Submitted To:

Dr. Archana Gharote

Faculty (Tax Law), H.N.L.U., Raipur

Submitted By:
Yash Dilip Wasnikar
Semester V (B.A. LL.B. Hons.)
Section – A, Roll no. – 186

HIDAYATULLAH NATIONAL LAW UNIVERSITY

RAIPUR, CHHATTISGARH
 I, Yash Dilip Wasnikar, Hereby declare that, the project work titled “Income From House
Property” submitted to H.N.L.U., Raipur is record of an original work done by me under the
able guidance of Dr. Archana Gharote, Faculty ( Tax Law), H.N.L.U., Raipur.

Yash Dilip Wasnikar

Semester – V
B.A. LL.B. (Hons.)
Roll no. – 77
 ACKNOWLEDGEMENTS

I, Yash Dilip Wasnikar take genuine pride and pleasure in presenting this project with the
grace of the almighty to Dr. Archana Gharote. I would first of all like to express my most
sincere gratitude to Dr. Archana Gharote for her paramount support and encouragement. I
am thankful for being given the honour of making this project on “Income From House

Property” I am thankful to the library staff and committee members for all the
conveniences which played a major role in the completion of this project. I would like to
thank my family for their perpetual support and encouragement. I would also like to thank my
friends for their support and advice. Last but the most important, I would like to thank God
for keeping me in good health and senses to complete this project. I am thankful to my
seniors for all their boundless support, encouragement and valuable advice whenever needed.
I present this project with a humble heart.

- Yash Dilip Wasnikar

(Semester – V)

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 CONTENTS

1. INTRODUCTION ……………………………………………………………………….. 1

2. OBJECTIVES …………………………………………………………………………... 2

3. RESEARCH METHODOLOGY …………...………………………………………………. 2

4. CHARGEABILITY OF INCOME FROM HOUSE PROPERTY …………..……...…..………... 4

5. ANNUAL VALUE ………………………………........................................................… 6

6. TAXABILITY OF RECOVERY OF UNREALISED RENT AND OF ARREARS OF RENT

RECEIVED ……………………………………………..…………..…………...…….. 10

7. INCOME FROM PROPERTY OWNED BY A PARTNERSHIP FIRM ……………………….. 12

8. CONCLUSION ………………………………………………………………………… 14

9. REFERENCES ………………………………………………………………………… 15

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 INTRODUCTION

House property consists of any building or land appurtenant thereto of which the assessee is
the owner. The appurtenant lands may be in the form of a courtyard or compound forming
part of the building. But such land is to be distinguished from an open plot of land, which is
not charged under this head but under the head „Income from Other sources‟ or „Business
Income‟, as the case may be. Besides, „house property‟ includes flats, shops, office space,
factory sheds, agricultural land and farm houses.

Further, house property includes all type of house properties, i.e., residential houses, godowns,
cinema building, workshop building, hotel building, etc.

Income from house property is taxable in the hands of its legal owner in whose name the
property stands. „Owner‟ for this purpose means a person who can exercise the rights of the
owner not on behalf of the owner but in his own right. A person entitled to receive income
from a property in his own right is to be treated as its owner, even if no registered document
is executed in his name.

The following three conditions must be satisfied before the income of the property can be
taxed under the head “Income from House Property”:
1. The property must consist of buildings and lands appurtenant thereto;

2. The assessee must be the owner of such house property;

3. The property may be used for any purpose, but it should not be used by the owner for
the purpose of any business or profession carried on by him, the profit of which is
chargeable to tax. If the property is used for own business or profession, it shall not be
chargeable to tax.

Ownership includes both free-hold and lease-hold rights and also includes deemed ownership.

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The Objectives of this study is to study the tax liability on income from house property and
also study its intricacies.

The objective of this research is to study the tax liability of income from house property, it
also studies its intricacies. This research is descriptive and analytical in nature. Secondary and
electronic resources have been used extensively to gather data about the topic.
Books and other reference as guided by faculty of political science have been primarily helpful
in structuring the project. Websites, dictionaries and articles have also been referred to.
Footnotes have been provided wherever needed to acknowledge the sources.

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 CHARGEABILITY OF INCOME
FROM HOUSE PROPERTY
The annual value of property consisting of any buildings or lands appurtenant thereto of
which the assessee is the owner is chargeable to income-tax under the head ‘Income from
house property’. The exception to this rule is such portions of such property as the owner
occupies for the purposes of any business or profession carried on by him the profits of
which are chargeable to income-tax. The word ‘building’ is not confined in its scope only to
dwelling houses.1

Therefore, if the following three conditions are satisfied, income is taxable under the head

“Income from house property”:

(a) the property should consist of any buildings or lands appurtenant thereto ;
(b) the assessee should be the owner of the property ; and
(c) the property should not be used by the owner for the purpose of any business or
profession carried on by him, the profits of which are chargeable to income-tax.

If any one condition is not satisfied, the property income cannot be charged to tax under the

head “Income from house property”.

DEEMED OWNER

In the following circumstances, not legal owners of a property, but some other person is
deemed to be the owner for the purposes of including “Income from house property” in his
taxable income:
(i) Transfer to a spouse [Section 27(i)] – When transfer of house property by an individual to
his or her spouse otherwise than for adequate consideration, the transferor is deemed to be the
owner of the transferred property.

1
CIT v. Chennai Properties & Investments Ltd. 136 Taxman 202/266 ITR 685 (Mad.).
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Exception – In case of transfer to spouse in connection with an agreement to live apart, the
transferor will not be deemed to be the owner. The transferee is owner of the house property
and is also liable to tax on income from the property.

(ii) Transfer to a minor child [Section 27(i)] – In case of transfer of house property by an
individual to his or her minor child otherwise than for adequate consideration, the transferor
would be deemed to be owner of the house property transferred.
Exception – In case of transfer to a minor married daughter, the transferor is not deemed to
be the owner. Where cash is transferred to spouse/minor child and the transferee acquires
property out of such cash, then the transferor shall not be treated as deemed owner of the
house property. However, clubbing provisions will be attracted in case of a minor child not
being minor married daughter.

(iii) Holder of an impartible estate [Section 27(ii)] – The impartible estate is a property
which is not legally divisible. The holder of an impartible estate shall be deemed to be the
individual owner of all properties comprised in the estate.
After enactment of the Hindu Succession Act,2 all the properties comprised in an impartible
state by custom is to be assessed in the status of a HUF. However, section 27(ii) will continue
to be applicable in relation to impartible estates by grant or covenant.

(iv) Member of a co-operative society etc. [Section 27(iii)] – A member of a co-operative

society, company or other association of persons to whom a building or part thereof is allotted
or leased under a House Building Scheme of a society/company/association, shall be deemed
to be owner of that building or part thereof allotted to him although the co-operative society/
company/ association is the legal owner of that building.

(v) Person in possession of a property [Section 27(iiia)] – A person who is allowed to take
or retain the possession of any building or part thereof in part performance of a contract of the
nature referred to in section 53A of the Transfer of Property Act 3 shall be the deemed owner
of that house property. This would include cases where the—
(1) possession of property has been handed over to the buyer

2
Hindu Succession Act, 1956.
3
Section 53A of The Transfer of Property Act, 1882.

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 (2) sale consideration has been paid or promised to be paid to the seller by the buyer
(3) sale deed has not been executed in favour of the buyer, although certain other
documents like power of attorney/agreement to sell/will etc. have been executed.
In all the above cases, the buyer would be deemed to be the owner of the property although it
is not registered in his name.

(vi) Person having right in a property for a period not less than 12 years [Section
27(iiib)]
– A person who acquires any rights in or with respect to any building or part thereof, by virtue
of any transaction as is referred to in section 269UA(f)4 i.e. transfer by way of lease for not
less than 12 years, shall be deemed to be the owner of that building or part thereof.
Exception – Any rights by way of lease from month to month or for a period not exceeding
one year.

4
Section 269UA(f) of the Income Tax Act, 1961.
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It is Gross Annual Value less municipal taxes paid. Gross Annual Value of any property is
determined as follows:

(a) the sum for which the property might reasonably be expected to let from year to year;

or
(b) where the property or any part of the property is let and the actual rent received or
receivable by the owner in respect thereof is in excess of the sum referred to in clause
(a), the amount 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 owing to such vacancy the actual rent received or
receivable by the owner in respect thereof is less than the sum referred to in clause (a),
the amount so received or receivable.

Deduct municipal taxes - From the gross annual value computed above, municipal

taxes (including service taxes) levied by any local authority in respect of the house property
are to be deducted. Municipal taxes are deductible only if (a) these taxes are borne by the
owner, and (b) are actually paid by him during the previous year, irrespective of the period to
which it relates.
Municipal taxes, levied by local authority but not paid by the assessee during the previous
year, are not deductible. If property is situated in a foreign country, municipal taxes levied by
foreign local authority are deductible if such taxes are paid by the owner. The remaining
amount left after deduction of municipal taxes is net annual value
Nil Annual Value
Where the property consists of a house or part of a house which—

(a) is in the occupation of the owner for the purposes 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, the annual value of such house or part of
the house is taken to be nil. [Section 23(2)]
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 The provision of taking ‘Nil’ annual value do not apply if—
(a) the house or part of the house is actually let during the whole or any part of the
previous year; or
(b) any other benefit therefrom is derived by the owner.

