INCOME FROM HOUSE PROPERTY
INCOME FROM HOUSE PROPERTY
(Sections 22 to 27)
Basis of charge :-
The annual value of any property is assessable under the head 'Income from House Property' if :
(1) Assessee is the owner of property.
(2) Property means building and attached land.
(3) Property should not be used by the owner for his business or profession.
Fully Exempted Incomes :-
(1) Income from farm house. [Sec.2(1A)(c)]
(2) Annual Value of one palace of ex-Indian Rular. [Sec.10(19A)]
(3) Income from property owned by :
(i) Local Authority;
(ii) Scientific Research Association;
(iii) Trade Union;
(iv) Charitable Trust;
(v) Political Party;
(vi) University or other educational institution existing for educational purposes and not for purposes of profit;
(vii) Hospital or medical institution existing for philanthropic and not for purposes of profits.
(4) Income from property used for assessee's own business or profession.
(5) Income from one self-occupied house.
(6) Income from the house meant for self-resident but could not be occupied throughout the previous year on account of his service business or profession at any other place.
Fully Exempted Incomes :-
(1) Income from farm house. [Sec.2(1A)(c)]
(2) Annual Value of one palace of ex-Indian Rular. [Sec.10(19A)]
(3) Income from property owned by :
(i) Local Authority;
(ii) