Introduction

Income is taxable under the head ‘house property’ if it arises from a property consisting of any
building or lands appurtenant thereto. For computation of income under this head, a house
property is classified into three categories – let-out, self-occupied and deemed let-out house
property.

The income from a house property is computed on basis of its annual value. Various factors such
as municipal valuation, fair rent, standard rent and actual rent are considered to arrive at
annual value. Even if a property is not actually let-out during the year, annual value of a property
is computed on notional basis and, accordingly, charged to tax. However, if property is self-
occupied or cannot be occupied by the owner due to his employment, business or profession at
any other place, then the annual value of any two of such properties is taken as ‘nil‘.

Table of Contents
1. Chargeability of income
1.1 Building and Land Appurtenant thereto
1.2 Ownership of Property
1.3 Use of property
2. Net Annual Value of a House Property
3. Computation of income from house property

4. Exemption and relief for house property income

4.1. Income from farm building [Section 2(1A)(c)]
4.2. Rent derived from agriculture land [Section 2(1A)(a)]
4.3. Income from property held under trust [Section 11]
4.4. Palace of an ex-ruler[Section 10(19A)]
4.5. Income of a local authority[Section 10(20)]
4.6. Income of certain institutes[Section 10(23C)]
4.7. Income of a registered trade union[Section 10(24)]
4.8. Income of a political party[Section 13A]
4.9. Self-occupied house property[Section 23(2)]
4.10. House property used for own business or profession
4.11. Income of co-operative society
5. Treatment of unrealized rent and its recovery in subsequent years

6. Practice Questions

1. Chargeability of income
Any income is taxable under the head ‘Income from house property’ if following conditions are
satisfied.
1.1. Building and Land Appurtenant thereto
Income is taxable under this head if it arises from a property which consists of any building or
lands appurtenant thereto. Though the word ‘Property’ has a very wide meaning, but for the
purposes of chargeability of income under this head, the property must consist of any building or
land appurtenant thereto. Income from all other types of properties (i.e., property other than
building or land appurtenant thereto) are excluded from the chargeability under the head house
property.
Example, if any income is derived from a vacant land then such income shall not be chargeable
to tax under the head ‘Income from house property’ as the property does not consist of any
building. Such rental income is chargeable to tax under the head ‘profits and gains from business
or profession’ or ‘Income from other sources’.
A land is called as land appurtenant to the building if it is indivisible part and parcel of a building
for its use and enjoyment by the occupiers and it is not put to any other use and is not yielding
any income assessable under this head. Generally, playgrounds, parking lots, garages, backyards,
gardens, etc. are treated as land appurtenant to a building.
1.2. Ownership of Property
Income from a building and land appurtenant thereto are chargeable to tax under the head ‘house
property’ only in the hands of an owner. If a person, deriving rental income from a property, is
not the owner of such property, then the income so derived shall be chargeable to tax either as
business income or residual income but not as income from house property.
To become an owner of a property, a person must hold the legal title of the property in his name.
He should be able to exercise the rights of the owner, not on behalf of the owner but in his own
right. However, in certain situation, inspite of not holding the legal ownership of a property, a
person is considered as deemed owner of the property, and, accordingly, income from such
property is chargeable to tax in his hands even though he is not the legal owner of such property.

Section 27: Deemed ownership

This section provides the cases in which a person is deemed owner even in actual he or she is not
owner. These cases are as follows:
Transfer of a house property by an individual to his or her spouse without zero consideration or
insufficient consideration
1. If an individual transfers a house property to his or her spouse without no consideration or
insufficient consideration, then the transferor is deemed owner. However, if a house property is
transferred to live apart, then the transferor is not deemed owner.
Example 1
A transfers his house at Vaishali to his wife B as gift. In this case since, A receives no
consideration form his spouse B and therefore the transferor i.e. A is deemed owner while B is
now actual owner. Thus, the annual value of the house is taxable in the hands of A not B.
Example 2
P is husband of Q. P transfers a house property in Delhi to Q because he does not want to live
with her due to some reason. In this case since the house is transferred to live apart, therefore,
the provision of deemed ownership is not applicable here and as a result P is not deemed owner.

2. If an individual transfers a house property to his or her minor children without no

consideration or insufficient consideration, then the transferor is deemed owner. However, if
 a house property is transferred to a married minor daughter, then the transferor is not deemed
owner.
Example
A transfers his house at Noida to his son B (age 17 year) as gift. In this case since, A
receives no consideration from his son and therefore the transferor i.e. A is deemed owner
while B is now actual owner. Thus, the annual value of the house is taxable in the hands of A
not B.

3. Holder of an impartible estate

Impartible estate means some estate which cannot be distributed or divided due to some reason.
In such case, the holder of impartible estate is deemed to be owner.
4. A member of a co-operative society, company or other AOP to whom a building or a part
thereof is allotted or leased under a house building scheme of such co-operative society,
company or other AOP shall be deemed to be the owner of the building or a part thereof.
5. If a person is allowed to take or retain possession of a building or a part thereof by satisfying
the conditions of Section 53A of the Transfer of Property Act, 1882, then the person is deemed
to be the owner. The conditions of Section 53A are as follows:
a. The agreement between buyer and seller is in writing.
b. The buyer is ready to pay or has paid the consideration. Actual payment of consideration is
not important. c.The buyer has taken the possession of the property.