Further, where the property eligible for the benefit of taking ‘Nil’ annual value consists of
more
than one house—
(a) the benefit of taking ‘Nil’ annual value shall apply only in respect of one of such
houses, which the assessee may, at his option, specify in this behalf;
(b) the annual value of the house or houses, other than the house in respect of which the
assessee has exercised an option under clause (a), shall be determined in a normal
manner as if such house or houses had been let.

If the House property is let out to employer and was allotted to the employee who had let it,
benefit of self-occupation is not available.5 Any partnership firm cannot get benefit of self-
occupation as it cannot physically reside.6

Deductions [section 24]

Standard Deduction [Sec. 24(a)] - 30 per cent of net annual value is deductible irrespective
of any expenditure incurred by the taxpayer.

Interest On Borrowed Capital [Sec. 24(b)] - Interest on borrowed capital is allowable as

deduction, if capital is borrowed for the purpose of purchase, construction, repair, renewal or
reconstruction of the house property.

However, if the benefit of taking ‘Nil’ annual value stated in the preceding paragraph has
been availed and the property is acquired or constructed with capital borrowed on or after the
1st day of April, 1999 and such acquisition or construction is completed within three years
from
the end of the financial year in which capital was borrowed, the amount of deduction for
interest

5
D.R. Sunder Raj v. CIT 123 ITR 471 (AP).
6
CIT v. Dewan Chand Dholan Dass 132 ITR 790 (Delhi).

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in a year cannot exceed Rs. 1, 50,000. In respect of borrowings made before the 1st day of
April, 1999, the amount of deduction for interest in a year cannot exceed Rs. 30,000.

The following are important points:

(i) Interest on borrowed capital is deductible on “accrual” basis. It can only be claimed as
deduction in the year of accrual
(ii) Deduction is allowed even if the interest is not actually paid during the year.
(iii) Deduction is available even if neither the principal nor the interest is a charge on
property.
(iv) Interest on unpaid interest is not deductible.7
(v) No deduction is allowed for any brokerage or commission for arranging the loan.
(vi) Interest on a fresh loan, taken to repay the original loan raised for the aforesaid
purposes, is allowable as deduction.8
(vii) In computing income chargeable under the head “Income from house property”,
interest is not deductible in a case it is an interest chargeable under the Act in the hands
of recipient and payable out of India if (i) tax has not been paid or deducted at source
from such interest and (ii) in respect of such interest there is no person who may be
treated as an agent [section 25].
(viii) Interest on borrowed capital is deductible fully without any maximum ceiling in the
case of a let out property.
(ix) Payments made towards or by way of repayment of the amount borrowed by the
assessee for the purposes of purchase or construction of a residential house property the
income from which is chargeable to tax under the head “Income from house property” is
entitled for deduction from gross total income under section 80C. It is not deductible
from income from house property under section 24(b).
Interest For Pre-construction Period

Interest payable by an assessee in respect of funds borrowed for the acquisition or

construction of a house property and pertaining to a period prior to the previous year in which
such property
has been acquired or constructed, to the extent it is not allowed as a deduction under any other

7
Shew Kissen Bhatterv. C/T[1973] 89ITR 61 (SC).
8
Circular No. 28, dated August 20, 1969.
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provision of the Act, will be deducted in five equal annual instalments, commencing from the
previous year in which the house is acquired or constructed. For this purpose “pre-
construction period” means the period commencing on the date of borrowing and ending on
(a) March 31 immediately prior to the date of completion of construction/date of acquisition
or (b) date of repayment of loan, whichever is earlier.
Provisions in brief – The law governing tax incidence on self-occupied house property may
be summarized as follows –

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 TAXABILITY OF RECOVERY OF UNREALISED
RENT AND ARREARS OF RENT RECEIVED

(i) Unrealised rent is deducted from actual rent in determination of annual value under
section 23, subject to fulfillment of conditions under Rule 4. Subsequently, when the
amount is realised it gets taxed under section 25AA in the year of receipt.
(ii) If the assessee has increased the rent payable by the tenant and the same has been in
dispute and later on the assessee receives the increase in rent as arrears, such arrears is
assessable under section 25B.

Carry forward and set off of loss from house property (Sec-71 B)

Where for any assessment year the net result of computation under the head “Income from
house property” is a loss to the assessee and such loss cannot be or is not wholly set off
against income from any other head of income in accordance with the provisions of section 71
so much of the loss as has not been so set-off or where he has no income under any other
head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward
to the following assessment year and—
(i) be set off against the income from house property assessable for that assessment year;
and
(ii) the loss, if any, which has not been set off wholly, the amount of loss not so set off,
shall be carried forward to the following assessment year, not being more than eight
assessment years immediately succeeding the assessment year for which the loss was first
computed.

