3.

170 INCOME TAX LAW

LET US RECAPITULATE

Section Contents
22 Basis of Charge
The annual value of any property comprising of buildings or lands
appurtenant thereto, of which the assessee is the owner, is
chargeable to tax under the head “Income from house property”.
(i) Property should consist of any buildings or lands
appurtenant thereto
Income from letting out of vacant land is, however, taxable
under the head “Income from other sources” or “Profits and
gains from business or profession”, as the case may be.
(ii) Assessee must be the owner of the property
(iii) The property may be used for any purpose, but it should not
be used by the owner for the purpose of any business or
profession carried on by him, the profit of which is
chargeable to tax.
Further, the income earned by an assessee engaged in the
business of letting out of commercial properties on rent
would be taxable as business income.
(iv) Property held as stock-in-trade etc.
Annual value of house property will be charged under the
head “Income from house property”, where it is held by the
assessee as stock-in-trade of a business also.
23(1) Annual Value of let-out property
Annual value is the amount arrived after deducting the municipal
taxes actually paid by the owner during the previous year from the
Gross Annual Value (GAV). The GAV of let-out property would be
determined in the following manner:

© The Institute of Chartered Accountants of India

 INCOME FROM HOUSE PROPERTY 3.171

Step 1: Compare fair rent with municipal value

whichever is higher

Compare step 1 value with standard

Step 2: rent

whichever is lower is the Expected Rent

Compare the Expected rent determined

Step 3 above with actual rent

Actual rent > Actual rent <

Expected Rent Expected Rent

Actual rent < Actual rent <

Actual rent Expected Expected Rent
is GAV Rent because because of any
of vacancy other reason

Expected
Rent is GAV

23(2) Annual Value of self-occupied property

Where the property is self-occupied for own residence or unoccupied
throughout the previous year owing to his employment, business or
profession carried on at any other place and residing at that other
place in a building not belonging to him, its Annual Value will be Nil,
provided no other benefit is derived by the owner from such property.
An assessee can claim benefit of “Nil” Annual Value in respect of one
or two residential house properties self-occupied by him.

© The Institute of Chartered Accountants of India

 3.172 INCOME TAX LAW

23(4) Annual Value of deemed to be let-out property

If more than two properties are so self-occupied/unoccupied, the
assessee may claim benefit of Nil annual value in respect of any two
properties at his option. The other property(s) would be deemed to
be let out, in respect of which Expected Rent would be the GAV.
23(5) Annual value where the property held as stock-in-trade etc.
Where property consisting of any buildings or lands appurtenant
thereto is held as stock-in-trade and the whole or any part of the
property is not let out during the whole or any part of the previous
year, the annual value of such property or part of the property for
the period upto 2 years from the end of the financial year in which
certificate of completion of construction of the property is obtained
from the competent authority shall be taken as “Nil”.
24 Deductions from Annual Value
1. 30% of Annual Value [Section 24(a)]
2. Interest on borrowed capital [Section 24(b)]: Interest payable on
loans borrowed for the purpose of acquisition, construction,
repairs, renewal or reconstruction can be claimed as deduction.
Pre-construction interest: Interest for the period prior to the
previous year in which property is acquired or construction is
completed.
Pre-construction interest is allowable as deduction in 5 equal
installments from the previous year of completion of construction or
acquisition.
(a) Let out property: Whole of the amount of interest on borrowed
capital payable during the previous year and apportioned pre-
construction interest without any ceiling limit would be allowed
as deduction.
(b) Self-occupied property:
(i) Interest on loan taken for acquisition or construction of
house on or after 1.4.99, where such construction is
completed within 5 years from the end of the financial year
in which capital was borrowed, aggregate interest paid or
payable for one or two self-occupied properties subject to
a maximum of ` 2,00,000 (including apportioned pre-
construction interest).
(ii) In case of loan taken for repair, renovation or
reconstruction at any point of time, aggregate interest paid

© The Institute of Chartered Accountants of India

 INCOME FROM HOUSE PROPERTY 3.173

or payable for one or two self-occupied properties subject

to a maximum of ` 30,000 (including apportioned pre-
construction interest).
Notes –
(1) Total amount of interest deduction under (i) and (ii) in respect of
one or two self-occupied properties owned by the assessee
cannot exceed ` 2,00,000.
(2) Interest deduction in respect of self occupied property(ies)
would be available only if the assessee exercises the option of
shifting out of the default tax regime provided under section
115BAC(1A). If the assessee pays tax under default tax regime
under section 115BAC, deduction under section 24(b) in respect
of interest on loan for self occupied property is not allowed.
25 Inadmissible deductions
Interest chargeable under this Act which is payable outside India
shall not be deducted if –
(a) tax has not been paid or deducted from such interest and
(b) in respect of which there is no person in India who may be
treated as an agent
25A Taxability of recovery of unrealised rent & arrears of rent
received
(i) Taxable in the year of receipt/ realisation
(ii) Deduction@30% of rent received/ realised
(iii) Taxable even if assessee is not the owner of the property in the
financial year of receipt/ realization
26 Co-owned property
(i) Self-occupied property: The annual value of the property of
each co-owner will be Nil and each co-owner shall be entitled
to a deduction of ` 30,000/ ` 2,00,000, as the case may be, on
account of interest on borrowed capital if they exercise the
option of shifting out of the default tax regime provided under
section 115BAC(1A).
However, aggregate deduction of interest to each co-owner in
respect of co-owned self-occupied property and any other self-
occupied house property, if any, cannot exceed ` 30,000/
` 2,00,000, as the case may be.

© The Institute of Chartered Accountants of India

 3.174 INCOME TAX LAW

No deduction would be allowed in respect of interest on loan

taken for purchase/construction/reconstruction/repairs of self
occupied property where the assessee pays tax under the
default tax regime.
(ii) Let-out property: The income from such property shall be
computed as if the property is owned by one owner and
thereafter the income so computed shall be apportioned
amongst each co-owner as per their specific share.
27 Deemed Ownership: The following persons, though not legal
owners of a property, are deemed to be the owners:
(i) Transferor of the property, where the property is transferred to
the spouse or to minor child except minor married daughter,
without adequate consideration
(ii) Holder of an impartible estate
(iii) Member of a co-operative society etc.
(iv) Person in possession of a property
(v) Person having right in a property for a period not less than 12
years
Other important points
(i) The Actual rent received/receivable should not include any amount
of rent which is not capable of being realized i.e., unrealized rent
while determining gross annual value in case let-out property,
provided the conditions specified in Rule 4 are satisfied.
Note - The income-tax returns, however, permit deduction of
unrealized rent from gross annual value. If this view is taken, the
unrealized rent should be deducted only after computing gross annual
value.
(ii) If a portion of a property is let-out and a portion is self-occupied,
then, the income will be computed separately for let out and self-
occupied portion.

© The Institute of Chartered Accountants of India