6. If a person who acquires a right in a building or a part thereof under Section 269UA (f).
Section 269UA (f) deals with the lease agreement of a property for at least 12 years. Thus, if the
lease period is 12 years or more, then the lessee is deemed owner. However, if the lessee is not
deemed owner if the property is given on lease from month to month or for a period not greater
than one year.
Example 1: X owns a property. It is given on lease for a period of 12 years to Y, lease rent
being Rs. 50,000 per month. In this case, since the lease period is of 12 years, hence, the lessee
i.e. Y is deemed owner.
Example 2: B owns a property and he gives the property to C on lease on the condition that the
initial period of lease is 1 month and at the end of which C has right to get the lease renewed for
a further period of 1 month. Such right can be exercised by 2040. In this case, the lessee is not
deemed owner because the property is given on the lease from month to month.
1.3. Use of property
The annual value of a house property is not chargeable to tax under this head if following
conditions are satisfied:
(a) The owner of the property utilizes the property for the purpose of carrying on his business or
profession; and
(b) Income of such business or profession is chargeable to tax.
Even if an assessee is engaged in the business of letting out of property, the rental income earned
from such business is taxable as house property income. However, in certain situations, the rental
income earned by the business has been held taxable as business income. Here are a few
judgments, where the High Courts had treated the rental income as business income:
(a) Where assessee’s business is to commercially exploit the property by letting out;
(b) Where factory building is given on rent to subsidiary to carry on business activities;
(c) Where assessee reduced the production and rented out surplus portion of the factory premises
to curtail the losses;
(d) Where letting of property is incidental and subservient to the main business of the assessee;
(e) Where the property is used for the residence of employees;
(f) Where the property is let-out with an objective to carry on the business more efficiently and
smoothly.

2. Net Annual Value of a House Property

Negative Self-occupied house

In case of Let out House Property
NAV property

● The NAV of self-occupied is

always taken as zero.
● NAV = GAV – Municipal Taxes Therefore, in case of self-
paid occupied, negative NAV is
● Thus, if the municipal tax paid in
not possible.
the previous year by the landlord
is more than the gross annual
value, then the NAV can be
negative.
● It may happen where municipal
taxes of earlier years are paid
 during the current year.

1. Inter-source adjustment (section 70):

Any loss from house property can be set-off from income of other house
property.
It is also called as intra-head adjustment.
2. Inter head adjustment (section 71):
Tax
The unadjusted loss can be set-off against income under any other head during
treatment of
the current year (no loss can be set-off against winning from lotteries, races,
loss under
etc.).
the head
“Income The assessee can set off such loss from house property up to a maximum of `
from house 2,00,000 only.
property”
3. Carry Forward and Set off (section 71B):
If it is not possible to set-off the loss (fully or partly), then it can be carried
forward to the next year for being set off against the incomes under the head
“income from house property”.
Loss from house property can be carried forward for a maximum period of 8
years for set-off against income from house property.

3. Computation of income from house property

For computation of income from house property, a house property has to be classified into
following categories:

(a) Let-out;

(b) Self-occupied; and

(c) Deemed let-out.

The income from such house property is computed in following manner:

Amount
(`)
 Gross Annual Value XXX

Less: Municipal Taxes paid by assessee during the year (XXX)

Net Annual Value (NAV) XXX

Less: Deduction under section 24

(a) Standard deduction @ 30% of NAV [Section 24(a)] (XXX)

(b) Interest on Borrowed Capital [Section 24(b)] (XXX) (XXX)

Taxable Income from House property XXX

4. Exemption and relief for house property income

Income-tax Act provides exemption and relief with respect to income derived from house property in
following cases:

4.1. Income from farm building [Section 2(1A)(c)]

Any income derived from farm building shall be considered as agriculture income, and
consequently exempt from tax, if it is situated on or in the immediate vicinity of the land,
situated in India and used for agricultural purposes and used as a dwelling-house, or as a store-
house, or as an out-building (out-house).
4.2. Rent derived from agriculture land [Section 2(1A)(a)]
Rent or revenue derived from land, situated in India and used for agricultural purposes is treated
as agricultural income which is exempt from tax.
4.3. Income from property held under trust [Section 11]
Exemption under Section 11(1) is available against any income from property held under trust
for charitable or religious purposes, provided such income has been applied for the charitable or
religious purposes in India.
4.4. Palace of an ex-ruler[Section 10(19A)]
The annual value of any one palace of an ex-ruler is exempt from tax under Section 10(19A) of
the Income-tax Act.
4.5. Income of a local authority[Section 10(20)]
Any income of a local authority, which is chargeable to tax under the head ‘house property’, is
exempt from tax under Section 10(20) of the Income-tax Act.
4.6. Income of certain institutes[Section 10(23C)]
Income of a university (or other educational institution) or hospital (or other medical institution)
is exempt from tax if such university or hospital is covered under Section 10(23C) of the
Income-tax Act.
4.7. Income of a registered trade union[Section 10(24)]
Any income chargeable under the head ‘house property’ of a registered trade union is exempt
from tax as per Section 10(24) of the Income-tax Act.
4.8. Income of a political party [Section 13A]
Any income of a political party which is chargeable under the head ‘house property’ is exempt
from tax under Section 13A of the Income-tax Act.
4.9. Self-occupied house property [Section 23(2)]
If the property is self-occupied or it cannot be occupied by the owner of the property due to his
employment, business or profession at any other place then the annual value of any two of such
properties can be taken as ‘nil’.
4.10. House property used for own business or profession
If a person carries on business or profession in his own house property then the notional rental
value of such property is neither treated as income nor allowed as deduction. However,
deduction on account of current repairs, municipal taxes, and insurance premium incurred in
connection with such property is allowed under the head business or profession.
4.11. Income of co-operative society
Any income derived by the co-operative society from the letting out of godown or warehouse for
storage, processing or facilitating the marketing of commodities, is eligible for deduction under
Section 80P of the Income-tax Act.

