Amity Global Business

Amity Business
School, School
Bhubaneswar

Income from House Property

Amity Global Business School,

Bhubaneswar
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• House Property
– There must be a property consisting of any building or land
appurtenant threto.
– Any land surrounded by wall having roof or not.
– Building includes an enclosure of bricks, stone work or even
mud walls.
– Building includes residential as well as commercial houses.
– Land appurtenant to a building includes car parking area,
approach roads, backyards, courtyards, etc. attached to such
building.
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• Owner includes legal owner, beneficial owner and

deemed owner.
• Legal owner:
– Legal owner means a person who has the legal title of the
property
• Beneficial owner:
– If the assessee is enjoying the property as an owner to full
extent he will be treated as a beneficial owner of such property.
(Not registered in his/her name)
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• Fictional Owner or Deemed Owner

1. Transfer to spouse or minor child [Sec. 27(i)]: When an
individual transfer a house property to –
– his or her spouse (not being a transfer in connection with an
agreement to live apart); or
– a minor child (not being a married daughter)
– without adequate consideration, then transferor shall be treated
as deemed owner of such property.
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2. The holder of an impartible estate (property which is not

legally divisible)
3. Property held by a member of a company, society or
any other association
4. Lessee of a building
5. A person who is allowed to take or retain possession of
any building (or part thereof) in part performance of a
contract u/s 53Aof the Transfer of Property Act, 1882
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• Composite Rent
– Together with rent of the building, if the owner gets charges for
other services or rent of other assets provided in the building
(e.g. furniture, machinery, etc.), amount so received is termed as
‘composite rent’.

• Composite Rent = Rent for building + Rent for assets /

Charges for various services
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Exempted Properties
• Income from the following house properties are
exempted from tax:
1. House property of a local authority [Sec. 10(20)].

2. House property of an approved scientific research association

[Sec. 10(21)].

3. House property of an educational institution [Sec. 10(23C)].

4. House property of a hospital [Sec. 10(23C)].

5. House property of a person being resident of Ladakh [Sec.

10(26A)]
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6. House property of a political party [Sec. 13A]

7. House property of a trade union [Sec. 10(24)]

8. A farm house [Sec. 10(1)]

9. House property held for charitable purpose [Sec. 11]

10. House property used for own business or profession [Sec. 22].
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Gross Annual Value (GAV)

• Normally, income tax is charged on income, but under
the head ‘Income from house property’, tax is not
charged on the rent earned from house property but on
the inherent earning capacity of the house property.
• Such earning capacity is termed as Annual Value.
Annual value is determined considering the following
factors:
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A) Actual Rent Receivable [ARR]

• Any sum receivable as rent of the house property for the
previous year is an evidence for determining the earning
capacity of the building.
• Such actual rent receivable is to be computed on accrual
basis.
• However, where tenant pays rent, which is influenced by
benefits provided by the owner of the property, such rent
must be disintegrated to determine actual rent i.e. De-
facto rent of the property.
• De facto rent = ARR – Cost of amenities.
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B) Gross Municipal Value

• It means the annual value of the property decided by
municipality on which they charge municipal tax.
• Such valuation may also be taken as evidence of earning
capacity of a property.
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C) Fair or Notional rent of the property

• Fair or notional rent of a property means rent fetched by a
similar property in the same or similar locality.
• Though two properties might not be exactly similar still it is
an indicator of rent reasonably expected from the property.
• An inflated or deflated rent due to emergency, relationship
and such other conditions need to be adjusted to
determine fair rent.
• For instance, a property was let out to a friend for a
monthly rent of Rs 2,000 which might be let out to another
person at the rate of Rs 2,500 p.m. In such case, fair rent
of the property shall be Rs 2,500 p.m.
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D) Standard rent under the Rent Control Act

