Income from House Property

Presentation

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1. Any income which arises from property or land appurtenant thereto is to be charged under “Income from
house property”.

2. It is only the landlord/ owner who is charged to income under this head, therefore if the tenant subleases
this property to a subtenant then he will be charged to tax under “Income from other sources”.

3. Income which arises from property or land appurtenant thereto is to be charged under this head, however
income from vacant plot of land is to be charged as “Income from business” or “Income from other
sources”.

4. For the purpose of charging income under this head, property is to be bifurcated on the following basis.

Income from House Property

Let out property Vacant let out Self Occupied Deemed let out
(LOP) Property (VLOP) Property (SOP) Property (VLOP)

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5. Under Income from House Property income is charged to tax under concept of “Gross Annual
Value”
Gross Annual Value (GAV)
higher of,
a) Reasonable Letting Value
higher of,
i) Fair Rental Value XX
ii)Municipal Ratable Value XX
XX
Subject to Standard Rent XX XX
b) Actual Rent Received XX
Gross Annual Value XX

6. Following are to be taxed under Business & Profession as Business Income :-

a) Letting out property to employees.

b) Letting out property after furnishing it for a specified commercial purpose.

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7) Municipal Tax Paid :-
a) Municipal tax is allowed as deduction only on actual payment basis only.
b) Such taxes may be know by any other name like local taxes or municipal taxes
c) Thus just see what amount is actually paid from 1st April to 31st March.
d) Such taxes should not only be paid but as well as borne by the owner.
e) If owner reimburses such paid amount from the tenant then such amount will not be allowed as deduction
under this section.

8) Deduction available from Net Annual Value u/s 24 :-

A) Standard Deduction u/s 24(a) :
Standard Deduction @ 30% on Net Annual Value.

B) Interest on Loan u/s 24(b)

a) Interest on loan is allowed as a deduction on due basis
b) The loan amount borrowed should be utilised for 5 purpose
i) Purchase of the property
ii) Construction of the property
iii) Repairs of the property
iv) Renewals of the property
v) Reconstruction of the property
c) Any brokerage commission or service charges paid to obtain the loan is not allowed as deduction.

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 d) If Interest is paid or payable outside india then it will be allowed as deduction only if TDS has
been deducted from such interest. However if TDS is not been deducted from such interest, then
full amount of interest will not be allowed as deduction.
e) If the funds are used for any other purpose like marriage etc. then such interest will not be
allowed as deduction even if the house property is kept as a mortgage.
f) Amount borrowed to repay old loan (taken for the above 5 purpose), the interest on such fresh
loan is also allowed as deduction.
g) Any interest on unpaid interest is not allowed as deduction.

9) Pre-construction & Post-construction interest :-

a) Pre-construction interest :-
Pre-construction period is from the date on which loan has been taken to the end of the year,
before the year in which such construction hasbeen completed . The interest during such
pre-construction period is to be allowed in 5 equal installment commencing from the year in which
such construction has been completed.
b) Post-construction interest :-
The post-construction period commences from the 1st of april following the year in which such
construction has been completed. Such interest is allowed as deduction on normal due basis.

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10. Unrealised Rent u/s 25AA :-
This is deducted from Actual Rent received only if,
a) execution of legal agreement
b) defaulting tenant has vacated the property or step have been taken to compel him to vacate the
property.
c) defaulting tenant is not in occupation of any other property of the Assessee.
d) assessee has either taken all reasonable steps to institute legal proceedings for the recovery of
unpaid rent or has satisfied the assessing officer that legal proceedings would be worthless.
Even if the assessee is no longer the owner of the house property then also recovery of unrealised rent is
brought to tax under IFHP u/s 25AA

11. Arrears of Rent Received u/s 25B :-

If the arrear of rent is received in current year which have not been taxed in the the previous year, then it
will be taxed in the current year and thereafter standard deduction @ 30% will be allowed.

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12. Co-ownership u/s 26 :-
At times there are 2 or more owner of the same property, in such a case find the share of income of all
the owners. Compute Income from House Property separately as a working note. Thereafter make separate
computation for each owner and prepare their computation of income as per the share of property given.

13. Deemed owners u/s 27 :-

A) transfer of house property to spouse or to a minor child.
B) member of co-operative society, company or other association.
C) person who retain possession of any building as per section 53A of TOPA 1882 (Transfer of Property
Act 1882)

Section 53A of TOPA 1882 :-

a) contract for consideration, in writing, duly signed, in relation to transfer of immovable property.
b) transferee should have possession of the property
c) transferee has performed or willing to perform, part of contract
d) even if instrument of transfer in not registered.
D) person holding power of attorney
E) karta of a HUF
F) holder of impartible estate

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14. Composite Rent :-
a) let out of a property along with other facilities (eg. electricity, cooler, lift, water pump, water tax etc.)
b) if separation possible
Rent belonging to building – taxed under house property (IFHP).
Rent belonging to other facility – taxed under other sources (IFOS).
c) if separation not possible
composite rent XX
less: cost of facilities (IFOS) (XX)
rent of building (IFHP) XX

15. Treatment of losses under House Property :-

a) Intersource adjustment u/s 70 :
set off of loss from one source against income from other source under the same head of income in the
same year,
exception : i) loss from the activity of owning & maintaining race horses
ii) loss cannot setoff from winnings from lotteries, crossword, puzzles etc.
b) Inter Head adjustment u/s 71 :
set off of loss one head against the income from another head in the same year,
exception : i) loss in speculation business can be set off only against the profit in a speculation
business.

