UNIT 8 INCOME FROM HOUSE

PROPERTY
Structure
Objectives
Introduction
Income ftom House Property
8.2.1 Buildings or Land Appurtenant Thereto
8.2.2 Assessee to Pay Tax on Annual Value
8.2.3 Assessee should be the Owner of the House Property
8.2.4 The House Property should not be Used for Assessee's Business of Profession
1ncome.from House Property Exempt from Tax
Some Important Points
Annual Value
Computation of Annual Value
8.6.1 Let Out House
8.6.2 Self-occupied House
Deductions from Annual Value
Computation of Income from House Property
Let Us Sum Up
Key Words
Answers to Check Your Progress
Terminal Questions/Exercises
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I 8.0 OBJECTIVES
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After studying this unit you should be able to

o list the incomes chargeable under the head house property
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l o list the exempted income from house property
determine the annual value of house property of different categories
1 0 explain the deductions available in respect of income from house property, and
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o compute the income chargeable under the head house property.
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8.1 INTRODUCTION
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Income from house property is the second head of income since the omission of the
head interest on securities and its transference to the head 'income from other
sources' by the Finance Act, 1988. The provisions of Income Tax Act, 1961 regarding
1 computation of taxable income from house property are contained in Sections 23 to
, 27. The taxable income from house property is not the income actually received as
rent but is calculated after maki'ng many deductions.

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In this unit you will study the incomes chargeable and incomes exempted d d e r the '

i head income from house 'property. You will also study how the annual value of the
houses of different categories is calculated and what deductions are allowed to
compute the income chargeable under the head income from house property.

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' 8.2 INCOME FROM HOUSE PROPERTY
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According to Section 22 of Income Tax Act, 1961 the assessee has to pay tiu on
annual value of the property:
i) which consists of any buildings or lands'appurtenant thereto
ii) which is owned by~theassesgee, and
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iii) which is not used for purposes. of assessee's business or profea$on.
Other Hen& of Income
8.2.1 Buildings or Lands Appurtenant Thereto t

House property means buildings or land appurtenant thereto, and the income from
such house properly is chargeable under the head income from house property. The
word 'building' has not been'defined by the Act. On the basis of judicial decisions,
however, the term building is wide enough to include residential houses, warehouses,
auditoriums for enfertainment programmes, cinema halls, buildings let out for office
use, stadium, open air theatre, dance hall, music halls and lecture halls. Temporary
hutments on vacant land are not included in buildings and any income from such
hutments is taxable under the head income from other sources. Land appurtenant to
building include compound, play ground, kitchen-garden, court yard etc. Land which
is not appurtenant to any building does not become house property for the purposes
of income tax. That means any rental income from land which is vacant and not
attached to building is not chargeable under the head income from house property.
Another point which is to be noted is that the location of the building iS immaterial.
It may be located in India or abroad; but the income from buildings is taxable under
this head of income. However, there are certain exceptions.
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Exceptions
a) Building or staff quirters let out to employees and others : Where the assessee
lets out the building or staff quarters to the employees of business whose
residence there is necessary for the efficient conduct of business, the rental
income from such employees is not taxable as income from house property.
b) Building let out for locating bank, post oflice, police station etc. : If building is let
out to authorities for locating bank, post office, police station, central excise
office, etc. such an income will be assessable as income from business provided
the dominant purpose of letting out the building is to enable the assessee to carry
on his business more efficiently and smoothly.
c) Composite letting of building with other assets : Where the assessee lets on hire '
machinery, plant o r furniture belonging to him and also buildings for a composite
rent, and the rent of the buildings is inseparable from the rent of the said
machinery, plant or the furniture, the income from such letting is chargeable to
income tax under the head 'Income fromsother Sources' o,r under the head
'Business or Profession', if such letting is his business.
d) Paying-guest accommodation : It is assessable as business income.

8.2.2 Assessee to Pay Tax on Annual Value

Another important point regarding income from house property is that it is the annual
Galue and not the rental value which is put to tax. Annual value is calculated by
making certain deductions from the rental value, reasonable rent or municipal rent.
You will study about the calculation of annual value in detail in Section 8.3.

8.2.3 The Assessee should be the Owner of the House Property

In order that a hduse property may be termed as house property under this head of
income', it is necessary that the assessee should be the owner of the house property.
It is the legal ownership and not the beneficial ownership. H e may or may not be the
beneficiary but he must b e l h e legal owner. W e r e the assessee is the lessee of
building and he derives income from sub-letting or re-letting, it will not be taxable
under this head of income but under the head 'Income from Other Sources' where
the property is mortgaged, the mortgager is the owner and pays tax and not the
mortgagee. One point which should be noted is that even if the owner is dealing in
the business of letting out of house property, the income therefrom will be charged
under Section 22 as income from house property and not under Section 28 under
business and profession.
Deemed owner : Section 27 of the Act also provides for certain persons who are not
the owners to be treated as deemed owners of house property. These persons have
to pay the tax on income from such house property. They include :
a) an individual who transfers otherwise than for adequate consideration any house
property to his or her spouse, not being a transfer in connection with an
agreement to live-apart, or to a minor child nbt being-a married daughter, shall
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be deemed to be the owner of the house property so transferred.
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Income ttom Hou'se Property
b) the holcler o i an impartible estate shall be deemed to be owner of the house
property.
c) A member of a Cooperative Society, to whom a building or a part thereof is
allotted or leased under the house building scheme of the society, is treated as
deemed owner of such property.
d) a person who is allowed to take or retain possession of any building or part
thereof in part performance of a contract of the nature referred to in the Transfer
of Property Act.

e) a person who acquires any rights in any building or part thereof by virtue of any
such transaction as is referred to in the clause (f) of Section 268 VA (Transfer
under purchase by Central Government of Immovable Properties)
f) a person who takes larid on lease and constructs a house upon it.