Income From Co-Owned Property

(i) Where property is owned by two or more persons, whose shares are definite and
ascertainable, then the income from such property cannot be taxed as income of an AOP.

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(ii) The share income of each such co-owner should be determined in accordance with
sections 22 to 25 and included in his individual assessment.
(iii) Where the house property owned by co-owners is self occupied by each of the co
owners, the annual value of the property of each co-owner will be Nil and each co-owner
shall be entitled to a deduction under section 24(b) on account of interest on borrowed
capital.
(iv) Where the house property owned by co-owners is let out, the income from such
property shall be computed as if the property is owned by one owner and thereafter the
income so computed shall be apportioned amongst each co-owner as per their respective
specific share.

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 INCOME FROM PROPERTY OWNED BY A
PARTNERSHIP FIRM

(i) Where an immovable property or properties is included in the assets of a firm, the income
from such property should be assessed in the hands of the firm only.
(ii) Hence, the property income cannot be assessed as income of the individual partner in
respect of his share in the firm.
Which Head of Income?

If an assessee carries on business of purchasing and selling buildings, income received from
the buildings so long as they are owned by the assessee and should be charged under the head
‘Income from house property’. It is not income from ‘Profits and gains of business or
profession’.9 Godown was constructed and used for storing own stocks. It was later let out.
The rental income derived by letting out the godown is charged as ‘Income from house
property’ and is not ‘Profits and gains of business or profession’.10 Property is used for
running paying guest establishment, income from property is chargeable as business
income.11 Letting agreement reveals that main purpose was to let out property with further
right of using furniture and fixtures and other common facilities, income from letting was
income from house property.12 Cinema Building and furniture renting out was composite and
inseparable, income from such lease is to be assessed as income from other sources and not as
income from house property.13 Partnership business is carried on in the premises of one of the
partners. The partner, as an individual, is entitled to treat that the property is used for own
business.14 The Company
owning certain property, allotted them for the occupation of its directors and other senior

9
CIT v. Chugandas & Co. 55 ITR 17 (SC).
10
Parekh Traders v. CIT 150 ITR 310 (Bom.).
11
Manohar Singh v. CIT 58 ITR 592 (Punj.).
12
Shambhu Investments (Pvt.) Ltd. 263 ITR 143 (SC).
13
CIT v.D.L. Kanhere 92 ITR 535 (Bom.).
14
CIT v. Rabindranath Bhol 79 Taxman 170 (Ori.).

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executives free of rent, it must be said that occupation by its employees was for the purpose of

the assessee’s business. Consequently the income from such house could not be treated as

income from house property and included in the assessee’s total income.15

15
CIT v. Vazir Sultan Tobacco Co. Ltd. 173 ITR 290 (AP).

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 CONCLUSION
Rental income from a property being building or land appurtenant thereto of which the
taxpayer is owner is charged to tax under the head 'Income from house property'. This is
taxed in the hands of the owner of the property.

Rental income of a person other than the owner cannot be charged to tax under the head
'Income from house property'. Hence, rental income received by a tenant from sub-letting
cannot be charged to tax under the head 'Income from house property'. Such income is
taxable under the head 'Income from other sources' or profits and gains from business or
profession, as the case may be.

In case of a self-occupied property, the annual value is taken as nil. Deduction u/s 24 for
interest paid may still be claimed therefrom. The resulting loss may be set off against income
under other heads but cannot be carried forward.
If more than one property is owned and all are used for self-occupation purposes only, then
any one can be opted as self-occupied, the others are deemed to be let out.
Annual value of one house away from workplace which is not let out can be taken as NIL,
provided that it is the only house owned and it is not let out.
Municipal taxes paid by the taxpayer upto 31st March can only be deducted. Outstanding
Municipal taxes paid in next year cannot be deducted. If taxes are paid by tenant also cannot
be deducted.
If tax incidence is attracted under section 22 in respect of a property situated in foreign
country, annual value will be computed as if the property is situated in India. If a self-
occupied property is let-out for the part of the year, the house will be taken as let-out property
and no concession
shall be available for the duration during which the property was self-occupied.
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 REFERENCES

1. www.incometaxindia.gov.in/tutorials/income-from-house-property-practical.pdf

2. www.bankbazaar.com › Tax › Income Tax

3. www.charteredclub.com/income-from-house-property-deductions/

4. taxguru.in/income-tax/faqs-income-house-property.html

5. www.nitinbhatia.in › Personal Finance

6. finotax.com/income-tax/info/house-property

7. flame.org.in/KnowledgeCenter/Howtocalculateincomefromhouseproperty.aspx

8. www.bemoneyaware.com/blog/income-from-self-occupied-property/

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