Chapter 3 Income under the head House Property

Chapter 3
Income under the head House Property
Charging Section (Section 22)
i. The annual value of any property comprising of building or land appurtenant thereto, of which
the assessee is the owner or deemed owner shall be subject to income tax under the head “Income
under the head House property”.
ii. Income from house property shall be taxable under this head if following conditions are satisfied:
a. The house property should consist of any building or land appurtenant thereto,
b. The taxpayer should be the owner of the property.
c. The house property should not be used for the purpose of business or profession carried
on by the taxpayer.
iii. Exception: Annual value of the following properties are chargeable under the head “Profits and
gains from business and profession:
a. Portions of property occupied by the assessee for the purpose of any business or profession
carried on by him.
b. Properties of an assessee engaged in the business of letting out of properties.

Conditions for Chargeability

Conditions

Property Ownership
i. Property should consist of any building i. Owner is the person who is entitled to receive
or appurtenant thereto. income from the property in his own right.
ii. Buildings include residential buildings, ii. The requirement of registration of the sale is not
factory buildings, offices, shops, warranted.
godowns, and other commercial iii. Ownership includes both free-hold and lease-
premises. hold rights.
iii. Land appurtenant means land connected iv. Ownership includes Deemed Ownership
with building like garden, garage, etc. (Section 27).

Note: Income from letting out of vacant v. The assessee must be the owner of the property

land is taxable under the head other sources during the PY.

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Chapter 3 Income under the head House Property

Deemed Ownership (Section 27)

Income from house property is taxable in the hands of its owner. However, in the following cases, legal
owner is not considered as the real owner of the property and someone else is considered as the deemed
owner of the property to pay tax on income earned from such house property:

1. Transfer to a spouse
An individual, who transfers otherwise than for adequate consideration any house property to his
or her spouse, not being a transfer in connection with an agreement to live apart.

2. Transfer to a child
An individual, who transfers otherwise than for adequate consideration any house property or to
a minor child not being a married daughter, shall be deemed to be the owner of the house property
so transferred.

3. Holder of an impartible estate

The holder of an impartible estate shall be deemed to be the individual owner of all the properties
comprised in the estate;

4. A member of a co-operative society, company

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 shall be deemed to be the owner
of that building or part thereof;

5. Person in possession of a property

A person who is allowed to take or retain possession of any building or part thereof in part
performance of a contract of the nature referred to in Section 53A of the Transfer of Property
Act, 1882 shall be deemed to be the owner of that building or part thereof;

6. A leaseholder
A person who acquires any rights (excluding any rights by way of a lease from month to month
or for a period not exceeding one year) in or with respect to any building or part thereof, shall be
deemed to be the owner of that building or part thereof.

Composite rent
Composite rent means when the landlord or owner of a property receives rent in respect of building let
out including:
i. Other assets as for example furniture, fixtures, plant, and machinery.

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Chapter 3 Income under the head House Property

ii. For other services provided in the building, for e.g. elevator or Lifts, security, generators or Power
backup

Treatment of Composite Rent

Composite Rent

Composite Rent is separable Composite Rent is NOT

 Rent from HP – Taxable u/h Income separable
from HP. In this case the entire amount
 Rent for Other facilities – Taxable would taxable as income from
u/h O/s if received more than the PGBP or Other source
expenses incurred

Determination of Annual Value

Annual Value is the amount for which the property might be let out on a yearly basis. It is the estimated
rent that the assessee could get if the property was rented out. In order to calculate any income from house
property, you need to know the annual value of house property.
Following are the important terms for determination of Annual Value:

1. Municipal Value (500000)

MUNICIPAL VALUE is the value determined by local authorities by making a periodical survey
of all buildings in their jurisdiction. Such valuation helps in charging municipal tax.

2. Fair Rent (600000)

Fair rent is the reasonable rent for a property based on the size, condition, and usefulness of the
property. In fixing fair rent, the scarcity of rented property is not taken into account and
therefore fair rent is usually lower than the market rent. It can be determined on the basis
of rent fetched by a similar property in the same or similar locality.

3. Standard rent 320000

Standard rent is the rent which the land lord is expected to receive from the tenant. It is the
maximum rent which a person can legally recover from his tenant under the Rent Control Act.

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Chapter 3 Income under the head House Property

4. Actual Rent
Actual rent received or receivable or annual rent

Determination of Gross Value (Sec 23(1))

Municipal Value

Fair Rent Higher of the TWO

Lower of the TWO
Standard Rent = Expected Rent

GAV Expected Rent Higher of the two

Actual rent received or receivable

Situations of GAV

HP-LO throughout the year HP-LO for part of the year and vacant
for part

GAV = Sec 23(1) applies

GAV = Actual Rent

HP-LO for part of the HP- SO or

year and self-occupied unoccupied

for part of the year.