8.2.4 The House Property should not Used for Purposes of Assessee's
Busincss or Profession
If the property or part thereof is used for assessee's business or profession, the income
from which is chargeable to tax, then the annual value of such property or portion
will not be taxed under Section 22 i.e. income from house property.

8.3 INCOME FROM HOUSE PROPERTY

EXEMPT FROM TAX
There are two kinds of exemptions regarding income from house property: (1) which
is totally exempt and (2) which is partially exempt. The first means which is neither
included in total incorne nor taxable and the second means which is included in total
income for rate purposes but is not taxed.
First Category : Income house property which is totally exempt :
i) Buildings situated in the immediate vicinity of agricultural land and which is
occupied by the cultivator as a dwelling house or as a store house. It is treated as
agriculture income and is fuliy exempt.
ii) Any one palace in the occupation of a Ruler.
iii) House properties belonging to a local authority, scientific research association,
University or other recognised educational institution, hospital, or Games or
Sports Association and Registered Trade Union.
iv) Property belonging to an authority constituted under any law for the purpose
of marketing of commodities and used for letting of godowns or warehouse for
storage of commodities.
v) House property~heldby a trust established wholly 'for charitable purposes.
vi) Housd property held by a political party.
vii) House property owned by an assessee and used for his own business or
professional purposes.
viii) Self-occupied houses - The Finance Act, 1986 w,e.f. 1.4.1987 provide that where
the property consists of one house or part of a house in the occupation of the
owner for his own residence and is not actually let out during any part of
previous year, the annual value of such a house shall be taken to be nil.
Second Category : Income from house property which is partially exempt :
i) Building belonging to a co-operative society and income derived by it from letting
, of godowns or warehouses for storage of commodities.
ii) Building belonging to a co-operative society, where the gross total income of the
society does not exceed Rs. 20,000 and the society is not a housing society or an
urban consumers society or a society carrying on transport business or a society
engaged in manufacturing.operations with the aid of power.
Other Heads of Income
8.4 SOME IMPORTANT POINTS
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i) Income from house property situated abroad : Income from any house property I

situated abroadis taxable only in case of an individual. Not ordinary resident and
non-resident pay tax on such property only when it is received in India. A
resident will pay tax on foreign property as if such property is situated in India.
ii) .Disputed Ownership : If the title of ownership is disputed in a court of law,. the
decision as to who is the owner rests with the income-tax department. Generally,
the recipient of rental income or the person who is in possession of the property
is treated as the owner.
iii) Composite Rent : If a building is let out to a person alongwith other facilities (e.g.
electricity, cooler, water pump, water tax etc.) for a composite rent'and if the
rent of the building can be separated from the rent of such facilities, the two rents
will be seperated and that belonging to the building only will be taxed under the
head 'House Property' and that which belongs to other facilities will be taxed under
the head 'Income from dther Sources'. If the eomposite rent cannot be split up
it will not be taxed under the head 'House Property', but under the head 'Other ,
Sources. '
iv) Property owned by Co-owners : Where a property is owned by two or more
persons jointly and their respective shares are definite and can be ascertained
then income from such property shall not be assessed on such persons as
association of persons, but the share of each person will be calculated and added
to their respective total income.
v) Income from sub-letting : This is chargeable under the head other sources as the
person sub-letting is not the owner.

8.5 ANNUAL VALUE

As stated earlier, the assessee has ko.pay tax on the annual value of the house owned
by him. Therefore, it is very important to calculate properly the annual value of the
property. According to Section 23 of Income Tax Act, 1961, the annual value of a
house property shall be : %

a) the sum for which the property might reasonably be expected to let from year to
year; or
b) where the property is let and the actual rent received or receivable by the owner
in respect thereof is in excess of the reasonable rent, the actual amount of rent
received or receivable.
Any taxes levied by the local authorities and borne by the owner should be deducted
to calculate the annual value of the property.
The above definition makes it clear that annual value of the any house property is its
reasonable rent. But, if the actual rent is higher than the reasonable rent then the
actual rent received or receivable will be the annual value. It must be noted here that
annual value is not determined by actual or reasonable rent alone. In case the rent
of house property is fixed by rent controller under the Rent Control Act. The annual
value in such a case cannot exceed the rent fixed by the Rerit Controller, In case the
actual rent exceeds the rent fixed by the rent controller then the actual rent would.
be the annual value. From the above discussion it is clear that annual value is
determined by taking into account many factors. They are:
i) Municipal valuation fixed by the local authorities on the basis of income earning
capacity of the property. It is fixed to calculate the house-tax t o be paid by the
owners.
ii) rent received or receivable from the tenant.
iii) Reasonable rent i.e. the rent 05 similar properties in the same locality, and
iv) Standard rent the rent fixed by the Rent Controller under Rent Control Act. 7

Where the Standard Rent is applicable reasonable rent and municipal value will '
' Income from House Propert!
not be taken into consideration even though they are higher than the standard
rent.

Check Your Progress A

1) Who are the 'deemed owners' of house property ?

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2) What is composite rent ?

3) Tick mark the correct answers.

i) The liability to pay municipal taxes lies with
a) owner
b) tenant
c) lease

ii) The assessee should be

a) beneficial owner' ' "
b) mortgagee
c) legal owner

iii) Which of the following is treated as business income

a) income from house let out for residential purposes
b) income from a hall let out for entertainment
c) income from houses let out to employees

iv) Which of the following income from house property is totally exempt
a) building of a co-operative society let out for storage of commodities
b) own house property used for business
c) income from accommodation given to a paying guest.