Further, if gross total income of a co-operative society not being a housing society or an urban
consumers’ society or a society carrying on transport business or a society engaged in the
performance of any manufacturing operations with the aid of power), does not exceed Rs.
20,000, the income from house property is fully deductible under Section 80P of the Income-tax
Act.

5. Treatment of unrealized rent and its recovery in subsequent

years
Meaning of It refers to the amount of rent payable but not paid by the tenant and not
Unrealized Rent realized by the owner from the tenant.

Tax Treatment Of The unrealized rent is deducted from the actual rent receivable from
unrealized Rent the property before computing income from that property, subject to
fulfilment of following conditions prescribed under Rule 4 of the Income
 Tax Rules, 1962:

The tenancy is bona fide.

The defaulting tenant has vacated or the assessee has taken steps to

compel the defaulting tenant to vacate the property.
The defaulting tenant is not in occupation of any other property owned
by the assessee.
The assessee has taken all reasonable steps for recovery of unrealized
rent or satisfies the assessing officer that such steps would be useless.

The section 25A provides the following as regards recovery of unrealized

rent:

It is chargeable under the head “Income from House Property”.

Subsequent It is taxable in the year of actual receipt.
Recovery It will be taxable in the hands of assessee, even if he does not own the
property to which such rent pertains.
The standard deduction under section 24(a) is allowed @ 30% of such
receipt.

However, in the following cases the GAV is assumed to be zero and no municipal taxes are subtracted
even they are paid.
1. If the property is self-occupied throughout the previous year.
2. If the property can’t be actually occupied due to employment, business or profession carried on
at any other place and the assessee has to reside at that other place in a building not belonging to
him.

Where a house is self-occupied for a part of the year and let out
for remaining part of the year
In this case, GAV is not assumed to nil but it is taxed as if the property is let out.

Interest on loan taken for construction, purchasing, acquisition, repair, reconstruction etc.
 Interest on loan

Self-occupied property or a property in which Let out property or property deemed to

an individual can’t reside due to his or her be let out
employment/profession/business at some other
place

The maximum limit is Rs. 2,00,000 subject to the following No limit.

conditions otherwise the limit is Rs. 30,000

1. Loan is taken on or after 1 April, 1999

2. Purpose of loan should be construction or acquisition or
repayment of the loan taken for construction or
acquisition.
3. Construction should be complete within 5 years from the
end of the financial year in which the loan is taken.

Important notes:

1. Interest on loan is deductible on accrual basis.

2. Interest on unpaid interest is not deductible.
3. No deduction is allowed for any brokerage or commission to get the loan.
4. Deduction is allowed even loan is taken for purchasing or acquiring plot not the house property.

Pre-construction period
Pre-construction period is the time period starting from the date of loan and ending on
1. 31st March just before the date of completion of construction Or
2. Date of repayment of the loan, whichever is earlier
The interest on loan of pre-construction period is called pre-construction period interest and its
deduction is given in 5 equal installments. The first deduction is given in the financial year in which
construction is complete.
Current period interest
Current period interest means the interest paid or payable during the relevant previous year.
Section 25B: Arrears of rent
Arrears of rent are taxable in the year in which they are received even the assessee may not be owner of
the property concerned in the year of receipt. However, standard deduction of 30% is allowed on the
untaxed GAV.

Composite rent
Case I
Composite rent = Rent for the house property + Rent for the assets (furniture, machinery etc.)
provided

Rent for the house property is considered under the head income from house property while the rent
for the furniture provided is taxable under the head Profits and gains of business or profession
(PGBP) or Income from other sourcesprovided the renting of the furniture is separable (Separable,
here, means that the owner should be ready to let out the house property without letting out the assets, if
the owner is not ready, then the two lettings are called inseparable). However, if the renting of the assets
is not separable, then the entire composite rent is taxable under the head Profits andgains of business
or profession (PGBP) or Income from other sources.

Case II
Composite rent = Rent for the house property + Rent for the services like watchman, lift etc.

Rent for the house property is considered under the head income from house property while the rent
for the services rendered the furniture provided is taxable under the head Profits and gains of business
or profession (PGBP) or Incomefrom other sources.