GAV = Nil
GAV = Sec 23(1)
applies
ER = 12 months
AR = Actual Period
HP-Deemed To be
to be let out discussed

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Chapter 3 Income under the head House Property

Calculation of income under the head House Property

Particulars Amount
Gross Annual Value ₹………….
(-) Municipal Taxes (borne and paid by the assessee) (₹………….)
(-) Unrealized rent (₹………….)
Net Annual Value (₹………….)
(-) Deductions u/s 24
24(a) Standard Deduction (NAV * 30%) (₹………….)
24(b) Interest paid on borrowed capital (₹………….)
Total ₹………….
(+) Arrear of rent received (Amount – 30% of Amount) ₹………….
Income under the head House Property

Deductions:
Description Nature of deductions
Municipal Taxes a. Municipal taxes including service-taxes levied by any local authority in
respect of house property is allowed as deduction, only if: Taxes are borne by
the owner; and
b. Taxes are actually paid by him during the year.
Standard 30% of net annual value of the house property is allowed as deduction if property
Deduction is let-out during the previous year.
[Section 24(a)]
Interest on S.no Conditions Amount of Deduction
Borrowed 1 let-out property Actual Interest incurred (the
Capital * whole amount)
[Section 24(b)] Self - Occupied Property
2 Loan borrowed before 1-4-1999 Actual Interest

Where the property is acquired or OR Whichever

constructed, repaired, renewed, or ₹ 30,000 is lower

reconstructed with borrowed capital before

1-4-1999.
3(i) Loan borrowed on or after 1-4-1999

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Chapter 3 Income under the head House Property

Where property is acquired or constructed Actual Interest

with the capital borrowed on or after 1-4- OR Whichever

1999 and such acquisition or construction is ₹ 2,00,000 is lower

completed within 5 years from the end of

the financial year in which capital is borrowed.
(ii) Any other case Actual Interest

OR Whichever is
lower
₹ 30,000

Interest pertaining to the prior period

Any interest pertaining to the period prior to the year of acquisition/ construction of the house property
shall be allowed as deduction in five equal installments, beginning with the year in which the property
was acquired/ constructed.

Deduction for interest on borrowed capital shall be limited to ₹ 30,000 in following circumstances:
i. If capital is borrowed before 01-04-1999 for the purpose of purchase or construction of a house
property;
ii. If capital is borrowed on or after 01-04-1999 for the purpose of re-construction, repairs or renewals
of a house property;
iii. If capital is borrowed on or after 01-04-1999 but construction of house property is not completed
within five years from the end of the previous year in which capital was borrowed.

Unrealized Rent
i. It is the rent of the property pertaining to the previous year, which the owner of the property could
not recover from the tenant.
ii. If the following conditions are satisfied as per Rule 4A, then unrealized rent pertaining to the
previous year is to be deducted from the actual rent of the previous year:
a. The tenancy is bona fide.
b. The defaulting tenant has vacated the property, or steps have been taken to compel him to
vacate the property.
c. The defaulting tenant does not hold any other property of the assessee.
d. The assessee has taken all steps to recover such amount, including legal proceedings or he
satisfies the Assessing Officer that legal proceedings would be useless.

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Chapter 3 Income under the head House Property

Deduction of interest not allowed (Sec 25)

Interest chargeable under this Act which is payable outside India shall not be deducted if :-
i. Tax has not been paid or deducted from such interest and
ii. There is no person in India who may be treated as an agent under section 163.

Arrear of rent and unrealized rent (Section 25A)

i. Taxable in the year of receipt/ realization.
ii. Deduction of 30% of rent received/ realized.
iii. Taxable even if assessee is not the owner of the property in the F.Y of receipt/ realization.

Rental Income from Co-owned property (Section 26)

Co-Owned property (Section 26)

Self-Occupied property Let Out Property

The annual value of the property of each co-owner The income from such property shall be computed
will be NIL and each co-owner shall be entitled to as if the property is owned by one owner and
a deduction of Rs 30,000 or Rs 2,00,000 as the thereafter the income so computed shall be
case may be, on account of interest on borrowed apportioned amongst each co-owner as per their
capital specific share.

Income from House Property exempt from tax

i. Income from any farmhouse forming part of agricultural income (sec 10(1))
ii. Annual value of any one palace in the occupation of an ex-ruler (sec 10(19A))
iii. Income from House Property of the local authority (sec 10(20)).
iv. Income from house property of an approved scientific research association (sec 10(21)).
v. Income from house property of universities, educational institutions, etc. (sec 10(23C)).
vi. Income from house property of registered trade union (sec 10(24)).
vii. Income from house property held for charitable or religious or religious purpose (Sec 11).
viii. Income from house property of a political party (Sec 13A)

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Chapter 3 Income under the head House Property

Income under House Property in New Tax Regime (Section 115 BAC)

a. If the property is not let out

i. No deduction allowed u/s 24.
b. If the property is let out
i. Deduction u/s 24 is allowed

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Chapter 3 Income under the head House Property

Graded Illustration

Illustration 1: Determine the Net Annual value for the following House Properties

Particulars HP-1 HP-2 HP-3

Municipal Valuation 1,00,000 80,000 1,20,000
Fair Rent 1,20,000 60,000 1,10,000
Standard Rent 1,25,000 1,00,000 NA
Actual rent 1,00,000 1,00,000 1,00,000
Municipal Taxes 15,000 12,000 7,500

Solution: Calculation of income U/H House Property

Particulars HP-1 HP-2 HP-3
Gross Annual Value 1,20,000 1,00,000 1,20,000
(-) Municipal Taxes (borne and paid by the assessee) 15,000 12,000 7,500
(-) Unrealized rent ---- --- ---
Net Annual Value 1,05,000 88,000 1,12,500
(-) Deductions u/s 24
24(a) Standard Deduction (NAV * 30%) 31,500 26,400 33,750
24(b) Interest paid on borrowed capital Nil Nil Nil
Total 73,500 61,600 78,750
(+) Arrear of rent received (Amount – 30% of Amount) Nil Nil Nil
Income under the head House Property 73,500 61,600 78,750

Illustration 2: Mr. N is the owner of three house properties in Delhi, particulars in respect of which for
the year ended 31-3-2022 as below:
Particulars I House II House III House
Construction started on 1.4.1993 1.8.1993 1.7.1988
Construction completed on 31.12.1994 31.1.1994 31.12.1989
Amount Amount Amount
Actual rent received 3,50,000 1,90,000 S.O
Standard rent 4,50,000 4,00,000 N.A
Municipal value 6,00,000 1,90,000 2,78,000
Municipal taxes (paid by owner) 60,000 19,000 1,20,000
Cost of repairs paid by tenant 10,000 70,000 -

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Chapter 3 Income under the head House Property

Collection charges 15,000 13,000 -

Insurance premium 10,000 (paid) 12,000(not 26,000
paid)
Interest on loan taken for renovation of house 24,000 60,000 60,000
Unrealized rent allowed in the past, recovered during 20,000 - -
the PY

Mr. N resided in Bombay for three months during PY in connection with his business and for all these
months the house remained vacant. During the period of his stay in Delhi, he did not occupy any other
house of his own. Compute Mr. N’s income from House Property, for AY 2024-25.
a. opts to be taxed under the old tax regime.
b. Does not exercise any option.

Solution:
a. opts to be taxed under the old tax regime.
Particulars HP-1 HP-2 HP-3 Total
Income
Gross Annual Value 4,50,000 1,90,000 Nil
(-) Municipal Taxes (borne and paid by the 60,000 (19,000) Nil
assessee)
(-) Unrealized rent -- -- --
Net Annual Value 3,90,000 1,71,000 Nil
(-) Deduction u/s 24
24(a) Standard Deduction (NAV * 30%) (1,17,000) (51,300) Nil
24(b) Interest paid on borrowed capital (24,000) (30,000) (30,000)
Total 2,49,000 89,700 (30,000) 3,08,700
(+) Arrear of rent received (20,000 – 30% of 14,000 -- -- 14,000
20,000)
Income under the head House Property 3,22,700

b. Does not exercise any option.

Particulars HP-1 HP-2 HP-3 Total
Income
Gross Annual Value 4,50,000 1,90,000 Nil

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Chapter 3 Income under the head House Property

(-) Municipal Taxes (borne and paid by the 60,000 (19,000) Nil
assessee)
(-) Unrealized rent -- -- --
Net Annual Value 3,90,000 1,71,000 Nil
(-) Deduction u/s 24
24(a) Standard Deduction (NAV * 30%) (1,17,000) (51,300) Nil
24(b) Interest paid on borrowed capital (24,000) (30,000) Nil
Total 2,49,000 89,700 Nil 3,38,700
(+) Arrear of rent received (20,000 – 30% of 14,000 -- -- 14,000
20,000)
Income under the head House Property 3,52,700

Illustration 3:
Mr. Goel owns a house property at Allahabad which is let out for residential purpose, particulars are a
follows:
Sno. Particulars Amount
i. Annual rent 60,000
ii. Municipal Valuation 48,000
iii. Municipal taxes paid by tenant 4,000
iv. Expenses incurred
Repairs met by the tenant 3000
Fire Insurance 1500
Electricity and water charges paid by Shri Goel 5400
Lift maintenance charges paid by Shri Goel 2400
Collection charges 750
During the PY 2010-11, he had claimed a deduction of unrealized rent of Rs
22,500 out of which Rs 16,500 was allowed as a deduction for that year. On
10.8.2023, however, he recovered Rs 10,500 from the defaulting tenant.