8.6 COMPUTATION OF ANNUAL VALUE I

When .a person owns a house he may occupy it himself or rent it out. The annual
value of house property would be different for the house which is given on rent and
which is occupied by the owner for his residential purposes. For the purposes of
calculation of annual value house property is divided into the following categories:
1) House which is let out
2) House which is occupied by the owners for residential purposes
Let us now discuss each one of them in detail:

8.6.1 Let Out House

The house which is let out is divided into two categories :
(A) Which is not covered by Rent 'control Act.
(B) Which is covered by Rent Control Act.
 (A) Wlilieh is not covered by the Rent Control Act
The actual rental inccpme or the rent at which it might be expected to be let out or
the municipal valuation, whichever is tbe highest, will be gross annual value. Any
punicipai taxes or tax levied by any local authority paid and borne by the owner shall
be deducted from the gross annual value and the balance left will be the net annual
value. The lrlunicipal taxes shall be deducted in the year rn wllicli they are actually
paid, whether for current year only or for tile previous year and not on accrual basis.
Look at Illustration. 1 and see how the annual value of let out house which is not
covered by the Rent Control Act is calculated.

Mr. Ashpk is the owner of a house (not covered under Went Control Act) which is
let our at Rs. 1,500 per rnontli. Municipal taxes of the house are Rs. 1,200 (being
10% of the municipal value) out of which Rs. 700 are paid by the tenant. The
reasonable rent is Rs. 10,000 per annum. What wili beqannualvalue of the house?

I Solution

I Annual value is the highest of the following three less taxes borne by the owner:
Rs.
i) Actual rent (1500 x 12) 18,000
100
ii) Municipal value (1200 x ,I 12,000

I iii) Reasonable, rent 10,000

I Annual value
Rs.
Actual rent 18,000
Less municipal taxes
borne by the owner
(1200-700) 500

(B) WhicIl Is covered by the Rental Control Act

In this case standard rent is fixed by the Rent Controller. Thc annual value will be
the actual rent received or standard rent, whichever is higher. It will be gross annual
value. From the gross annual value anymunicipal taxes or tax levied by any local
authority and paid and boYne by tl!e owner will be deducted and the balance left will
be the net annual value. Look at Illustration.2 for calculation of annual value of a let
out house covered under Rent Control Act:
Note : Even if the Municipal value or reasonable rknt are higher than standard rent
or actual rent, they will not be considered in this case.

Illustration 2
Mr. X is the owner of two houses (covered under the Rent Control Act) which are
let at Rs. 1,000 p.m. and Rs. 1,500 p.m. Municipal taxes on these houses are paid
by the owner which amount to Rs. 800 and Rs. 1,000 respectively (being 10% of
municipal valhation). The Standard Rents fixed under the Rent Control Act are
Rs. 14,000 and Rs. 16,000 per annual respectively. What will be their Annual Value?
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Solution *- ,

Gross annual value is the highest of the following;

First House Second House
Rs. Rs.
Rent reckived 12,000 18,000
Standardrent 14,000 16,000
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~ r o q ' a n n u avalue
l of the,first house will Rs. 14,000 and o i the second house it
will bel~Rs.,18,000.
 Annual Value will -be : First House Second House . lncome frnm House Property!
Rs. Rs.
Gross annual value 14,000 18,000
Less Municipal taxes
borne by the owner 800 1,000
13,200 17,000

Thus annual value of first house is Rs. 13,200 and that of second ]louse is Rs. 17,000.

Statutory Deduction
New houses or units, whose construction commenced after 1st April, 1961, and which
are let out for residential purposes are further entitled-to statutory deduction from
the annual value determined as above. This deduction is allowable for each
independent unit of the house separately, as if each unit is a separate house. Each
independent unit is that which has separate municipal number, separate electric and
water metres and independent latrine; bathroom, kitchen etc. A t present, the
deduction is relevant for those houses which a x completed after 31st March 1982.
This deduction is allowed for a period of 60 months from the date of completion. The
rate of deduction is as under :
i) In respect of any residential unit whose annual value as determined does not
exceed Rs. 3,600, the amount of such annual value and
ii) in respect of any residential unit whose annual value as determined exceeds
Rs. 3,600, an amount of Rs. 3,600.
Illustration 3 will help you understand the calculation of annual value after allowing
the permissible amount of statutory deduction:
Illustration 3
From the following particulars compute the adjusted annual value of a house property
for the assessment year 1990-91
1) Date of commencement of construction 10th July, 1987.
2) Date of completion of construction 1st May, 1989
3) Let out for the residential purpose on 1st June, 1989 at the rate of Rs, 600 per
month. .
4) Municipal value of the property Rs. 6,000.
5) Annual municipal taxes paid Rs. 400.
Solution
Gross annual value Rs.
(Municipal value or actual rent, whichever is more) 7,200
Less municipal taxes 400

Annual value
Less statutory deduction
Adjusted or net annual value

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I Hence, proportionate annual value for 10'months will be
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- lo 392M)= Rs. 2,667.
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8.6.2 Self-occupied House
The owner of house can
A occupy the house for full year
B occupy the house for a part of the previous year and for some part of the previous
year it is let out
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C occupy a part of the house for full year and a part for the part of the year ( i s .
a part of the house is let out for a part of the previous year).