6. Practice Questions
Q1. Mr. X owns five houses at Cochin. Compute the Gross Annual Value of each house
from the information given below:

Particulars House I House II House III House IV House V

Municipal Value 1,20,000 2,40,000 1,10,000 90,000 75,000

Fair Rent 1,50,000 2,40,000 1,14,000 84,000 80,000

 Standard Rent 1,08,000 N.A. 1,44,000 N.A. 78,000

Actual rent
1,80,000 2,10,000 1,20,000 1,08,000 72,000
received/receivable

[May 2012, 5 Marks]

 Ans.:

House House
House II House IV House V
I III

(a) Municipal Valuation 1,20,000 2,40,000 1,10,000 90,000 75,000

(b) Fair Valuation 1,50,000 2,40,000 1,14,000 84,000 80,000

(c) Higher of (a) and (b) 1,50,000 2,40,000 1,14,000 90,000 80,000

(d) Standard Rent 1,08,000 N.A. 1,44,000 N.A. 78,000

Expected Rent [Lower of (c)

(e) 1,08,000 2,40,000 1,14,000 90,000 78,000
and (d)]

(f) Actual Rent 1,80,000 2,10,000 1,20,000 1,08,000 72,000

Gross Annual
(g) 1,80,000 2,40,000 1,20,000 1,08,000 78,000
value [Higher of (e) and (f)]

Q2. Mr. A owns a commercial building let out @ ` 40,000 per month. During the financial
year 2021-22, he wants to claim expenses made towards insurance, water, etc. from the rent
received. Comment in the light of section 24(a).

Ans: The section 24(a) allows deduction to an extent of 30% of Net Annual Value (NAV) as a
standard deduction from the house property used as a let out property or deemed let out property.
In the given case, Mr. A is entitled to standard deduction but no other expenditure shall be
allowed as deduction towards insurance, repair, ground rent, collection charges, water charges,
etc.

Q3. Ms. Jyoti purchased a house property costing ` 49 Lakhs on 1st May, 2021. The
property is used exclusively for her residential purpose. For this purpose she obtained loan
from DHFL of ` 35 lakhs bearing interest @ 14% p.a. on 1st April, 2021. She does not own
any other house.

State with brief reasons the deductions that can be claimed by Ms. Jyoti in respect of
interest on loan for Assessment Year 2022-23. What would be the change in your answer if
the loan has been taken over for repairs.

[Nov. 2017 Modified, 5 Marks]

Ans:

Interest paid on housing loan = 14% of ` 35,00,000 = ` 4,90,000

Status of house property = Self-occupied

(a)  Loan taken for construction or acquisition: If the capital is borrowed on or after April 1,
1999 for acquiring or constructing a property which is self-occupied, the interest on such
borrowed capital is deductible up to ` 2,00,000.

(b)  Loan taken for reconstruction, repairs or renewal: In this case, the maximum amount of
deduction on account of interest is ` 30,000.

Q4. Mrs. Vimala commenced construction of house meant for residential purpose on
01.11.2019. She raised a loan of ` 10 lakhs @ 11% per annum from a bank. Finding that
there was over run in the cost of construction, she raised a further loan of ` 5 lakhs from
her friend at 15% rate of interest per annum on 1.10.2021. The construction was completed
by February, 2022.

Compute the amount of interest allowable under section 24 of the income-tax Act, 1961 in
the following cases:

   (i)  The house was meant for self-occupation from 01.03.2022

  (ii)  The house was to be let out from 01.03.2022.

Is there any deduction available u/s 80C towards principal repayment in respect of above
 loans?

[CMA June 2011, 6 Marks]

Ans:

(i)  When the house was meant for self-occupation:

Computation of the amount of interest

allowable under section 24

(a) Interest for current previous year

` 10,00,000 × 11/100 1,10,000

` 5,00,000 × 15/100 × 6/12 37,500 1,47,500

Interest for Pre Construction period (1-11-2019 to 31-3-

(b)
2021)

` 10,00,000 × 11/100 × 17/12 × 1/5 31,167

Total Interest 1,78,667

As per section 24(b), the amount eligible for deduction for interest on borrowed capital (of the
current year and pre-construction period) is up to ` 2,00,000. The actual interest (` 1,78,667) is
deductible as it is within limit.

 (ii)  When the house is let out w.e.f. 1-3-2022:

If capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction
of the property, then no maximum limit has been prescribed, if the house is let-out.

Therefore, the whole amount of ` 1,78,667 (calculated in first part) is deductible.

Q5. Sanjay commenced construction of a residential house intended exclusively for his

residence, on 1-12-2020. He raised a loan of ` 8,00,000 @ 15% interest for the purpose of
construction on 1-11-2020. Finding that there was an over run in the cost of construction he
raised a further loan of ` 9,00,000 at 14% p.a. on 1-9-2021. What is the interest allowable
under section 24 in Assessment year 2022-23, assuming that the construction was
completed on 31-3-2022?

[May 2000 Modified, 5 Marks]

Ans:

Computation of the amount of interest

allowable exemption under section 24

(a) Interest for current previous year

` 8,00,000 × 15/100 1,20,000

` 9,00,000 × 14/100 × 7/12 73,500 1,93,500

(b) Interest for Pre Construction period (1-11-2020 to 31-3-2021)

` 8,00,000 × 15/100 × 5/12 × 1/5 10,000

                                                                                             Total

2,03,500
Interest

As per section 24(b), in case of self-occupied property, the amount eligible for deduction for
interest on borrowed capital (of the current year and pre-construction period) is up to ` 2,00,000.
Thus, the deduction under section 24 in respect of borrowed capital is ` 2,00,000.

