CHAPTER - 5

INCOMEUNDER THE
HEAD HOUSE PROPERTY
INTRODUCTION - NOTIONAL INCOME ALSO TAXABLE

SECTIONS 22 TO 27

Chargeability -Sec. 22 Computation of income Special provisions

Deemed owner -Sec. 27 Sec. 23 to 25 Sec. 25AA, 25B and 26

Although the nomenclature of this head of income uses the words “House Property”, the
chargeability does not confirm to residential house properties. It extends to even other building such
as offices, shops, godowns and other commercial premises.

Particulars Let out/ Deemed Let Self-occupied property

out/ Self occupied for a whose annual value is
part of year and let out assessed at Nil under
for another part. section 23(2)

Gross Annual Value [Section 23(1)] xxxx Nil

Less: Municipal Taxes actually paid by xxxx Nil
the assessee during the previous year

Net Annual Value (NAV) xxxx Nil

Less: Deductions under section 24 -
Nil
(a) 30% of NAV xxxx
xxxx
(b) Interest on borrowed capital xxxx
(Actual interest upto
(Actual interest payable
maximum of Rs. 30,000 or
without any limit)
Rs. 2,00,000)

Income from house property xxxx xxxx

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SEC 22 CHARGEABILITY OF ANNUAL VALUE

a) The annual value of any property comprising of building or land appurtenant thereto, of
which the assessee is the owner, is chargeable to tax under the head "Income from house
property".
b) The annual value of any building or portion of a building occupied by the assessee for the
purposes of business or profession carried on by him is not chargeable to tax under the head
"Income from house property".
c) It should be specifically noted that what is taxable under the head "Income from house
property" is the annual value of a building property and not the rental income. No doubt,
rental income is also taken into consideration for determination of annual value in the case of
a let-out property but fair rent plays an important role in determination of annual value.

Income from house property chargeable to tax under other heads of Income:

1. Rent from building property let out is chargeable to tax under the head "Income from
house property". If the said property is sublet by the tenant, the income derived by the
tenant from subletting is chargeable under the head "Income from other sources" and not
under the head "Income from house property" as he is not the owner;
2. Where rental income is derived from letting out of land alone, it shall be chargeable to
tax under the head "Income from Other Sources" as there is no building;
3. The Annual value of the house property held as stock-in-trade of a business shall be
chargeable to tax under the head "Profits and Gains from Business or Profession";
Where the main business of the assessee is deriving rental income from letting out of
properties, and the same is enunciated as the principal business in the Memorandum of
Association, the same would be chargeable to tax as "Business Income" - Chennai Properties
and Investments Ltd., vs. C17" (2015) 373 ITR 673 (SC).

Note:-

1. If business done is exempt from income tax, then house property income is taxable.
2. If business or profession is carried on in a self-owned building, then rent will not be
allowed as deduction under the head ‘Business & Profession’.

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 ANNUAL VALUE

Annual means yearly and Value of a property means the inherent

capacity of a property toearn or to generate income.

Inherent means contained in itself and capacity means the extent to

which a property can earn income.

Income from house property is the only income that is charged on notional basis, which means
that the income from such property is not calculated on receipt basis but how much income could
be generated from such property is calculated.

ASSET

The scope of the term 'property' is restricted to the "building and land appurtenant thereto".
BhupalamVenkatasubbayyar v. G.L. Mallapa AIR 1953 Mad 636.

BUILDING

Any income derived from a vacant plot of land without any building will not
be chargeable under this head but under other heads of income such as
income from other sources or business income whichever is relevant.

The term 'building' is not defined under the Income-tax Act. Thus we have to take a look at
the various case laws in order to decide whether a particular structure is a building or not.

 Building is an enclosure of the brick or stonework covered by roof-Moir v. Williams.