1 Let us now see how the, annual value of the house is calculated in the above
me~tinnedthree cases.
Other Heads of Income i) l l e n the house is self-occupied for the full year
A
The annual value of the house which is occupied by the owner for his
residential purposes is nil.
ii) If a part of the house is self-occupied by the owner for full previous year and
a part is let out for full previous year, the annual value shall be determined
as under:
i) From the annual value of the full house the proportionate annual value
for self-occupied part for whole year will be deducted;
ii) the balance lef? $ill be the annual value of t'he let out part for full year.
In case the property consists of more than one house in the occupation of the owner
for the purpose of hiJ own residence, the annual value in respect of one such house,
which the assessee may choose, shall be taken as Nil. The annual value of the
remaining self-occupied houses will be determined as if such houses had been let out.
However, in respect these other.self-occupied houses, which have been deemed to
be let out, the statutory deduction will not be allowed.

B If the whole house is self-occupied by the owner for a part of the previous year
and the whole house is let out for a part of the previous year, the annual value
shall be determined as under:
i) First of all the annual value of the whole house shall be determined.
ii) Then the annual value for that period shall be deducted during which the
house is self-occupied by the owner. .
iii) The balance left shall 'be the annual value of the house
Illustration 4 will help you to clearly understand the calculation of. the annual value
of the house which is self-occupied for a part of the previous year and let out for the
remaining part of the previous year.

Illustration 4
From the following information of Mr. A , compute the adjusted annual value of the
let out period of the house for the Assessmelit Year 1990-91.
Murlicipal value Rs. .20,000
Municipal tax paid 4,000
.
House was self-occupied for first six months and for the remaining six months it was
let out at the rate of Rs. 2,000 p.m.

Solution
Gross annual value is highest of the following:

Municipal value
Actual rent (2,000 x 12)
Gross annual value
Less municipal taxes

Annual value
Less 112 of the annual value
for self-occupied period
Adjusted annual value for let out period
> '

C If a part of the house is let out for a part of the. previous year or a part of the
house property is self-0ccupied.b~the owner for full year and a part is occupied ,
by the owner for a part of the year (i.e. a part of the house is let out for a part
of the previous year), the annual value shall. be determined as under:
i) First of all from the annuaivalue of the full house, the proportionate annual
value of the self-occupied part which is self-occupied for full year shall be
dedlicted.
 ii) From the balance the proportionate annual value for the period during which lllrorne [rum House ~ r ~ p r f !
the remaining part was self-occupied shall be deducted.
iii) he balance left shall be the annual value for let out portion for the let out
period.
Look at Illustration 5 for clear understanding of calculation of annual value of the
above mentioned category of ho.uses:
Illustration 5
From the following information of Mr. A , compute the adjusted annual value of the
let out portion of the house for the Assessment Year 1990-91.
Municipal value Rs. 30,000
Municipal tax paid Rs. 6,000

House is self-occupied but is 114 of the house is let out @ Rs. 700 p.m. from 1.1.90

Solution
Calculation of Adjusted Annual Value:
RS.
Gross annual value 33,600
Municipal value 30,000
Actual Rent
(700 X 4 X 12) 33,600
Less municipal taxes

Less 314 of the annual value for self-occupied

portion for full year

Annual value of 114 of the house

for full year
Less 314 ( i e . 2 of 6,900 for
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self..occupied portion of the
house for mine months 5,175

Part of the house is let out for 3 months 1,725

Adjusted annual value of part of the

house for part of the previous year.
Note : If the house is newly constructed and is let out for residential purposes during
the year, statutory deduction will be allowed as per rules for_fiveyears from the date
of construction. Such a deduction will be'allowed only when the let out portion is an
independent unit.
Self-occupied house remaining .vacant
If the owner for some reason is not able to stay in the house then the annual value
of such self-occupied vacant house would be nil provided the house is notlet out and
n o other benefit is derived froin it by the owner in the previous year.

8.7 DEDUCTIONS FROM ANNUAL VALUE

For computing the income chargeable under the head 'Income from House Property',
Section 24 provides for the following deductions to be made from the adjusted annual
value of house property apart from the deductions regarding local taxes and statutory
allowance. They are :
1) Repairs
a) Where the property is let to a tenant or is deemed to be let out and the owner
has undertaken to bear the cost of repairs a sum equal to 116th of adjusted 13
Mher neads of Income
annual value shall be deducted as Repairs Allowance. It is a .statutory
allowance which is always allowed irrespective of the fact, whether the actual
expenditure on repairs is less than or is more than 116th of annual value, or
whether no amount is spent on repairs or even if the house remained vacant
throughout the previous year.
b) Where the property is in the occupation of a tenant who has undertaken to
bear the cost of repairs, the repair allowance shall be limited to either:
i) the excess of annual value over the amount of rent payable for a year by the
tenant; or
ii) a sum equal to 116th of the annual value, whichever is less.
Note : If adjusted annual value is less than or equal to actual rent payable du;ing the
year, no deduction is allowed in respect of repairs in that year.
Look at Illustration 6 and see how deductions in respect of repairs a're made from
annual value to calculate income from house pioperty.

Illustration 6
Mr. Ramesh owns a house, whose municipal valuation is Rs. 10,000 p.a. The house
is let out at a monthly rent of Rs. 8,200 p.a. to Suresh who undertakes the cost of
repairs. Local taxes of Rs. 600 are paid by Mr. Ramesh. Compute the income from
house property.