Q6. Mr. X owns a house property which is let out. During the previous year ending 31-3-
2021, he receives the following:

(i) Arrears of Rent ` 30,000

(ii) Unrealized Rent ` 20,000

You are requested to

(a) State, how they should be dealt with as per the provisions of the Act.
 (b) Compute the income chargeable under the head “Income from House Property”.

[May 2002, 4 Marks]

 Ans.:

(a) State, how they should be dealt with as per the provisions of the Act.

As per section 25A, the arrears of rent received are taxable in the year in which arrears have been
received. However, deduction shall be allowed @ 30% of such arrears and only the balance
amount is taxable. The taxability exists irrespective of the fact whether assessee remains the
owner of the property in the year of receipt or not.

(b) Computation of Income from House Property

(Assessment Year 2021-22)

Amount (`)

Arrear of Rent received 30,000

Less: Deduction @ 30% u/s 25 A (9,000) 21,000

Unrealized Rent received 20,000

Less: Deduction @ 30% u/s 25 A (6,000) 14,000

Taxable Income from House property 35,000

 Q7. [Elementary] Amalesh owns a house property which is let-out for ` 6,500 per month.
The fair rent of the property is ` 90,000. Municipal taxes paid during the year for each half
year is ` 3,200. The tenant has spent ` 10,000 towards repairs of the property during the
year. Compute the income from house property for the assessment year 2022-23.

Ans.: Computation of Income from House Property

(Assessment Year 2022-23)

 Amount
(` )

Gross Annual Value (Note 1) 90,000

Less: Municipal Taxes paid (Note 2) 6,400

Net Annual Value (NAV) 83,600

Less: Deduction under section 24

Standard (30% of ` 83,600) (25,080)

Taxable Income from House property 58,520

Working Notes:
1. The GAV of the house property is determined as under:

Step 1: Computation of Expected Rent

(a) Municipal Valuation : NA

(b) Fair Valuation : ` 90,000

(c) Higher of (a) and (b) : ` 90,000

(d) Standard Rent : NA

Expected Rent = Lower of (c) and (d) = ` 90,000

Step 2: Computation of Gross Annual value

   (i)  Expected Rent (As per step 1)            :   ` 90,000

  (ii)  Actual Rent Received (6,500 × 12)     :   ` 78,000

Gross Annual Value: The expected rent is higher than the rent received. Thus, the expected rent
i.e. ` 90,000 shall be GAV.
2. The Municipal Taxes paid during the year for each half year is ` 3,200 i.e. ` 6,400 annual.

Q8. Mr. Lal is the owner of a commercial property let out at ` 60,000 per month. The
Corporation tax on the property is ` 30,000 annually, 60% of which is payable by the
tenant. This tax was actually paid on 15.04.2021. He had borrowed a sum of ` 40 lakhs from
his cousin, resident in Singapore (in dollars) for the construction of the property on which
interest at 8% is payable. He has also received arrears of rent of ` 80,000 during the year,
which was not charged to tax in the earlier years. What is the property income of Mr. Lal
for the assessment year 2021-22?

Ans.: Computation of Income from House Property

(Assessment Year 2021-22)

Amount (`)

Gross Annual Value (` 60,000 × 12) 7,20,000

Less: Municipal Taxes (Note 1) Nil

Net Annual Value (NAV) 7,20,000

Less: Deduction under section 24

Standard (30% of ` 7,20,000) (2,16,000)

Interest on Borrowed Capital (40,00,000 × 8%) (Note 2) (3,20,000) (5,36,000)

Income from House property (Let out portion) 1,84,000

Arrears of rent received

Arrear of Rent received 80,000

 Less: Deduction under section 25A

Standard (30% of ` 80,000) (Note 3) (24,000)

Income from arrears of rent 56,200

Taxable Income from House property 2,40,000

 Working Notes:
1.
1. Municipal taxes paid by tenant (60%) are not deductible. The balance 40%, although paid by assessee, is not deducted because it was paid in FY 2021-
22 and not in 2020-21.
2. It is presumed that the tax has been deducted at source on the amount of interest payable outside India.
3. As per section 25A, the arrears of rent received are taxable in the year in which arrears have been received. However, deduction shall be allowed @
30% of such arrears and only the balance amount is taxable.

Q9. Tarun, employed in a private company, commenced construction of a commercial

complex in July, 2020. He borrowed ` 50 lakhs from a bank @ 9% per annum. Interest up
to 31.03.2021 was ` 2,20,000 and for the period from 01.04.2021 to
31.12.2021 ` 2,30,000; ` 1,40,000 towards interest for the balance three months remained
unpaid.

The construction of the building was completed on 31st December, 2021. The building was
let out w.e.f. 01.01.2022 for a monthly rent ` 90,000. Municipal tax of ` 1,20,000 was paid by
cash on 10.01.2022. He repaid ` 1,90,000 towards principal during the previous year 2021-
22, of which he paid ` 1,20,000 up to 31.12.2021. The municipal value of the property
is ` 9,00,000.