• Standard rent is the maximum rent, which a person can
legally recover from his tenant under the Rent Control
Act prevailing in the State in which the property is
situated.
• A landlord cannot reasonably expect to receive from a
tenant any amount more than Standard Rent.
• Accordingly, it can be concluded that if the property is
covered by the Rent Control Act then Reasonable
Expected Rent (RER) cannot exceed Standard Rent.
• Tax point: Reasonable Expected Rent cannot exceed
Standard Rent but can be lower than Standard Rent
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Computation of GAV
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TAXES LEVIED BY LOCAL AUTHORITY (MUNICIPAL
TAX) [PROVISO TO SEC. 23(1)]
• Tax levied by the municipality or local authority is
deductible from Gross Annual Value (GAV).
• Municipal tax includes Service taxes like fire tax, water
tax, etc. levied by a local authority.
• Taxpoint:
– Unpaid municipal tax or municipal tax paid by tenant shall not be
allowed as deduction.
– In case municipal tax paid includes tax paid for several past
years and the total amount of tax so paid by the owner exceeds
GAV, then Net Annual Value (NAV) can be negative.
– Refund of Municipal tax paid for a property is not taxable u/s 22.
– Municipal tax paid in advance is not allowed.
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• HOUSE H4
• GAV 500000
• LESS: MUNICIPAL TAX
• 20% of 400000 = 80000
• ST 3% of 400000 12000
• WT (2% of 400000) 8000 100000
• NAV 400000
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DEDUCTIONS U/S 24
• The list of deduction u/s 24 is exhaustive i.e., no
deduction can be claimed in respect of expenditures
which are not specified under this section e.g., no
deduction is allowed for repairs, collection charges,
insurance, ground rent, land revenue, etc.
1. Standard deduction u/s 24(a)
– 30% of the net annual value is allowed as standard deduction in
respect of all expenditures (other than interest on borrowed
capital) irrespective of the actual expenditure incurred.
• Note: Where NAV is negative or zero, standard
deduction u/s 24(a) is not available.
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2. Interest on loan on borrowed capital u/s 24(b)

– Interest payable on amount borrowed for the purpose of
purchase, construction, renovation, repairing, extension,
renewal or reconstruction of house property can be claimed as
deduction on accrual basis.
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SELF-OCCUPIED PROPERTY [SEC. 23(2)(a)]

• As per sec. 23(2)(a), a house property shall be termed
as self occupied property where such property or part
thereof:
– is in the occupation of the owner for the purposes of his own
residence;
– is not actually let out during the whole or any part of the previous
year; and
– no other benefit there from is derived by the owner.
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• Treatment:
– The annual value of such house or part of the house shall be
taken to be nil.
– If an assessee occupies more than two house properties as
self-occupied, he is allowed to treat only two houses as self-
occupied at his option.
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UNOCCUPIED PROPERTY [SEC. 23(2)(b)]

• Where an assessee has a residential house (kept for
self-occupation) and
• it cannot actually be occupied by the owner owing to his
employment, business or profession carried on at any
other place and
• hence he has to reside at that place in a building not
belonging to him, such house shall be termed as
unoccupied property.
• Treatment: Same as self occupied property.
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DEEMED TO BE LET-OUT HOUSE PROPERTY [SEC. 23(4)]

• Where the assessee occupies more than two house

properties as self-occupied or has more than two
unoccupied properties, then for any two of them, benefit
u/s 23(2) can be claimed (at the choice of the assessee)
and remaining property or properties shall be treated as
‘deemed to be let out’.
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• Treatment:
1. Gross Annual value:
– Since assessee does not let out such property & do not receive
rent, therefore GAV will be determined from Step 1 only. Step
2, 3 & 4 of calculation GAV are irrelevant.
• Taxpoint: GAV of deemed to be let out property will be
the ‘Reasonable expected rent (RER)’of the property.
2. Municipal taxes and deduction u/s 24(a) and 24(b) shall
be available as in the case of let out house property.
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INCOME UNDER HEAD CAPITAL GAINS

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CAPITAL ASSET [Sec. 2(14)]

• Capital asset means –

• any kind of property held by an assessee, whether or
not in connection with his business or profession;
• any securities held by a Foreign Institutional Investor

• Note: Capital asset may be movable or immovable or

tangible/corporeal (furniture, jewellery, etc.) or intangible/
incorporeal (goodwill, tenancy right, copy right, etc.)
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• “Property” includes any rights in or in relation to an

Indian company, including rights of management or
control or any other rights whatsoever
• but does not include the following:
(1) Stock in trade
– Stock in trade, consumable stores or raw materials held for
business or profession.
– However, any securities held by a Foreign Institutional Investor
which has invested in such securities in accordance with the
regulations made under the Securities and Exchange Board of
India Act, 1992 shall not be treated as stock-in-trade
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(2) Personal effect

– Personal effect means any movable property held for
personal use of the assessee or for any dependent
member of his family but excludes the followings:
a. jewellery b. archaeological
collections c. drawings d. paintings
e. sculptures; or f. any work of
art
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(3) Agricultural land in rural area

– Agricultural land in India is not a capital asset
(4) Gold Bonds
– Following gold bonds issued by the Central
Government are not capital asset:
1. 6.5% Gold Bond, 1977
2. 2. 7% Gold Bonds, 1980; and
3. National Defence Gold Bond, 1980
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(5) Special Bearer Bond