Solu tion
Rs.
Grms annual value 10,000
Municipal value Rs. 10,000
Actual rent RS. 8,200
(whichever is higher)
Less municipal taxes
Annual value
Less allowance for repairs,
least of the following two

ii) Annual value 9600

Less actual
rent paid @ '1400
Income ffom house property

2) Insurance Premium
Any insurance premium paid on house property against the risk of damage or
destruction through any cause, e.g., fire, earthquake, lightening and so on. It is
only the actual premium paid that can be claimed as deduction.
3) Annual Charge
If there is an annual charge on the pioperty it is an allowable deductisn; but such
charge should be legally enforceable and should neither be created, by the
assessee voluntarily nox it should be in the nature of capital charge. Thus a
revenue annual charge is allowable as deduction only if it has not been created
by the assessee voluntarily. It does not include any tax in respect of the property.
4) Ground Rent
' The owner of a building -may.be lessee of the land on which the building is
erected. Any ground rent payable in respect of the lease of that land is allowable
as a deduction on accrGa1 basis. NO deduction is allowed for interest on enhanced
ground rent but any additional ground rent paid to regularise the unauthorised
, use of building is allowed.
5) Interest on Loan Taken in Respect of House Property
Interest on loan taken for the purpose of purchasing, constructing,
reconstructing or repairing the house property is alloyable as a dedustion Qn
 accrual basis. It is not necessary, for the purpose, that the loan sct borrowed or Income kobn Housc Properly

the interest payable thereon is secured by a charge on property.

I Explanation : Interest payable in respect of funds borrowed for the acquisition or
construction of house property and pertaining to the periodprior to the previom year
in which such property has been acquired or constructed, shall be deducted in five
equal annual instalments commencing from the previous year in which the house was
acquired or constructed.

Illustration 7
Interest on loan of Rs. 40,000 taken on 1.4.1986 at the rate af 10% p a . to canstruct
a house is Rs. 4,000 for tlie previous year 1989-90, when the construction of the house
I
I was completed. Interest for the preceding three years was also paid but not claimed
as deduction.
Compute for the assessment year 1990-91 the amount of interest deductible in

I
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computing the income fi-om.house property if the house is (i) let out, and (ii) self-
occupied.

Solution
Rs. Rs.
i) Interest for P.Y. 1989-90 4,000
Interest for three years
prior to the current previous
year (during which the construction
of the house is completed) Rs. 12,000
deductible In five equal instalments. 2,400
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ii) If the house isself-occupied the
deduction shall be allowed to the
cxtent of Rs. 5,000 only.

6) Land Revenue and Property Tax

Any sum paid on account of land revenue or any other tax levied by the State
'
Government in respect of the liroperty is deductible.
7) Collection Charges
Any sum spent to collect the rent from the property, not exceeding 6% of
adjusted annual value of the property, is allowed as deduction. I t includes
(i) legal expenses incurred to collect the rent, (ii) salary paid to an employee to
collect the rent, (iii) conveyance charges incurred to collect the rent, (iv) postal
charges incurred to collect the rent, (v) bank commission to collect the rent.
8) Vacancy Allowance
When the property is let and remains vacant during a part of the year, the part
of the adjCsted annual value which is proportionate to the period during which
the property is wholly unoccupied will be deducted as 'vacancy allowance'.
Where the property is let out in parts, and any part of it remains vacant for a
part of the previous year, that portion of the adjusted annual value appropriate
of any vacant part, which is proportionate to the period during which such part
remains vacant will be deducted as 'Vacancy Allowance'. Where the property
remains vacant for full year, no vacancy allowance will be available.
Example
Annual value of the house is Rs. 80,000 and Adjusted Annual Value is Rs. 60,000.
A portion of the house fetching rent Rs. 2,000 p.m. remaill vacant for 4 months
during the previous year, the vacancy allowance would be computed as follows:
In this case, vacancy allowance shall be computed as under:
Rent p.m. X Vacancy period X Adjusted Annual Value of the house
Annual value of the house
Other Heads of Income
9) Unrealised Rent
If the assessee is unable to recover the entire amount of rent due from his tenant
.in respect of house property let out to him, the unrealised amount of rent shall be
,deducted from the adjusted annual value of that house, provided that it fulfils
the following cbnditions:
i) the tenancy is bonafide;
ii) the defaulting tenant has vacated or legal steps have been talcen to compel
him to vacate the property;
iii) the defaulting tenant is not in occupation of any other property of the
assessee;
iv) th'e assessee has taken all reasonable steps of instituting legal proceedings for
the recovery of the unpaid rent or satisfies the Assessing Officer that legal
proceedings would be useless; and
v) the annual value of the property to which the unpaid rent relates has been
included in the assessed income of the p~eviousyear during which the rent
was due and tax has been duly paid on such assessed income. This is subject
to the limit that deduction to be allowed on this account shall not exceed the
income under the head 'Income from House Property' included in the total
income as computed without making this deduction. Unrealised rent
would be deductible from the income from house property in each
assessment year till such deductioil is exhausted. From the assessment year
1987-88 no deduction will be allowed in respect of self-occupied property
where annual value is nil or in respect of the property which cannot be
occupied and whose annual value is nil. Ilowever, this prohibition will not
hit the deduction of interest on capital borrowed for construction, repairs etc.
. of self-occupied property if the amount of interest does not exceed Rs. 5,0001-.