 Building is an enclosure, which may even consist of mud walls– Irian v.
ChidambaramChettiar.
 An incomplete house or a house, which is in ruins without a roof and without doors, cannot
be called a building-Baladin v. Lakhan Singh. The existence of a roof is not always necessary
for a structure to be regarded as a building. Residential buildings ordinarily have roofs but
there can be a non-residential building for which a roof is not necessary, A large stadium or
an open air swimming pool constructed at a considerable expense would be buildings as it is
a permanent structure and designed for a useful purpose- GhanshyamDass v. Debi Prasad AIR
1966 SC.
 A brick kiln having no wall and roof but a mere pit dug in the grounds with bricks, by its
side, is not a buildingGhanshyamDass v. Debi Prasad AIR 1966 SC.

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From the above decisions we can conclude that buildings can be of two
types:-
Residential buildings: - It means any structure having walls and roof
which can be used for residential purpose made of any material such as cement, wood, stone,
mud, etc. But a house in ruins cannot be called as a residential building.

a) Commercial building:-Any structure which solves some useful

commercial purpose even if it does not have a roof over it. For e.g.
stadium, swimming pool, etc. The decision in the case of
GhanshyamDass v. Debi Prasad shows it is not necessary that a building
should have a roof over it.

WHAT IS MEANT BY ‘LAND APPURTENANT THERETO’

Appurtenant means 'attached or connected to'. Land included in this will be

-
1. Land on which the building is constructed.
2. Land which is so attached to the building that without it the building cannot be used
separately.

For e.g., In the case of residential buildings the land appurtenant thereto may be in the form
of garden, garage, courtyard, backyard, approach roads, playground, cattle-shed, etc. whereas
land appurtenant thereto in the case of non-residential building can be in the form of Car-
parking spaces, approach road, connecting road from one department to another, etc.

However, if the land appurtenant thereto yields any independent and commercial income such
income shall not be taxable under the head income from house property.

Ex: where in a land appurtenant thereto a potable water spring has been struck which becomes
a perennial source of water and which could be independently and commercially exploited,
income from the sale of such water shall not be, taxable under the head income tax house
property as such land has become valuable asset, it cannot continue to remain as an
appurtenant land. [Ramalakshmi Reddy (M.) v. CIT (1998) 232 ITR 281 (Mad)]

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OWNERSHIP OF PROPERTY

The assessee must be the owner of the property: Owner of the property is one
who has a valid title to the property, which is legally conveyed to him i.e. after
complying with the requirements of law such as the Transfer of Property Act,
the Registration Act, etc. Owner also means one in whom the right to
ownership lies.
Right to ownership includes the right to enjoy, to use. to occupy or possess, to alienate, to
sell, to lease out, and many other such rights which only the person who owns the property
can enjoy.
Any income derived from a property, which is not owned by the assessee, cannot be taxed
under this head.

Ex: If A is the owner of a land and he gives it on rent to B for Rs. 2,000/-. Now B constructs a
building on this land and lets out land and building to C for Rs. 10,000/-. Out of this rent, he
gives Rs.2,000/- to A as lease rent for land.
In this case Rs. 10,000/- will be chargeable in the hands of "B" as income from house
property. However Rs. 2,000/- received by "A" shall be taxable in his hands under the head
"income from other sources". This is so because A is not the owner of the building.
Thus, an assessee can be owner of

1. Building alone, or
2. Both the building and the land appurtenant thereto.

REGISTERED V/S BENEFICIAL OWNER

Sometimes there may be division of right to title and other rights of ownership between two
different persons.

The person having right to title is called as a "Registered owner", and the person having all
other rights of ownership is called as a ''Beneficial owner”.

In such case,Income will be charged in the hands of the beneficial owner and not the
registered owner. For e.g. in the case of a trust property the registered owner is the trustee
whereas the beneficial owner is the trust and so income will be charged in the hands of the
trust and not the trustee.

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SEC 27 DEEMED OWNERSHIP

Under following circumstances, aperson shall be deemed to be the owner of the property, and
any income derived from such property shall be charged in his hands under section 22.

1. Transfer of property to spouse or minor child

If an individual, transfers any house property to his or her spouse or minor child (not
being a married daughter) for
i. inadequate consideration, and
ii. not under an agreement to live apart,
Such transferor shall be deemed to be the owner of the house property.

For this purpose-

 Nil consideration shall also be taken an inadequate considerate.

 However, where an individual transfers cash to his/her spouse or minor child and the
transferee acquires a house property out of such cash, the transferor shall not be treated
as deemed owner of the house property. Such transaction will however, attract clubbing
provisions u/s 64.

2. Holder of impartible estate

The holder of an impartible estate shall be deemed to be the owner of all the properties
comprised in the estate. Impartible estate is an estate which cannot be partitioned or
which cannot be easily legally divided. It is an estate to which the assessee has
succeeded by the rule of primogeniture (i.e., from father to his elder son, lineage
succession) prevailing in the family governed by the Mitakshara law.

3. Member of a co-operative society

A member of a co-operative society, company or any other association of persons to
whom a building (or part thereof) is allotted or leased under a House Building Scheme
started by society or company or association, is treated as deemed owner of such
property.
Ex: Mr. Amir Saraf, is a member of Aditya Housing Co-op Society. The society allots
him a house, in such case, Mr. Amir Saraf is deemed owner of the house.

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 4. Transfer of property under part performance of contract u/s 53A of Transfer of
Property Act
Whenever any immovable property, having a value of more than Rs. 100/-, is
transferred, it has to be registered under Registration Act, 1908. The date of
registration is taken as the date of transfer of immovable property. However Sec 53A
of the Transfer of Property Act provides that if certain conditions are fulfilled, the
person who is allowed to take or retain the possession of any building or part thereof in
part performance of a contract, shall be deemed owner of that house property. The
conditions to be fulfilled are:-
i. The property shall be an immovable property.
ii. A valid agreement of sale should have been entered into between the transferor
and transferee i.e. the agreement should be in writing, it should be made on a
stamp paper and it should be signed by the transferor and the transferee.
iii. The transferee should have paid consideration for the transfer or he should be
willing to pay consideration.
iv. The transferor has transferred the possession of the property to the transferee or
buyer.

5. Lease or a period exceeding 12 years.

Whenever a property is given on lease for more than 12 years, the lessee will be deemed to be
the owner of the property and income under section 22 shall be charged in the hands of
the lessee.

DISPUTED OWNERSHIP

If the title of ownership of a house property is disputed in a court of law, the

decision as to who is the owner for tax purposes rests with the Income-tax
Department. Mere existence of dispute as to title cannot hold up an assessment
even if a suit has been filed. Generally the recipient of rental income or the person who is in
possession of the property is treated as owner.

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HOUSE PROPERTY IN SITUATED IN FOREIGN COUNTRY

(1) In case a person resident in India (R-OR in case of individuals and HUF),
income from property situated outside India is taxable, whether such Income is
brought into India or not.
(2) In case of a person NR or R-NOR, income from a property situated outside India is taxable
only if it is received in India.
The annual value of such property will be computed as if the property is situated in India.

Use of House property

The assessee may-

1. Let out a house property for residential or commercial purpose.
2. Occupy for own residence.
3. Occupy for carrying on own business or profession.
1. Let out property:
Any income derived by the assessee from letting out of house property will be taxable under this
head.
The case is the same event if the business of the assessee is to
1. Own and lease houses, or
2. Trade in houses
In each case the annual value of the house property will be charged under the head “Income from
House Property”.
Tamil Nadu Tourism Development Corporation Ltd v. Dy. CIT (2014) 368 ITR 533 (mad):
The High Court held that the income earned by the assessee by way of franchisee fee from giving
hotels on franchise basis is in the nature of business income and not income from house property.
Further, income from trading of houses will be taxable under the head PGBP.