Compute the income from house property of Tarun for the assessment year 2022-23.

Ans: Computation of Income from House Property

(Assessment Year 2022-23)

Amount (`)

Gross Annual Value (Note 1) 2,70,000

Less: Municipal Taxes paid (1,20,000)

Net Annual Value (NAV) 1,50,000

Less: Deduction under section 24

Standard (30% of ` 1,50,000) (45,000)

Interest on Borrowed Capital

Current Year (3,70,000)

Pre-construction Period (2,20,000 × 1/5) (44,000) (4,59,000)

Taxable Income from House property (3,09,000)

Q10. Mr. Ganesh owns a commercial building whose construction got completed in June
2020. He took a loan of ` 15 lakhs from his friend on 1-8-2019 and had been paying interest
calculated at 15% per annum. He is eligible for pre-construction interest as deduction as
per the provisions of the Income Tax Act.

Mr. Ganesh has let out the commercial building at a monthly rent of ` 40,000 during the
financial year 2021-22. He paid municipal tax of ` 18,000 each for the financial years 2020-
21 and 2021-22 on 1-5-2021 and 5-4-2022 respectively.

Compute income under the head ‘House Property’ of Mr. Ganesh for the Assessment Year
2022-23.

[May 2017, 4 Marks]

Ans: Computation of Income from House Property

(Assessment Year 2022-23)

Amount (`)

Gross Annual Value (Actual Rent: ` 40,000 × 12) 4,80,000

Less: Municipal Taxes paid (Note 1) (18,000)

Net Annual Value (NAV) 4,62,000

Less: Deduction under section 24

Standard (30% of ` 4,62,000) (1,38,600)

Interest on Loan for current Previous year (` 15,00,000 × 15%) (2,25,000)

Interest on Loan for pre-construction period (Note 2) (30,000) (3,93,600)

Taxable Income from House property 68,400

Working Notes:
1.
1. Municipal taxes paid on 5-4-2022 are not considered because these are not paid in financial year 2021-22.
2. The interest for pre-construction period deductible in previous year is determined as under:

1-8-2019 to 31-3-2020 i.e. 8

(a) Pre-construction period (PCP) :
Months

(b) Loan amount : ` 15,00,000

(c) Rate of Interest : 15%

15,00,000 × 15% × 8/12 =

(d) Total Pre-construction Interest :
` 1,50,000

(e) PCP Interest deductible in current Pr. Yr. : ` 1,50,000 × 1/5 = ` 30,000

Q11. Mr. Ashok owns two buildings which are let out during the financial year 2021-22.
The relevant details are as under:

House 1 House 2
Particulars
Residential (`) Commercial (` )

Municipal Value 1,80,000 3,60,000

 Standard Rent 1,50,000 3,00,000

Actual Rent 2,40,000 6,00,000

Municipal Tax paid 20,000 30,000

Municipal Tax unpaid 10,000 15,000

Interest on money borrowed paid 60,000 20,000

Interest on money borrowed outstanding 1,00,000 1,60,000

Housing loan principal repaid to bank 50,000 30,000

You are requested to compute income of Mr. Ashok under the head income from house
property for the assessment year 2022-23.

 Ans: Computation of Income from House Property

(Assessment Year 2022-23)

House 1 House 2

Residential Commercial

Gross Annual Value (Note 1) 2,40,000 6,00,000

Less: Municipal Taxes paid (20,000) (30,000)

Net Annual Value (NAV) 2,20,000 5,70,000

Less: Deduction under section 24

Standard (30% of NAV) (66,000) (1,71,000)

 Interest on Loan (1,60,000) (1,80,000)

Taxable Income from House property (6,000) 2,19,000

 Note: Repayment of principal amount of housing loan to bank is deductible from Gross Total
Income under section 80C.

Working Notes:
1. The GAV of both the houses are determined as under:

House 1 House 2

(a) Municipal Valuation : ` 1,80,000 ` 3,60,000

(b) Fair Valuation : NA NA

(c) Higher of (a) and (b) : ` 1,80,000 ` 3,60,000

(d) Standard Rent : ` 1,50,000 ` 3,00,000

(e) Expected Rent Lower of (c) and (d) : ` 1,50,000 ` 3,00,000

(f) Actual Rent : ` 2,40,000 ` 6,00,000

(g) Gross Annual value Higher of (e) and (f) : ` 2,40,000 ` 6,00,000

Q12. Mr. Chaturvedi, Delhi has 3 house properties in various parts of India. The details
are given below:

Location of Property Delhi Chandigarh Kolkata

Usage Self-Occupied Let out Let Out

 Amount (`) Amount (`) Amount (`)

Rent Received NIL 360,000 1,80,000

Fair Rent 2,40,000 30,000 1,50,000

Municipal Value 2,10,000 240,000 1,20,000

Standard Rent 1,80,000 210,000 90,000

Municipal Tax Due 20,000 40,000 30,000

Municipal Tax paid by the assessee NIL NIL 20,000

Interest on money borrowed 2,80,000 1,40,000 1,50,000

Note: All the properties were acquired/constructed after 01.04.2013.

You are required to compute the income of Mr. Chaturvedi chargeable under the head
Income from house property for the assessment year 2022-23.