8.8 COMPUTATION OF TAXABLE INCOME FROM

HOUSE PROPERTY
Computation of income fram house property is done in the following proforma:
Fair Rental Value of the house : ............
(Actual rent or Municipal value, whichever is higher,
or if Rent Control Act is applicable on the
house, Standard Rent or Actual Rent,
whicli is higher)
Less i) Local Taxes paid by the owner ............
ii) Cost of other facilities provided
by the owner to the tenant, such
as lift, chowkidar etc. ............
Annual Value ............
Less Statutory Deduction for 5 years (In case
of newly built house after 31.3.1982 and
let out for residential purposes) ............
Adjusted Annual Value ..........:.
Less Deductions :
i) Repairs Allowance
ii) Insurance Premium Paid
iii) Annual Charge
iv) Ground Rent
v) Interest on Loan taken in respect of
house property
vi) Land Revende paid
vii) Collection Charges paid
(restricted to 6% of A.A.V.)
viii)Vacancy Allowance
 ix) Unrealised Rent ............ ............ . ~ncom)from House Propert)

Taxable Income from House Property Rs .............

Look at Illustrations 8, 9 and 10 and see how Income from House Property is
computed.
.
'.

Illustration $
Mr. X owns four houses, the details regarding which are as follows:
1) The first house of the annual rental value of Rs. 10,000 was ~ccupiedby him for
his residence. This house was constructed by a loan, Rs. 7,000 is the interest
paid during the year on the same.
2) .The second house of the annual rental value of Rs. 10,000 was let out for
Rs. 12,000 per annum. He claims the following expenses in addition to the
statutory allowance for repairs, viz., Rs. 100 for Fire Insurance Premium, Rs. 24
for Ground Rent and Rs. 1,000 for collection charges.
3) The third house of the municipal valuation of Rs. 6,000, was let out at Rs. 600
p.m. A loan was taken on 1st April 1985 for the construction of the third house,
the construction of which began on 1st May 1985 and ended on 31st January 1987. '
The house was let out on 1st February 1987. For the previous year 1989-90 the
interest paid by him in respect of the loan amounted to Rs. 800 and for the
previous years 1985-86 to 1988-89 the interest paid has been Rs. 1,500, Rs. 1,400,
Rs. 1,200 and Rs. 1,000 respectively. Municipal taxes were paid @ 10% of
municipal valuation.
4) The fourth house, the municipal valuation.of which is Rs. 6,000 was let out at
Rs. 600 p.m. It remained vacant for 4 months. The unrealised rent in respect of
this house for past years was Rs. 10,000 which satisfies all conditions for its
allowance.

1
I
Find out the taxable income from house property for the assessment year 1990-91.

I Solution
Computation o f Taxable Income from House Property
For the Assessment Year 1990-91
1) First House
Annual value 'of self-occupied house Nil Rs.
Less Interest on loan upto Rs. 5,000
Loss from the house. .........
2) Annual value of the second house.. ............. 12,000
Less 114th for Repairs 2,000
Fire Insurance Premium 100
I
Ground Rent 24
Collection charges
restricted to 6% of A.V. 720 2,844 9,156 ,
3) Annual value of the third house 7,200
Less Municipal taxes (10% of 6,000)

Less Statutory Deduction 3,600

Adjusted annual value ............... 3,000
I Less Deductions:
,
116th for Repairs 500
Interest on loan for
P.Y. 1989-90 800
115th of interest on loan
-
! paid in 1985-86 (P.Y .)
4) Annual value of the fourth house
300 1,600
7,200
1,400

i
I
Less Deductions:
116th for Repairs
Vacancy Allowance
1,200
2,400
Other , h d s of Income * Unrealised Rent 9,156
- -

Loss from the fourth housc -5,556

---
Taxable Income from House Property .... ...................... Nil

Notes
1) In respeci of the third house, interest on loan paid in the previous years prior to
construction of the house is allowable in five equal annual inst, 1rrlents
commencing from'the year in which the house is constructed..Here the house was
constructed &the P.Y. 1986-87, so the interest for the P.Y. 1985-86 will be
allowable in five equal annual instalments commencing from the P.Y. 1986-87 or
Assessment Year 1987-88. For the A.Y. 1990-91 fourth instalment of Rs. 300 has
been deducted. The interest for P.Y. 1986-87 to 1988-89 would have been
allowed fully in the respective Assessment Years.
2) The unrealised rent in respect of the fourth house is Ks. 10,000, but the taxable
incomc under the head 'House Property' before making deduction for unrealised
rent is (9,156 + 1,400 + 3,600 - 5,000) = 9,156. Hence, deductioil in this respect is
allowed to the extent of Rs. 9,156 only.

Mr. X owns a house at Kanpur (Municipal value Rs. 20,000) of the fair rent of
Rs. 24,000 p.a. During the previous year 1989-90 the house is used by him for his
own residence from 1st April 1989 to 30th June 1989 and let out for residential
purposes on 1st July 1989 @ Rs. 2,500 p.m. I-Ie makes the following expenditure in
respect of the house property.
Municipal taxes Rs. 6,000, Repairs Rs. 2,000, Fire Insurance Premium Rs. 3,500,
and fievenue, Rs. 4,000 and Ground Rent Rs. 2,000 were paid during the year. A
loan of Rs. 30,000 was taken on 1st April 1986 @ 15% p.a. for the construction of
the house which was conlpleted on 1st April 1989. qothing was repaid on loan account
so far. Find out his taxable income from house property for the Assessment Year
1990-91

Solution Rs.
Fair ~ k n being
t based on actual rent (Rs. 2,500 x 12) 30,000 !
Less Municipal Taxes - ,6,000
Annual value 24,000
Less annual value for self-occupied period
(114 of 24,000)
Net annual value
Less statutory deduction for 9 months
Net Adjusted annual value
Less Deductions:
116th for Repairs 2,550
Fire Insurance Premium 3,500
Land Revenue 4,000
. Ground Rent 2,000
Interest on Loan for P .Y. 1989-90 4,500
Add: 115th of interest on loan
paid'for P.Y. prior to
construc;fion, i.e. Rs. 4,500
per year for 3 years, i.e.