2. Self-Occupied Property (SOP) Sec 23(2)

Where the House property consists of a house or part of a house which
a. Is in the occupation of the owner for the purpose of his own residence, or
b. Cannot actually be occupied by the owner by reason of the fact that owing to his employment,
business or profession carried on at any other place, he has to reside at that other place in a
building not belonging to him.

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3. Property used for own business and profession:

When a property is used for own business and profession, its annual value is not chargeable under
this head. This is because of two reasons.

Firstly, one cannot earn income by dealing with himself and secondly, the deduction for rent paid to
oneself cannot be claimed under the head ‘business and profession’.

This rule is based on the principle of mutuality.

However, the profit of such business shall be chargeable to tax. If it is exempt business, then the
annual value shall be chargeable under the head house property.

Company and Director: In case a company carries on its business from a property owned by its
director and pays rent then such rent will be taken as income from house property u/s 22.

Partnership firm and partners: In case where X is a partner of a firm and the firm carries on
business from property owned by X and pays rent to X. Then there are two sets of ruling of Court:-

(i) In the first case court says that since the income-tax law does not consider firm and
partners as separate entities the rent paid by the firm to a partner will not be allowed as
business deduction to the firm and consequently will also not be charged u/s 22, in the
hands of the partner.
(ii) In the second case, however the Court says that since the income tax act accepts the firm
and partners as separate assessee’s the amount of rent paid by the firm, shall be allowed as
business deduction in the hands of the firm and will be taxable in hands of partner.
In the case where the property is let out with the main object of improving the efficiency of
the business carried on by the assessee:-

For example, the assessee company gives certain quarters on rent to his employees and charges rent
from them. In such a case the rental income shall be taxable as business income (provided letting is
not the main business but is incidental to the main business). This is so because the letting out of
the house property is incidental to the main business of the assessee and the deduction/allowances
would have to be calculated as relating to profits/gain of business and not as relating to house
property. [CIT v. Delhi Cloth & General Mills Co. Ltd. (1996)]

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 (i) Buildings owned by the company and occupied rent-free by directors & senior executives
will be treated as occupied for business purposes. [CIT v. Vazir Sultan Tobacco
Ltd.(1998) 173 ITR 290 (AP)]
(ii) Where a company let out part of its business premises as residence to its Managing
Director cum general manager it was held that such income would be treated as business
income. [CIT v. M.A. Sathai P. Ltd. (1998) 142 Tax 621 (mad)

COMPOSITE RENT

If apart from getting rent for the building the owner gets rent for other assets like furniture or
car or he gets fees for any extra facilities provided by him such as security, air-conditioning,
lift facility, parking facility, etc., then the combined rent will called asComposite Rent. Such
Composite Rent received is categorized into 3 types and its computation is mentioned below:

1. Where the composite rent includes rent for building and charges for different
facilities:- In such a case the composite rent has to split up into two and the sum which
corresponds to the annual value of the property has to be charged under the head ‘Income
from House Property’ and the remaining amount which relates to rendition of services ( such as
charges for electricity supply, lift facility, water supply, air conditioning, security, etc.) will be
charged separately under the head ‘profits and gains of business and profession’ or ‘Income from
other sources’.

2. Where composite rent of letting out of building and letting out of other assets and two are
not separable:- For e.g. in the case of hotel business, the letting out of building is inseparable
from the letting out of assets such as furniture, parking charges, electricity charges, water supply,
etc., and so the whole of such income will not be charged under the head "income from house
property" but will be charged under the head "income from business and profession".

3. Where composite rent includes rent of letting out of building and some other assets and the
two lettings are separable:- In this case the assets are separable, meaning one asset can be let
out without the other and it is not necessary that the two should be let out simultaneously or to
one party only. For e.g., letting out of building along with along with a car. Here the letting out is
chargeable under the head "income from house property" and the letting out of the car is
chargeable under the head "income from other sources". This rule will be applicable even if the
owner receives composite rent from the two lettings.