 Ans: Computation of Income from House Property

(Assessment Year 2022-23)

Delhi Chandigarh Kolkata

Self-
Let out Let Out
Occupied

Gross Annual Value (Notes 1 and 2) NA 3,60,000 1,80,000

Less: Municipal Taxes paid NA Nil (20,000)

Net Annual Value (NAV) Nil 3,60,000 1,60,000

 Less: Deduction under section 24

Standard (30% of NAV) Nil (1,08,000) (48,000)

Interest on Loan (2,00,000) (1,40,000) (1,50,000)

Taxable Income from House property (2,00,000) 1,12,000 (38,000)

Total taxable Income from House Property = (2,00,000) + 1,12,000 + (38,000) = – 1,26,000

Working Notes:
1.
1. The NAV of self-occupied property (Delhi) is always taken as nil.
2. The GAV of both the houses are determined as under:

Chandigarh Kolkata

(h) Municipal Valuation : ` 2,40,000 ` 1,20,000

(i) Fair Valuation : ` 3,00,000 ` 1,50,000

(j) Higher of (a) and (b) : ` 3,00,000 ` 1,50,000

(k) Standard Rent : ` 2,10,000 ` 90,000

(l) Expected Rent Lower of (c) and (d) : ` 2,10,000 ` 90,000

(m) Actual Rent : ` 3,60,000 ` 1,80,000

(n) Gross Annual value Higher of (a) and (b) : ` 3,60,000 ` 1,80,000

Q15. X is a doctor. He owns a property in a posh colony in Cochin. The property has four
units of equal size. Unit 1 on the ground floor is used by X for his medical profession. Unit
2 on the first floor is let out to a non-resident on monthly rent of Rs. 80,000 with effect from
July 1, 2021. This unit remains vacant during May and June 2021 as suitable tenant is not
available. The old tenant has occupied Unit 2 since 1986 and after a Court verdict he
vacates it on April 30, 2021 without paying rent of 6 months (monthly rent being Rs.
10,000).
Unit 3 on the second floor and Unit 4 on the third floor are converted into one residential
unit and is occupied by X for his residential purposes.

Municipal valuation of the entire property is Rs. 3,00,000. Market rent of a similar
property is Rs. 7,00,000. Standard rent is Rs. 6,50,000. Municipal tax is levied at the rate of
15 per cent. Entire municipal tax is payable by X. Municipal tax of previous year 2021-22 is
paid in two instalments – Rs. 28,000 on March 31, 2022 and Rs. 17,000 on June 1, 2022.

X has taken a loan of Rs. 20 lakh from SBI at the rate of 9 per cent per annum for
renovation of second and third floor. This loan was taken in 2020 and nothing is repaid up
to March 31, 2022. On March 31, 2022, he repays Rs. 15,00,000. Interest on loan is not paid
although it has become due for payment.

Income of X from medical profession is Rs. 33,10,000 (without deducting depreciation of

Unit 1 which comes to Rs. 32,000 and municipal tax). X annually pays life insurance
premium of Rs. 50,000 on the life of his dependent mother (64 years) and Rs. 1,20,000 in
public provident fund. He wants to claim deduction under section 80C in respect of
repayment of loan taken from SBI.

Determine the amount of net income and tax liability of X for the assessment year 2022-23.
Ignore section 115BAC pertaining to alternative tax regime‡.

Solution : Computation of income of Unit 2 which is let out

  Rs.

Computation of gross annual value

Municipal value of Unit 2 (Rs. 3,00,000 ÷ 4) (MV) 75,000

Fair rent Unit 2 (Rs. 7,00,000 ÷ 4) (FR) 1,75,000

Standard rent Unit 2 (Rs. 6,50,000 ÷ 4) (SR) 1,62,500

Annual rent Unit 2 (Rs.10,000 × 1 + Rs. 80,000 × 11) 8,90,000

Unrealized rent Unit 2 10,000

Loss due to vacancy (Rs. 80,000 × 2) 1,60,000

 Step I – Reasonable expected rent of Unit 2 [MV or FR,
1,62,500
whichever is higher, but subject to maximum of SR]

Step II – Rent received/receivable after deducting unrealized

rent but before adjusting loss due to vacancy (Rs. 8,90,000 – 8,80,000
Rs. 10,000)

Step III – Amount computed in Step I or Step II, whichever is

8,80,000
higher

Step IV  – Loss due to vacancy 1,60,000

Step V – Gross annual value is Step III minus Step IV 7,20,000

Less: Municipal tax of Unit 2 (Rs. 28,000 ÷ 4) 7,000

Net annual value 7,13,000

Less: Deductions under section 24 –

Standard deduction @ 30% 2,13,900

Interest on borrowed capital   Nil

Income from Unit 2 4,99,100

Computation of income of Units 3 and 4 – These two units are used as one residential unit. Gross
annual value is nil. Municipal tax is not deductible. Interest on borrowed capital is deductible up
to Rs. 30,000. Higher deduction up to Rs. 2,00,000 is applicable only in the case when loan is
taken for purchase or construction of a residential purposes. Since loan is taken for renovation of
Units 3 and 4, the higher amount of Rs. 2,00,000 is not deductible. Interest of the previous year
2021-22 comes to Rs. 1,80,000. However, amount deductible is only Rs. 30,000. Interest on
borrowed capital is deductible on accrual basis. In other words, Rs. 30,000 is deductible even if
interest is not actually paid. Income from Units 3 and 4 will be (–) Rs. 30,000.