– Special Bearer Bond, 1991 issued by the Central Government
are not capital asset.
(6) Gold Deposit Bonds
– Gold Deposit Bonds issued under the Gold Deposit Scheme,
1999 or deposit certificates issued under the Gold Monetisation
Scheme, 2015 notified by the Central Government are not
capital asset.
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TYPES OF CAPITAL ASSET

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Computation of Short Term Capital Gain (STCG)

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1. Sale consideration (full value of consideration)

– It refers to sale value of the asset (in form of money or money’s
worth).
2. Expenses on transfer
– It means any expenditure incurred wholly and exclusively in
connection with such transfer such as, brokerage or commission
incurred for securing buyer, cost of stamp and registration fee by
the vendor, travelling expenses, etc.
– It is reduced from sale consideration to get net sale
consideration.
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3. Cost of Acquisition [Sec. 55(2)]

– Cost of acquisition includes expenditure incurred for
acquiring the asset or completing the title of the asset.
– For instance –
• Sum paid for discharge of mortgage debt to clear charge
over the property (created by previous owner) is a part of
cost of acquisition.
• Litigation expenditure incurred by a shareholder to get the
shares registered in his name will form part of cost of
acquisition of shares.
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4. Cost of Improvement [Sec. 55(1)(b)]

– Cost of improvement means an expenditure incurred
to increase the productive quality of the asset.
– It includes all expenditures of a capital nature incurred
in making any additions or alterations to the capital
asset.
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• Mr. Divesh had purchased a golden ring as on 17/8/2019

for Rs. 20,000. On 1/05/2020, he has sewn a diamond
on it costing Rs. 25,000. On 1/08/2020, he sold such ring
for Rs. 80,000 and incurred brokerage for arranging
customer Rs. 5,000. Compute capital gain.
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COMPUTATION OF LONG TERM CAPITAL GAIN (LTCG)

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Indexed cost of acquisition

• “Indexed cost of acquisition” means the ‘cost of

acquisition’ (as discussed in case of short term capital
gain) adjusted according to the price level of the year of
sale.
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Indexed cost of improvement

• “Indexed cost of improvement” means the ‘cost of

improvement’ (as discussed in case of short term capital
gain) adjusted according to the price level of year of
sale.
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Cost Inflation Index

2021-22 317 2022-23 331

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1. On 23rd December, 2020, Rajat sold 500 grams of

gold, the sale consideration of which was Rs 13,50,000.
He had acquired this gold on 20th August, 2000 for Rs
4,00,000. Fair market value of 500 grams of gold on 1st
April, 2001 was Rs 3,60,000. Find out the amount of
capital gain chargeable to tax for the assessment year
2021-22.
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2. Mr. Anand has purchased a house property as on

17/08/2002 for Rs 5,00,000. On 1/05/2004, he
constructed a new floor on the same house at a cost of
Rs 2,50,000. On 1/10/2020, he sold such house for Rs
18,00,000 and incurred brokerage @ 2% for arranging
customer. Compute capital gain.
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INCOME FROM OTHER SOURCES

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• As per sec. 56(1), any income, which is not specifically

exempted and not chargeable under any other heads of
income, shall be chargeable under the head “Income
from other sources”. This is the last and residuary head
of income.
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Income absolutely chargeable under this Head

1. Dividends
2. Casual income e.g. Winning from lotteries, etc.
3. Gift
4. Share premium in excess of fair market value of shares
5. Income by way of interest received on compensation or
on enhanced compensation
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The following incomes are also chargeable under this head

1. Income from sub-letting of a house property.

2. Interest on bank deposits.
3. Interest on company deposits, interest on loans, etc.
4. Rent from a vacant land.
5. Insurance commission.
6. Income from undisclosed sources
7. Income from private tuition.
8. Interest on income tax refund.
9. Remuneration received from a person other than his
employer for evaluation of answer scripts. However, if
such remuneration is received from employer, then the
same will be taxable under the head “Salaries”.
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Casual income: winning from lotteries, crossword puzzles, etc.

• Winnings from -
1. Lotteries;
2. Crossword puzzles;
3. Races including horse races;
4. Gambling and betting of any nature or form; or
5. Card games, game show or entertainment program on
television or electronic mode and any other game of any sort,
- are taxable under this head.
• Exemption/deduction:
– Such income shall be fully taxable & no deduction shall be allowed.
• Tax rate [Sec. 115BB]:
– Tax is charged at a flat rate of 30%.
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FAMILY PENSION
• Family pension means a regular monthly amount
payable by the employer to a person belonging to the
family of a deceased employee (e.g. widow or legal heirs
of a deceased employee)
• Tax Treatment: It is taxable under the head “Income from
other sources” after allowing standard deduction.
• Standard Deduction [Sec. 57(iia)]
– Minimum of: 1/3rd of such pension; or Rs 15,000.
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SPECIFIC DISALLOWANCE [SEC. 58]