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 Treatment of Composite Rent

Composite Rent Composite Rent

Includes Rent of Letting includes Rent of Letting
out of the building and out of the building and
charges for different letting out of other
Services. Assets.

If the two If the two

The Composite Rent lettings are Lettings are
has to be split into two not Separate. Separable.
parts Compulsorily.
The rent Attributable to
Services is chargeable
under the head Taxable under the Income from
“Business” or “Other head “PGBP” or building is taxable
Sources”. The rent “Other Sources”. under the head
Attributable to Building This rule is “House Property”.
is chargeable under the Applicable even if
head “House Property”. sum receivable Income from
for the two letting out of other
lettings is fixed assets is taxable
separately. either as “Business
Income” or “Other
sources”.

This rule is
Applicable even if
the assessee
receives composite

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PROPERTY HELD AS STOCK IN TRADE: SEC 23(5)

Where the building or land appurtenant thereto is held as stock-in-trade and the property or any
part of the property is not let during the whole or any part of the previous year, the annual
value of such property or any part of the property, for the period upto one year from the end of
financial in which the certificate of completion of construction of the property is obtained from
the competent authority, shall be taken to be NIL. [Inserted by FA 2017 w-e-f PY 17-18]

SITUATION WHEN INCOME FROM HOUSE PROPERTY IS EXEMPT FROM

TAX

Section Income from Property held by

Income from any Farm House forming part of

10(1)
Agricultural Income

10(19A) An Ex-Ruler for his occupation (Palace)

Local Authority
10(20)

Approved Scientific Research Association

10(21)

10(23C)
Certain Funds, Educational Institutions, Hospitals, etc.

10(24)
Registered Trade Union

11 Charitable Trust

13A Political Party

23(2) One self occupied house property of an assessee, not let out throughout the P.Y

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CALCULATION OF INCOME

Determination of Annual Value

Sub-sec (1) of Sec 23 defines the manner of computation of the annual value. Accordingly, the
annual value shall be deemed to be-

(a) The sum for which the property might reasonably be expected to let from year to year (i.e,
expected rent); or
(b) Where the property or any part thereof is let and the actual rent received or receivable by
the owner in respect thereof is in excess of the expected rent, the actual rent so received or
receivable; or
(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 the owning to such vacancy the actual rent received or
receivable by the owner is less than expected rent, the actual rent so received or
receivable.
Step 1: Computation of expected Rent:
Expected rent is the higher of Municipal valuation of the property or Fair rent, subject to the
maximum of Standard rent under the Rent Control Act, if applicable.
a. Municipal valuation of the property: This is the value as recorded in the municipal
records for the purpose of levying house tax and it is based on the revenue generating
capacity of the house property.
b. Fair rent of the property:Fairrent means the rent which a similar type of a property
fetches in a similar locality. It is not necessary that it should be more or less comparable
with the property in question in respect to its condition, location, neighborhood,
furnishing, etc.
c. Standard rent under Rent Control Act: Standard rent is fixed under the Rent Control
Act. Rent Control Act is the Act that puts a maximum limit bon the amount of the rent that
can collected by any landlord. Thus, if a property comes under the control of Rent Control
Act then even if the fair rent value of that property is higher the rent collected should be
under the limit of the said Act.[Mrs. Sheila Kaushish v. CIT [1981] 7 Taxman 1]. So,
whenever any property comes under the control of the Rent Control Act, the expected rent
shall be restricted to the standard value fixed under the Rent Control Act.

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Step 2: Computation of Actual Rent:
It means the rent received or receivable in respect of the period for which the property is actually
let, as reduced by the amount of unrealized rent in respect of the same PY, if any.
Conditions:-
a. The tendency is bonafide;
b. All reasonable steps are taken (including legal proceedings) for the realization of rent.
However legal proceedings are not required where the assessee satisfies the assessing
officer that the litigation would be fruitless.
c. All reasonable steps are taken to get the property vacated.
d. The small tenant should not be in possession of any other property of the assessee.