The construction of the property was completed on 31.8.1997. Rs 60,000 is a composite rent of the
property as well as amenities provided to the tenant. Compute income under the head House Property for
AY 2024-25.

Solution:
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Chapter 3 Income under the head House Property

Particulars HP-1
Gross Annual Value (Composite rent) 60,000
(-) Rent of other facilities (electricity and lift) (78,00)
(-) Municipal Taxes (paid by tenant) Nil
(-) Unrealized rent --
Net Annual Value 52,200
(-) Deductions u/s 24
24(a) Standard Deduction (NAV * 30%) (15,660)
24(b) Interest paid on borrowed capital --
Total 36,540
(+) Arrear of rent received (4,500 – 30% of 4,500) 3,150
Income under the head House Property 39,690

Illustration 4:
Mr. Sehgal owns a house property in Bangalore construction of which was completed on 1-7-1999. Half
a portion is let out for residential purposes on a monthly rent of Rs 8,000. However, this portion remained
vacant for three months (from 1-1-2024 to 31-3-2024) during PY 2023-24. 1/4 th portion is used by Mr.
Sehgal for the purpose of his profession while the remaining 1/4 th portion is used for his own residence
for the full year. The other expenses regarding the house were:

S.no Particulars Amount (Rs)

1 Municipal taxes 10,000
2 Repairs 5,000
3 Interest on loan for the renovation of house 40,000
4 Ground Rent 2,000
5 Annual Charges 10,000
6 Fire insurance premium 4,000

Compute taxable income from house property for AY 2024-25, assuming Mr. Sehgal
a. opts to be taxed under the Old tax Regime
b. Does not exercise any option
Solution:

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Chapter 3 Income under the head House Property

Mr. Sehgal
AY 2024-25
Particulars Amount Amount
GAV (8,000*9) 72,000
(-) Municipal taxes (10,000*50%) (5,000) (5,000)
NAV 67,000
(-) Deduction u/s 24
Standard Deduction u/s 24a (67000*30%) (20,100)
Interest on borrowed capital (40,000* 50%) (20,000) (40,100)
Income from house property 26,900

Illustration 5:
Mr. X owns 3 houses which he occupied for his own residence. He submits the following particulars in
respect of these houses for the financial year 2021-22.
Particulars House 1 House 2 House 3
Municipal Value 1,20,000 2,40,000 3,00,000
Fair Rent 1,50,000 2,70,000 2,70,000
Standard Rent under Rent Control Act 90,000 2,04,000 2,40,000
Municipal Taxes paid 18,000 24,000 30,000
Amount spent on repairs 12,000 30,000 40,000
Interest payable on loan 30,000 3,60,000 2,40,000

Mr X. also has income from interest on Govt securities amounting to Rs 2,65,000 during PY. All houses
were constructed in 2010. Calculate total income in a manner which minimizes his incidence of tax,
assuming X:
1. Does not opt to be taxed u/s 115 BAC
2. Opts to be taxed u/s 115 BAC

Illustration 6: The construction of the house property was completed on 28.2.2020. The assessee has
taken a loan of Rs 10,00,000 @12% pa. Compute deduction u/s 24b for PY 2019-20. If the loan was taken
on
a) 1-4-2017
b) 1-6-2018

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Chapter 3 Income under the head House Property

c) 1-5-2019
Illustration 7: Mr. K constructed a house property in Old Hubli consisting of two units on a leasehold
land. The construction was completed on 30-6-2005 and its municipal valuation was at Rs 80,000. He let
out one of them for commercial purposes and was himself residing in the other. The self-occupied portion
was 2/5th of the house. Rent is fixed at Rs 6,000 per month. His income from other sources is Rs 15,000.
His expenses relating to the property for PY 2021-22 were as under:
Municipal Taxes 6000
Ground Rent 1000
Fire Insurance 400
Collection charges 2000
Interest on loan for
i. Construction of house 30,000
ii. Purchase of a car 20,000

Calculate his income from house property. Assume Mr. K:

1. Does not opt to be taxed u/s 115 BAC
2. opts to be taxed u/s 115 BAC

Calculate his income from house property

Solution:
Mr. K
AY 2022-23
Particulars Let Out (3/5) Self-occupied (2/5)

Gross Annual Value 72,000 0

(-) Municipal tax (6000*3/5) (3,600) 0
NAV 68,400 0
Deduction u/s 24
24(a) Standard Dedcution (68,400 * 30%) (20,520) 0
24(b) Interest (30000*3/5) and (30000*2/5) (18000) (12,000)
Income from HP 29,880 (12,000)

Total Income 17,880

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