Amount deductible cannot exceed Rs. 15,300 u/s 24(3).. ..:,. ... .... 15,300
Taxable Income from House Property Nil
I
 Illustration 10 Ineomc from House Properly
Assume in illustration 8 that:
a) three-fourth portion of the house is self-occupied for full year; and
b) one-fpurth portion of the house is let out for residential purposes from 1st April
1989 to 31st December 1989 on a rent of Rs. 700 p.m. and from 1st January 2990
it was again used for his own residence.

I *
Find out his taxable income from Rouse Property for the Assessment Year 1990-91.

Solution Rs.
Fair rent being based on actual rent ( 7 0 0 x 4 12)
~ 33,600
Less municipal taxes 6,000
I 27,600

I
Less annual value of 314 portion which is self-occupied 20,700
Annual value of 114 portion............. 6,900

I Less annual value for 3 months during which 114 portion is self-occupied
Annual value of 114 portion let out for 9 months
1,725

Less statutory deduction @ Rs. 3,600 p.a. for 9 months

Net adjusted annual value uls 23(2)(a)(ii)
Less Deductions:
116th for Repairs 412
Fire Ins~irancePremium 3,500
Land Revenue 4,000
Ground Rent 2,000
Interest on loan as determined in the
preceding illustration
,-
/

Amount deductible not to exceed Rs. 2,475 uls 24(3) .............. 2,475
Income from House Property ................ Nil

,,,eck Y.our Progress b

1) A is owner of a house (covered under Rent Control Act). He lets out his house
to B at Rs. 8,000 pez annum. Rent Contl.oller fixes the standard rent at Rs. 9,600.
However the municipal value of the house is Rs. 10,000. A pays Rs. 800 as local
taxes. What is the annual value of the house ?

2) How do you calculate the annual value when the part of a house is let out for a
part of the previous year.

3) The annual value of a house is Rs. 8,400 and it is let out at an actual rent of
Rs. 9,600. What is the amount of deduction available for repairs.
.........................................................................................................
Other Beads of lr~cornc --
8.9 LET US SUM UP
Income from house property is second major head of income. Income frorn house
property is the annual value of any property which consists of building and land
appartment thereto, is owned by the assessee and is not used for assessee's bu3iness
or professio~l.
Annual value of the propeity is not the rent received but the reasonable rent, but
where actual rent is higher than the reasonable rent the annual value is the actual
rent received as reduced by the inunicipal taxes borne by the owner of the house.
For the purposes of computation of annual value the house property is divided into
two:
i) Let out house
ii) Self-occupied house.
A house which is let out can either be under Rent Control Act or not. When it is not
under Rent Control Act the annual value is actual rent, reasonable rent or municipal
value whichever is higher as reduced.by municipal taxes paid by the owner. M e n it
is under Rent Control Act the annual value is actual rent or spndard rent (as fixed
by rent contoller) whichever is higher as reduced by municipal taxes paid by the
owner.
A self-occupied house can be divided idto:
i) Self-occupied house for full year-annual value is nil.
ii) Part of the house is self-occupied and a part is let out for full year-annual value
is calculated as:
Annual value of the full house for full year less annual value of self-occupied
house foir full year.
iii) Full house self-occupied for a part of year and let out for the remaining part of
the year. Then, annual value is calculated as follows.
Annual value of full house for full year. Less annual value of full house for the period
for which it is self-occupied.
i.4) A part of the house is let out for a part of the prev'fbus year, then the annual,
value is:
Annual value of full house for full year
Less proportionat; annual value of self occupied part for full year.
Less proportionate annual value of self-occupied portion for part of these year.
Statutory deduction is allowed on all the houses newly constructed for five years from
the date of completion @ Rs. 3,600 on each independent unit let out. Annual value
as reduced by statutory deduction is called adjusted annual value.
Certain deductions are allowed from adjusted annual value to compute income from
house property. They are repairs @ 116th of adjusted annual value or excess of annual
value over rent payable, whichever is less; insurance premium paid; annual charge
on propertc ground rent, interest on loan taken for construction, purchase, repairs
etc. of house; land revenue and property tax; collection charges; vacancy allowance
and unrealised rent. After allowing all these deductions from adjusted annual value
the resulting figure would be the taxable income from house property.

8.10 KEY WORDS -

Annual Value : Annual value of a house property is reasonable rent or actual rent (if
, let out) whichever is higher as reduced by municipal taxes borne by the owner.
Composite Rent : When the building is let out alongwith certain facilities e.g. lift.
electricity etc. then the rent includes the rent for the house and these facilities. Such
a rent is called composite rent.
Ground Rent : Rent paid by the lessee on the land on which his building is erected:
Municipal Value : Value of the property fixed by local authorities on the basis of its ' ,
income earning capacity.
Reasonable Rent : Rent of similar properties in the same locality.
self-occupied House : House occupied by the owner of the property for his residential Income frnm Hor~seProper@

purposes.
Standard Rent : Rent fixed by the Rent Controller under Rent Control Act.
Statutory Deduction : Deduction available to newly constructed houses for five years
from the date of completion.
Unrealised Rent : Rent not recoverable by the owner;