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CALCULATION OF GROSS ANNUAL VALUE (GAV) OF DIFFERENT TYPES
OF HOUSE PROPERTIES:-

a) DEEMED LET OUT PROPERTY

 Where the assessee has more than one self-occupied residential house, the annual value
of any one of such houses (at the option of the assessee) may be taken as NIL. The
other houses will be treated as if they are let out and their annual value will be
computed accordingly.
 GAV= Expected rent

Illustration:

Calculate the GAV in the following cases assuming Deemed let out:

Case 1 2 3 4 5 6 7
MV pm 10000 10000 10000 10000 10000 10000 10000
FRV pm 12000 8000 12000 8000 9000 12000 14000
Std. Rent 8000 6000 14000 12000 9500 11000 14000
pm

Solution:

Calculation of GAV

1 2 3 4 5 6 7
MV
FR
MV or FR
W-E-H
Standard rent
Expected rent
GAV

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b) LET OUT PROPERTY
The following steps shall be followed for computing the GROSS ANNUAL VALUE OF A LET
OUT PROPERTY:
Step 1: Calculate expected rent for the whole year and deduct proportionate expected rent for
vacant period.
For example- If expected rent is Rs. 10,000/- p.m. and property is let out for 7 months, vacant for
3 months and self-occupied for 2 months, expected rent shall be calculated as follows-
Expected rent for whole year(10000*12months) = 1,20,000

LESS: vacant period (10000*3months) =30,000

Net expected rent =90,000

Step 2: Calculate actual rent for let out period and deduct unrealized rent there from.
GAV= Net expected rent under Step 1 or Actual rent under step 2 whichever is more.

Illustration:

Calculate the GAV in the following cases assuming Actual let out
Cases 1 2 3 4 5 6 7
Exp Rent pm 10,000 10,000
Actual rent pm 12,000 8,000 12,000 12,000 12,000 9,000 -
Unrealized - - 4 - 4 3 -
rent(months)
Let out period 12 12 12 8 8 8 Nil
(months)

Solution:
Cases 1 2 3 4 5 6 7
Exp Rent

Actual Rent

GAV

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c) SELF-OCCUPIED PROPERTY (SOP) SEC 23(2)
Where the House property consists of a house or part of a house which
 Is in the occupation of the owner for the purpose of his own residence, or
 Cannot actually be occupied by the owner by reason of the fact that owing to his employment,
business or profession carried on at any other place, he has to reside at that other place in a
building not belonging to him

GAV= Nil, provided that-

a. The property is not actually let during any part of the previous year.
b. The owner derives no other benefit from such property.
Where the assessee lets out his residential house to his employer, who in turn allots the same to the
assessee as rent-free accommodation, the house will be treated as let out property and not self-
occupied property as the assessee is not occupying the house in his capacity as the owner of the
property.[D.R. Sunderraj v. CIT(1980) 123 ITR 471 (AP)]

Self Occupied Property

Yes No

Let out Property Self Occupied

Property (SOP)

d) PARTLY SOP & PARTLY LET OUT

Where the property consists of a house or a part of a house, which is partly occupied by the owner for
the purpose of his own residence and partly let out, the annual value of the self-occupied portion shall
be taken to be NIL (provided it is so occupied throughout the previous year), and the annual value of
the let out portion shall be computed as discussed above under (B).

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DEDUCTIONS U/S 24
1. Deductions of local taxes from GAV
The taxes levied by the local authority i.e. the municipal taxes are to be deducted from the
GAV as computed above. Municipal taxes are deductible only if:-
a) These are borne by the owner of the property, and
b) These have been actually paid during the previous year.

The taxes are allowed as deductions in the previous year in which they are paid even if
they relate to past years or future years.

However, this deduction is not allowed in case of SOP.

The remaining amount left after deducting the municipal taxes, if any, is the Net Annual
Value (NAV).

2. Deductions to be made from the NAV (Sec 24)

Income chargeable under the head "Income from house property" shall be computed after
making the following deductions, namely-
(a) Statutory deduction: A sum equal to 30% of annual value;
(b) Interest on borrowed capital: Where the property has been acquired, constructed,
repaired, renewed or reconstructed with borrowed capital, the amount of any interest
payable on such capital.
Pre-construction/acquisition period: Where the property has been acquired or constructed
with borrowed capital, then the interest payable on such borrowed capital, relating to pre-
acquisition or pre-construction period, shall be allowed in 5 equal installments beginning with
the previous year in which house is completed.

Where -

A) Pre-acquisition/pre-construction period shall-

a) start from the date of borrowing; and
b) end on–
i. 31 st March preceding the year of completion of construction or acquisition; or
ii. on the date of actual repayment of loan,
Whichever is earlier.

B) Interest of pre-acquisition or pre-construction period = Loan taken for acquisition and

construction of a house property (x) Rate of Interest (x) Pre-acquisition or pre-
construction period.

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The following points should be noted in order to claim any deduction:-

i. Interest on unpaid interest is not deductible:

The assessee is entitled to deduct only the interest payable by him on the capital
borrowed, and not the additional interest which has incurred on him due to his failure to
pay the interest on the due date as it is considered as part of the loan.[CIT v Saifuddin
1990 Tax LR 328 (Bom)]
ii. No deduction is allowed for any brokerage or commission for arranging the loan.
[Circular No. 28, dated 20-8-1969
iii. Interest on a fresh loan:-
Interest on a fresh loan taken to repay the original loan shall be allowed as a deduction,
provided the second loan has been used to repay the first loan. The interest paid on the
second would also be allowed as a deduction u/s 24. (Circular No. 28 dated 20.8.1969)
iv. Any interest payable outside India, on which tax has not been paid or deducted at source,
shall not be allowed as deduction.
Maximum deduction for interest allowable when the property is self- occupied:

Normal Ceiling:

Deduction under this section is restricted up to Rs. 30,000 (pre-construction + post construction) in
each previous year.

Increased Ceiling:

Where the property is acquired or constructed with

1. Capital Borrowed on or after the 1st April, 1999 and

2. Such acquisition or construction is completed within 5 years[Amended by FA 16]
From the end of the financial year in which capital was borrowed, deduction shall be allowed
up to Rs. 2,00,000.

Imp Note : This increased ceiling of Rs. 2,00,000 is available only for acquisition or construction of
the house.
It is not for repairs, renewal or any additions to the existing property.

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NOTE :

1) If new loan is taken for repayment of earlier loan, the ceiling of new loan shall be the same as
earlier loan.
2) If both the loan amounts are utilized in the construction/ acquisition of house, interest on both
the loans are allowable as deduction. However the aggregate limit of both the loans shall not
exceed the higher of the individual limits of either loan. For example if 1 loan is eligible for
Rs. 30,000/- and another one is eligible for Rs. 2,00,000/-, then aggregate limit shall be Rs.
2,00,000/-

Building

Let out Property Self Occupied Property

GAV xxx
Only one SOP as per All other SOPs are
(-)Municipal (xx) choice of assesse is treated as Deemed to
treated as SOP be let out.
Tax

NAV xxx
NAV Nil GAV xxx
(-)Deduction (xx)
(-)Deduction (xx) (-)Municipal (xx)
u/s 24(a)
u/s 24(a) Tax
(-)Deduction (xx)
(-)Deduction (xx) NAV xxx
u/s 24(b)
u/s 24(b) (-)Deduction (xx)
Taxable xxx
Loss (xxx) u/s 24(a)

(-)Deduction (xx)

u/s 24(b)

Taxable xxx

CA ASHISH DEOLASI (CS) A.Y. 2019 – 20 117

OTHER PROVISION:

SEC 25[A] ARREARS OF RENT AND RECOVERY OF UNREALIZED

RENT : [AMENDED BY FA 2016]

The amount of arrears of rent received from a tenant or the unrealized rent realized
subsequently shall be chargeable under the head House property in the previous year in which
it is received or realized.

