1,00,000 @ 10%= Rs. 10,000/-) shall be considered as interest of pre
construction period.
In other words, pre- construction period is the period commencing from the date of
taking loan and ending on:-
(a) 31st March immediately preceding the date of completion of construction or date of
purchase.
Or
(b) Date of repayment of Loan, whichever is earlier.
Tax treatment of Interest of Pre Construction period
Interest of Pre Construction period will be allowed as deduction in 5 equal annual

installments, commencing from the previous year in which construction or acquisition of
house property is complete.
Note: - In case of Self occupied property (Situation-2, Concept-2) or property which

couldn’t be self occupied owing to employment in any other place (Situation-3, Concept-
2), the limit of Rs. 30,000 or Rs. 2,00,000, as the case may be, shall be considered after
taking into account the 1/5th amount of Interest of Pre Construction period.
Example 10:- Mr. A takes a loan of Rs. 1,00,000 for construction of house. The loan was
taken on 1st April, 2008. Construction was complete on 1st September 2015. Calculate
interest of Pre Construction period and explain how it will be treated in calculating
taxable income under the head ‘Income from House Property’, when the loan is repaid
on:-
a) 31st March, 2012

b) 31st May, 2015
c) 30th September, 2016
d) 30th September, 2008
(Note: - The house was let out as soon as construction was complete)

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Solution (a):-
Step-1:- Find out Pre- Construction Period: - It Shall be from: - 1st April 2008 to 31st
March 2015 or 31st March 2012, whichever is earlier (i.e.) from 1st April 2008 to 31st
March 2012= 4 years
Step 2:- Find out the Interest paid in Pre- Construction Period:-
= Rs. 1,00,000* 10%* 4 years= Rs. 40,000/-
Step 3:- Determine taxability of Interest paid in Pre- Construction Period:-
Total interest on pre construction period of Rs. 40,000/- shall be allowed in 5 equal
annual installments beginning from financial year 2015-2016 (i.e.) 40,000/5= Rs. 8,000
shall be deducted in FY 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20.
Step 4:- Determine the amount of Deduction in current FY
In FY 2015-16, interest paid is Rs. Nil (Loan has been already repaid on 31st March,
2012). So the interest deduction in FY 2015-16 is Rs. 8,000 (8,000+Nil).
Pre- Const
Period
1st Apr 2008 31st Mar 2012 31st March 2015 1st Sept, 2015 31st Mar 2016
(Date of Loan) (Date of repay) (Preceding 31st March) (Construction End of Current FY
Complete)
Solution (b):-
March 2015 or 31st May 2015, whichever is earlier (i.e.) from 1st April 2008 to 31st March
2015= 7 years
= Rs. 1,00,000* 10%* 7 years= Rs. 70,000/-

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annual installments beginning from financial year 2015-2016 (i.e.) 70,000/5= Rs.
14,000 shall be deducted in FY 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20
In FY 2015-16, interest paid is Rs. 1667 (Rs. 1,00,000* 10%*2/12) (For the month of
April & May 2015). So the interest deduction in FY 2015-16 is Rs. 15,667
(14,000+1,667).
Pre- Const Current year

Period Interest
1st Apr 2008 31st March 2015 31st May 2015 30th Sep 2015 31st Mar 16
(Date of Loan) (Preceding 31st March) (Loan Repay) (Const Complete) (End of Current
FY)
Solution (c):-
March 2015 or 30th September 2016, whichever is earlier (i.e.) from 1st April 2008 to 31st
March 2015= 7 years.
= Rs. 1,00,000* 10%* 7 years= Rs. 70,000/-
annual installments beginning from financial year 2015-2016 (i.e.) 70,000/5= Rs.
14,000 shall be deducted in FY 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20
In FY 2015-16, interest paid is Rs. 10,000 (Rs. 1,00,000* 10%). So the interest
deduction in FY 2015-16 is Rs. 24,000 (14,000+10,000).
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Pre- Const Current year

Period Interest
1st Apr 2008 31st March 2015 30th Sep 2015 31st Mar 16 30th Sep 16
(Date of Loan) (Preceding 31st March) (Const Complete) (End of Current (Loan repay)
FY)
Solution (d):-
March 2015 or 30th September 2008, whichever is earlier (i.e.) from 1st April 2008 to 30th
September 2008= 6 months
= Rs. 1,00,000* 10%* 6/12 years= Rs. 5,000/-
annual installments beginning from financial year 2015-2016 (i.e.) 5,000/5= Rs. 1,000
shall be deducted in FY 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20.
In FY 2015-16, interest paid is Rs. Nil (Loan has been already repaid on 30th September,
2008). So the interest deduction in FY 2015-16 is Rs. 1,000 (1,000+Nil).
Pre- Const
Period
1st Apr 2008 30th Sep 2008 31st March 2015 1st Sept, 2015 31st Mar 2016
(Date of Loan) (Date of repay) (Preceding 31st March) (Construction End of Current FY
Complete)