1. Any personal expenses of the assessee.
2. Any amount paid as Wealth tax or Income tax.
3. No deduction in respect of any expenditure shall be
allowed in computing the income by way of any
winnings from lotteries, crossword puzzles, races
including horse races, card games and other games of
any sort or form, gambling or betting of any form or
nature, etc. taxable under the head “Income from other
sources”.
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Deductions u/s 80
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Deduction u/s 80c in respect of LIC Premium, Contributions to
PF, etc.
• Life insurance premium paid by a person to effect or to
keep in force an insurance policy.
– Insurance policy can be taken on life of individual himself,
spouse and child (whether major or minor) of such individual.
• Contribution made towards Public provident fund (PPF).
– Subscription should be in the name of individual, his spouse and
child (whether major or minor).
• Any subscription to National Savings Certificates.
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• Investment as term deposit for a period of 5 years or

more with a scheduled bank.
• 5 year time deposit in an account under the Post Office.
• Senior Citizens Savings Schemes
• Contribution made towards statutory provident fund and
recognised provident fund.
• Contribution made towards an approved superannuation
fund.
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Contribution to Pension Fund Sec 80 CCC

• Amount paid under an annuity plan of the Life Insurance

Corporation of India (LIC) or any other insurer during the
previous year.
• The amount must be paid out of income which is
chargeable to tax.
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Contribution to Pension Scheme Sec 80 CCD

• Applicable to
– An individual

• Condition to be satisfied
– During the previous years, the assessee has paid or deposited
any amount in his account under a pension scheme notified by
the Central Government (New Pension System and Atal Pension
Yojna).
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Deduction u/s 80CCE: Limit on Deductions u/s 80C, 80CCC and

80CCD

• The aggregate amount of deductions under section 80C,

section 80CCC and section 80CCD shall not exceed Rs
1,50,000.
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Medical Insurance Premium Sec 80 D

• Every individual can claim a deduction from their total
income for medical insurance premiums paid for self,
spouse, or your dependent children or parent; in any
given year under Section 80D.
• Quantum of Deduction:
– Rs 25,000 in a financial year.
– Rs 50,000 in a financial year. (Senior Citizen)
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DEDUCTION U/S 80E IN RESPECT REPAYMENT OF

LOAN FOR HIGHER EDUCATION
• Applicable to an Individual
• The loan must have been taken for the purpose of
pursuing higher education of himself/herself or for any
other following persons:
a. Spouse b. Children (dependent or not); or
c. the student for whom the individual is the legal guardian
• Quantum of deduction
– Amount paid during the year by way of payment of interest.
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DEDUCTION U/S 80EEB IN RESPECT OF PURCHASE

OF ELECTRIC VEHICLE
• Applicable to
– Individual (resident or non-resident)
• The assessee has taken loan for purchase of an electric vehicle
from any financial institution.
• The loan has been sanctioned by the financial institution during 01-
04-2019 and 31-03-2023.
• Quantum of Deduction (Minimum of the following)
a. Interest on loan payable for the previous year
b. Rs 1,50,000
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DEDUCTION U/S 80G IN RESPECT OF DONATIONS TO
CERTAIN FUNDS

• National defence fund set up by the Central Government

– 100%
• Prime Minister’s Drought Relief Fund - 50%
• Prime Minister’s National Relief Fund – 100%
• Prime Minister Cares Fund (PM Cares Fund) -100%
• Swachh Bharat Kosh- 100%
• Indira Gandhi Memorial Trust -50%
• Rajiv Gandhi Foundation – 50%
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Deduction in respect of Interest on Deposits in

Savings Account [sec. 80TTA]
• Applicable to an individual (other than senior citizen
covered u/s 80TTB)
• If GTI of an assessee includes any income by way of
interest on deposits (not being time deposits) in a
savings account with:
– a banking company or a Post Office
– a co-operative society engaged in carrying on the business of
banking.
• Quantum of deduction (Minimum of the following)
a. Interest on such deposits in saving account
b. Rs 10,000
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Deduction in respect of Interest on Deposits in case of
Senior Citizens [sec. 80TTB]
• Applicable to Senior Citizen
• If GTI includes any income by way of interest on
deposits with:
– A banking company;
– A co-operative society engaged in carrying on the
business of banking; or
– A Post Office
• Quantum of deduction (Minimum of the following)
a. Interest on such deposits
b. Rs 50,000
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DEDUCTION U/S 80U IN RESPECT OF PERSON WITH
DISABILITY

• Applicable to
– A resident individual (irrespective of citizenship of the individual)