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 ii) long term capital loss can be set off only against long term capital gain.
iii) loss from the activity of owning & maintaining race horse.
iv) loss cannot setoff from winning of lotteries, crossword puzzles etc.

c) Carry Forward and set off of loss from House Property (wef AY 1999-2000) u/s 71B :
Loss to the extent not set off u/s 70 & 71 is allowed to be carried forward for set off against future
income from house property only, for a maximum of 8 assessment year immediately after the end
of the relevant assessment year in which the loss was suffered.

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FORMAT

1. Let out property :-

Gross Annual Value (GAV)

higher of,
a) Reasonable Letting Value
higher of,
i) Fair Rental Value XX
ii)Municipal Ratable Value XX
XX
Subject to Standard Rent XX XX
b) Actual Rent Received (12 month) XX
Gross Annual Value XX
Less : Municipal Tax Paid (XX)
Net Annual Value (NAV) XX
Less : Deduction u/s24
a) Standard deduction u/s 24(a) XX
b) Interest on Loan u/s 24(b) XX (XX)
Income From House Property XX

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FORMAT

2. Vacant Let out property :-

Gross Annual Value (GAV)

higher of,
a) Reasonable Letting Value
higher of,
i) Fair Rental Value XX
ii)Municipal Ratable Value XX
XX
Subject to Standard Rent XX XX
b) Actual Rent Received (less than 12 month) XX
Gross Annual Value XX
Less : Municipal Tax Paid (XX) Note :-
Net Annual Value (NAV) XX
Less : Deduction u/s24 In case of VLOP if ARR is
a) Standard deduction u/s 24(a) XX less than RLV only because
b) Interest on Loan u/s 24(b) XX (XX) of vacancy, then ARR is
Income From House Property XX treated as GAV.

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3. Self occupied property :-

Gross Annual Value NIL

Less : Municipal Tax Paid (NIL)
Net Annual Value (NAV) NIL
Less : Deduction u/s24
a) Standard deduction u/s 24(a) NIL
b) Interest on Loan u/s 24(b) XX (XX)
Income From House Property (XX)

Note :
a) Deduction of interest of loan in case of SOP,
Purchase/ Construction

Before 1-4-1999 On or after 1-4-1999

Max- Rs. 30,000 Max- Rs. 2,00,000
b) Deduction of interest of loan in case of Repairs/ Renewals/ Reconstruction - Max Rs. 30,000

* Total Deduction (a+b) - Max Rs.2,00,000/-

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FORMAT

4. Deemed Let out property :-

Gross Annual Value (GAV)

higher of,
a) Reasonable Letting Value
higher of,
i) Fair Rental Value XX
ii)Municipal Ratable Value XX
XX
Subject to Standard Rent XX XX
b) Actual Rent Received NIL
Gross Annual Value XX
Less : Municipal Tax Paid (XX)
Net Annual Value (NAV) XX
Less : Deduction u/s24
a) Standard deduction u/s 24(a) XX
b) Interest on Loan u/s 24(b) XX (XX)
Income From House Property XX

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Mr. X owns one residential house in Mumbai. The house is having two units. First unit of the house itself
occupied by Mr. X and another unit is rented for Rs.8,000 p.m. The rented unit was vacant for 2 months during
the year.
The particulars of the house for the previous year 2015-16 are as under:
● Standard Rent - Rs.1,62,000 p.a.
● Municipal Valuation - Rs. 1,90,000 p.a.
● Fair Rent - Rs.1,85,000 p.a.
● Municipal Tax - 15% of municipal valuation
● Light and water charges paid by the tenant - Rs.500 p.m.
● Interest on Borrowed Capital - Rs.1,500 p.m.
● Insurance Charges paid by Mr. X - Rs.3,000 p.a.
● Repairs - 12,000 p.a.
Compute income from house property of Mr.X for the A.Y 2016-17.
Solution:

Name of the Assessee : Mr. X

Assessment Year : 2016-17
Previous Year : 2015-16
Status : Individual
Residential Status : R & O.R.
Pan No. : ________
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Particulars Rs. Rs.

A. Vacant Let out Property (50%)

Gross Annual Value (GAV)

higher of,
a) Reasonable Letting Value
higher of,
i) Fair Rental Value (1,85,000 x 50%) 92,500
ii)Municipal Ratable Value (1,90,000 x 50%) 95,000
95,000
Subject to Standard Rent (1,62,000 x 50%) 81,000 81,000
b) Actual Rent Received (8,000 x 10) 80,000
Gross Annual Value 80,000
Less : Municipal Tax Paid (95,000 x 15%) 14,250
Net Annual Value (NAV) 65,750
Less : Deduction u/s 24:
a) Standard deduction u/s 24(a) (65,750 x 30%) 19,725
b) Interest on Loan u/s 24(b) (1,500 x 50% x 12) 9,000 28,725
A 37,025

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Particulars Rs. Rs.

B. Self Occupied Property (50%)

Gross Annual Value (GAV)

Gross Annual Value NIL
Less : Municipal Tax Paid NIL
Net Annual Value (NAV) NIL
Less : Deduction u/s24
a) Standard deduction u/s 24(a) NIL
b) Interest on Loan u/s 24(b) (1,500 x 50% x 12) 9,000 (9,000)
B (9,000)

Income from House Property (37,025 - 9,000) 28,025

Note:
1. It is assumed that both the units are of identical size. Therefore, the rented unit would represent 50% of
total area and the self-occupied unit would represent 50% of total area.
2. No deduction will be allowed separately for light and water charges, insurance charges and repairs.

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Thank You!

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