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Example 11: Calculate the deduction of ‘Interest on Capital Borrowed’ in following

cases:-
Case Loan Interest Date on Date on Date on Status of home

Amount Rate which loan which which loan is after construction
taken construction repaid
is over
1 10,00,000 10% 01st Mar 12 01st Jan 15 31st Jan 16 Self- Occupied
2 10,00,000 10% 01st Mar 12 05th Jul 15 31st Jan 16 Self- Occupied
3 12,00,000 8% 01st June 13 01st Oct 13 31st Oct 16 Self- Occupied
4 19,00,000 10% 01st June 12 01st Oct 13 31st Oct 16 Self- Occupied
5 15,00,000 10% 01st Aug 05 10th Oct 09 31st Mar 16 Self- Occupied
6 15,00,000 10% 01st Aug 05 10th Oct 09 31st Mar 16 Let- out
7 20,00,000 10% 01st Apr 14 30th Sep 15 31st Mar 16 Let- out
8 10,00,000 10% 01st Apr 12 31st Jan 16 31st Mar 14 Self- Occupied
9 10,00,000 10% 01st Jan 12 31st Jan 16 31st Mar 14 Self- Occupied
10 10,00,000 10% 01st Jan 12 31st Jan 16 31st Mar 14 Let- out
11 14,00,000 10% 01st Sep 12 01st Sep 15 31st Mar 16 Self- Occupied
Solution: -
Case Pre- Pre- Pre- Interest on 1/5th of Actual Total Deduction

construction construction Const Pre Const. Pre- Const interest actually
period From period To Period Period period paid in FY allowed in
(Months) allowed in 15-16 respect of
FY 2015- Interest on
16 Capital
borrowed
1 1-Mar-12 31-Mar-14 25 2,08,333 41,667 83,333 1,25,000 1,25,000
2 1-Mar-12 31-Mar-15 37 3,08,333 61,667 83,333 1,45,000 30,000
3 1-Jun-13 31-Mar-13 - - - 1,52,000 1,52,000 1,52,000
4 1-Jun-12 31-Mar-13 10 1,58,333 31,667 3,00,833 3,32,500 2,00,000
5 1-Aug-05 31-Mar-09 44 5,50,000 - 1,50,000 1,50,000 30,000
6 1-Aug-05 31-Mar-09 44 5,50,000 - 1,50,000 1,50,000 1,50,000
7 1-Apr-14 31-Mar-15 12 2,00,000 40,000 2,00,000 2,40,000 2,40,000
8 1-Apr-12 31-Mar-14 24 2,00,000 40,000 - 40,000 40,000
9 1-Jan-12 31-Mar-14 27 2,25,000 45,000 - 45,000 30,000
10 1-Jan-12 31-Mar-14 27 2,25,000 45,000 - 45,000 45,000
11 1-Sep-12 31-Mar-15 31 3,61,667 72,333 1,40,000 2,12,333 2,00,000

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Income From House Property Notes For CA CSCMA Students

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Income from House Property-

Notes by Munshigiri Education – One Step Solution for CA/CS/CMA Students

CONCEPT 1: Charging Section of ‘Income from House Property’ (Section 22)

What is taxable under Income from House Property?

We must keep in mind the following points:-

2) Following are some examples of lands appurtenant thereto:-

Prepared by CA. S. Shekhar

Step (a) Calculate Gross Annual Value (GAV)

Prepared by CA. S. Shekhar

Step (b) Calculate Net Annual Value (NAV)

Step (c) Calculate Income from house property

Concepts explained in brief:-

i. Municipal Value of the House Property: - It is the value determined by municipal

Prepared by CA. S. Shekhar

Prepared by CA. S. Shekhar

• Municipal Taxes must be borne by the owner of such house property.

vii. Interest on Borrowed Capital: - In case the property is acquired, constructed,

Other points to be noted:-

2) Interest on unpaid interest is not allowed as deduction.

4) Interest on capital borrowed is allowed as deduction irrespective of the fact that

Prepared by CA. S. Shekhar

5) No deduction shall be allowed for any brokerage or commission charges paid or

Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4 Scenario# 5

Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4 Scenario# 5

Prepared by CA. S. Shekhar

Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4

Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4

* Actual Rent, if let out whole year= Rs. 120

Monthly rent= 120/12= Rs.10

Prepared by CA. S. Shekhar

No. of months vacant= 1

Loss due to vacancy= 1*10= Rs. 10/-

Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4

Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4

Prepared by CA. S. Shekhar

Interest on Self Occupied Property

Interest on Capital Borrowed for acquisition or construction or renovation or repair of

Prepared by CA. S. Shekhar

1) Capital is borrowed on or after 1st April, 1999 for acquiring or construction of

2) The acquisition or construction of house property is completed within 3 years from

Particulars Amount (Rs.)

b) What if the interest paid during the FY 2015-16 was 2,10,000?

Prepared by CA. S. Shekhar

Particulars Amount (Rs.)

Prepared by CA. S. Shekhar

1) The Assessee is the owner of the house property.

4) The house is vacant throughout the year.

5) No other benefit is derived from such property.

Prepared by CA. S. Shekhar

Particulars House 1 House 2 House 3 House 4

Prepared by CA. S. Shekhar

Particulars House 1 House 2 House 3 House 4

Expected Rent (ER)- (Higher between 1,25,000 5,90,000 2,25,000 3,30,000

Now Mr. A has four options as follows:-

Option 1- House 1 is self occupied and House 2, 3, 4 Deemed to be let out

Option 2- House 2 is self occupied and House 1, 3, 4 Deemed to be let out

Option 3- House 3 is self occupied and House 1, 2, 4 Deemed to be let out

Option 4- House 4 is self occupied and House 1, 2, 3 Deemed to be let out

Particulars Option 1 Option 2 Option 3 Option 4

Prepared by CA. S. Shekhar

Prepared by CA. S. Shekhar

Municipal Value (MV) 4,50,000

Prepared by CA. S. Shekhar