A sum of 30% of the arrears of rent or the recovery of unrealized rent shall be allowed as
deduction.

Illustration

PY 2013-14

Case 1 Case 2 Case 3

Exp Rent 1,00,000 1,00,000 1,00,000
Actual 80,000 1,20,000 1,50,000
Less : Unrealized 25,000 30,000 20,000
Rent
Net actual Rent 55,000 90,000 1,30,000
GAV 1,00,000 1,00,000 1,30,000

The Assessee recovers the unrealized rent during the year 2017-18 as follows –

Case 1: Rs. 25000 Case 2: Rs. 25000 Case 3: Rs. 16000

Calculate the taxable amount.

Solution :

Case 1 Case 2 Case 3

Exp Rent 1,00,000 1,00,000 1,00,000
Actual Rent 55,000 90,000 1,30,000
Add : Recovered Unrealized Rent 25,000 25,000 16,000
Net Actual Rent 80,000 1,15,000 1,46,000

CA ASHISH DEOLASI (CS) A.Y. 2019 – 20 118

Re-calculated GAV 1,00,000 1,15,000 1,46,000
Less : GAV taxed earlier 1,00,000 1,00,000 1,30,000
Increase in GAV (i.e. taxable amount) NIL 15,000 16,000
Less : Deduction 30% 4,500 4,800
Taxable Amount 10,500 11,200
Illustration

PY 2013-14

Case 1 Case 2 Case 3

Exp Rent 1,00,000 1,00,000 1,00,000
Actual 80,000 90,000 1,50,000
GAV 1,00,000 1,00,000 1,50,000

The Assessee recovers the arrears of rent FPR PY 2013-14 during the year 2017-18 as follows –

Case 1: Rs. 15000 Case 2: Rs. 25000 Case 3: Rs. 16000

Solution :

Case 1 Case 2 Case 3

Exp Rent 1,00,000 1,00,000 1,00,000
Actual Rent 80,000 90,000 1,50,000
Add : Arrears of Rent 15,000 25,000 16,000
Net Actual Rent 95,000 1,15,000 1,66,000
Re-calculated GAV 1,00,000 1,15,000 1,66,000
Less : GAV taxed earlier 1,00,000 1,00,000 1,50,000
Increase in GAV (i.e. taxable amount) NIL 15,000 16,000
Less : Standard Deduction 30% 4,500 4,800
Taxable Amount 10,500 11,200

CA ASHISH DEOLASI (CS) A.Y. 2019 – 20 119

SEC 26 TREATMENT OF INCOME FROM CO-OWNED PROPERTY

Where the property consisting of building and land appurtenant thereto is owned by two or more
persons and their respective shares are definite and ascertainable, the share of each person in the
income from the property as computed in accordance with section 22 shall be included in his Total
Income.

a) Where the property of the co-owners is self-occupied by each of the co-owners, the NAV for
each of such co-owner shall be Nil and each co-owner shall be entitled to deduction of up to
Rs. 30,000/Rs. 2,00,000 on account of interest on borrowed capital.
b) In the case the whole of such property or part of such property is let out, the income from such
property or part thereof shall be first computed as if the whole of such property is owned by
one owner and then the income so computed shall be apportioned amongst each co-owner as
per their definite share.

Co-owners of:-

Let out Property Self Occupied Property

Find out income under Every owner shall have

House Property . NAV = Nil

Divide the Income Among Every owner can claim

owners in ownership deduction u/s 24(6) upto max.
Ratio. ceiling limit, subject to certain
conditions.

Particulars Amount (Rs.)

Income under the Head House property xxx
Normal Income (as in case of SOP or let out property) xxx
Recovery of Unrealised Rent xxx
Arrears of the Rent (if any) xxx

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