8 ANSWERS TO CHECK YOUR PROGRESS .

A 3 i) a ii) c iii) c iv) b
B 1 Rs. 8-,800
3 Rs. 1,400

8.12 TERMINAL QUESTI[ONS/EXERCISES

Questions
1) Define annual value and state the deductions that are allowed from the annual
value in computing the income from house property.
2) Write short notes :
a) Vacancy Allowance
b) Ur~realisedRent
c) 'Repair Allowance
d) Income from House Property in foreign country
e) Standard Rent.
3) How would you determine the annual value of house property, which is
self-occupied for a part of the year only and let out for the remaining part.
Exercises
1) Mr. X owns house property. It5 annual letting value is Rs. 8,000. During the
previous year it was let out to a tenant on monthly rent of Rs. 600. He claimed
the following expenses actually incurred by him:
i) Municipal taxes Rs. 800.
ii) Expenses for the recovery of rent Rs. 600.
iii) Maintenance allowance paid to the step-mother Rs. 1,000 annually which was
a charge on the property according to his father's will.
The house remained vacant for one month during the previous year. Find out the
income from house property for the assessment year 1990-91.
(Answer : Rs. 3,968)
2) Mr. A owns a house which is let out for residential purposes. The coilstruction
of the house was completed in June 1986. The annual letting value of the house
is Rs. 8,400. Municipal taxes paid Rs. 1,200. H e sp&t Rs. 200 on repairs. On
1.4.1984 he had borrowed Rs. 30,000 on pro-note at 12% interest and spent it
011 the construction of the house. Nothing has been repaid out of this loan so far.
Mr. A earns salary of Rs. 2,400 p.m. He has a scooter for going to office and
spends for petrol etc. on an average Ks.100 per month. Compute his income
from house property and also his total income for the assessment year 1990-91.
(Answer : Property Loss Rs. 2,040; Net Salary Rs. 19,200; Total lnconle
Rs. 17,160.)
3) An assessee owns three house properties of which he used one (No. 111) for his
residence. The following are the particulars in respect of the p operties for the
year ended 31st March, 14r90:

I I1 111
When constructed 1953 March 1985 1968
Rs. . Rs. Rs.
Standard Rent 13,000 ,5,000 -
mRer Head\ or Inc~lme 12,000, '4,000 10,000
Municipal Value
Rent Received 14,000 4,800 -
Municipal Tax Paid 1,500 ' 500 500
How used Let out for Let out for Self-occypied
business residence
Repairs . , 600 LOO -
Interest on mortgage
(Loan not taken for house
property) -
Ground Rent 50 .
Fire Insurance Premium 70
Vacancy 3 months
Collection charges 850

The assessee's total income from other sources is Rs. 20,000. Compute the total
income of the assessee.
(Answer ! Property I Rs. 6,422; Property I1 Rs. 670; Property 111 Nil; Total
Income Rs. 23,092 or Rs. 27,090)
4) Mr. A has the following properties:
1) Flat in Bombay purchased on 1st June, 1989, which is let out on a monthly
rent of Rs. 2,000. The building in which the flat is located was completed in
May 1989. The flat was let out from 1st August, 1989. ,
2) Flat in Delhi constructed in 1985 which is self-occupied. :
3) Godown in Calcutta constructed in 1985 which is let out on a monthly rent of
Rs. 6,000. t

'The expenses actually incurred during the year against rental income are:
At Bombay At Delhi At Calcutta
Rs. Rs. Rs.
'

Municipal Taxes Paid 5,000 8,000 18,000

Building Co-operative
Maintenance Charges 1,000 900 -
Electricity Charges - 1,200 ' 4,800
Fire Insurance Premium - , - 600
Collection Charges 700 - 5,400
Repairs 1 , 20 1,900 . 11,000
The following further information is given:
1) The flat in Delhi is let out for godown w,e.f. 1.1.1990 which fetches a monthly
rent of Rs. 4,000. I

2) Mr. A received a consolidated salary of Rs. a500 per month during thc year
from a part-time employment which he holds. Compute Mr. A's gross total
income for the year ended on 31.3.19FO. .
, ( ~ n s w i :r Bombay Flat Rs. 6,900; ~glcuttkGodown Rs. 41,160; Delhi Flat
Rs: 8,333; Salary Rs. 12,000; Gross Tptal income Rs. 68,393.)

5) Mr. P. owds a housa i t JKanpur ( ~ u n i c i ~value

a l Rs. 30,000) of the fair rent
of Rs. 36,000 p.a. During the previous year 1989-90 the house is let out for
residential purposes on a montldy rent of Rs. 4,000 from 1st April 1989 to ,
30th June 1989 and self-occupied for residential purposes for the remaining
part 8 theyear 1989-90. Municipal taxes Rs. 6,000, Fire Insurance Premium
Rs. 3,000, Land Revenue Rs. 3,000 and Collection Charges Rs. 600 were paid
during the year. 4 loan of Rs. ?0,000 was taken on 1st April 1986 @ 10%
p.a. for the construction of the house which was completed on 1st January
'89, Rs. 10,000 was paid towards the loan account on 1st April 1988.. Find out
his taxable income' from h0u.s~property for the Assessment Year 1990-91.
(Answer : Taxable lncorneq$romHouse Property Nil)
6) Assume in Exercise 5 that: I . ,

22 a) two-third portion of the ho$e is self-occupied. and .

 b) .ope-third portion of the house is let out for residential purposes from 1st Income from House Property :
April 1989 to 30th November 1989 ,on a rent of Rs. 1,500 p.m. and from
1st December 1989 it was again self-oqppied.
Find ouf his taxable income fro& h&i%e p'foperty for the Assessment Year
1990-91.

r
. (Answer : Taxable Income froin House Property Nil)

Note : These questions will help you to understand the unit better. Try to write
answers for them. But do not submit your answers to the University.
These are for your practice only.