Computation of income from medical profession –

   Rs.

Income 33,10,000

Less: Depreciation 32,000

Less: Municipal tax [(Rs. 28,000 + Rs. 17,000) ÷ 4,

municipal tax paid up to due date of submission of return of
11,250
income is deductible for the previous year 2021-22 under
section 43B]

Income from profession 32,66,750

Computation of income and tax liability –    

Income from house property [Unit 1 : Nil, as it is occupied

for own business/profession + Unit 2 : Rs. 4,99,100 + Units 3 4,69,100
and 4 : (–) Rs. 30,000]

Income from profession 32,66,750

Gross total income 37,35,850

Less: Deductions under section 80C (deposit of Rs. 1,20,000

in public provident fund, insurance premium on mother’s life
1,20,000
is not eligible, repayment of loan is deductible only when it is
taken for acquiring or purchasing a property)

Net income (rounded off) 36,15,850

Tax on net income    

Income-tax† 8,97,255

Add: Health and education cess 35,890

Tax liability (rounded off) 9,33,150

Q20. X (40 years) is an Indian but now he is a citizen of USA. During the previous year
2021-22, he is in India for 300 days. During April 1, 2011 and March 31, 2020, he is in India
for 600 days. He is resident in India for the previous years 2018-19 and 2019-20.

He has two businesses — Business A (chemical manufacturing business) and Business B

(business of letting out of properties on rent in India and outside India). From Business, A
he has generated income of Rs. 7,00,000 in India and Rs. 5,00,000 outside India. The
following information is available from the records of X pertaining to Business B –

  (All figures in INR)

House House
properties properties

in India outside India

Number of properties 6 9

Gross annual value of these

46,72,000     83,70,000
properties

Municipal tax actually paid in 2021-

6,00,000     12,50,000
22

Repair expenses 14,000     15,90,000

Insurance 80,000     4,15,000

Interest on capital borrowed for

50,000     60,000
repairing properties

Charges for lift, electricity, air-

conditioning and security services
25,12,972     37,65,000
collected (in addition to rent) from
tenants (a)

Amount actually spent for this

15,00,000     22,00,000
purpose (b)
 Depreciation admissible in respect of
7,10,000     12,80,000
lift and air-conditioning system (c)

Business A and Business B are controlled partly from India and partly from outside India.
Rent of 9 properties situated outside India is received outside India. Later on
approximately 30 per cent rent is remitted to India. X is employed by a foreign company.
During the previous year 2021-22, he has received salary of Rs. 36,00,000 out of which Rs.
10,00,000 pertains to services rendered in India. As per agreement with the employer Rs.
10,00,000 is accrued outside India and paid outside India. X pays insurance premium of Rs.
20,000 in India (sum assured : Rs. 2,00,000) and Rs. 2,50,000 outside India (sum assured :
Rs. 30 lakh).

Find out net income and tax liability of X in India for the assessment year 2022-23. Ignore
double taxation relief available under section 90. Ignore section 115BAC pertaining to
alternative tax regime‡.

Solution : During the previous year 2021-22, X is in India for 300 days. During last 7 years he is
not in India for at least 730 days. Consequently, X is resident but not ordinarily resident in India
for the assessment year 2022-23.

Indian income is chargeable to tax in India. Foreign income is taxable if it is a business income
and arises from a business which is controlled wholly or partly from India. Business A is
controlled from India as well as from outside India. Even income generated and received outside
India pertaining to Business A is taxable in India.

Business B consists of letting out of properties in India and outside India. It also includes the
business of providing services (like lift, electricity, air-conditioning, security, etc.) to tenants.
Income from letting out of properties cannot be taken as business income, as it is taxable under
the head, “Income from house property”. However, income from the incidental business of
providing different services to the tenants can be taken as business income.

Computation of income of Business A and Business B –

Indian Foreign
     
income income

  Rs.     Rs.

Computation of business income –        

Business A 7,00,000 5,00,000

 Business B (the activity of providing
incidental services to tenants) [(a) – (b) – 3,02,972 2,85,000
(c)]

Total 10,02,972 7,85,000

Computation of house property income –        

Gross annual value 46,72,000 83,70,000

Less: Municipal tax 6,00,000 12,50,000

Net annual value 40,72,000 71,20,000

Less: Deductions –

Standard deduction 12,21,600 21,36,000

Interest on borrowed capital 50,000 60,000

Income 28,00,400 49,24,000

Salary (for rendering service in India) (after standard deduction) 9,50,000

House property income 28,00,400

Business income (Rs. 10,02,972 + Rs. 7,85,000) 17,87,972

Gross total income 55,38,372

Less: Deduction under section 80C 1,50,000

Net income (rounded off) 53,88,370

Tax on net income  

Income-tax† 14,29,011

Add: Surcharge @10% 1,42,901

Tax and surcharge 15,71,912

Add: Health and education cess 62,876

Tax liability (rounded off) 16,34,790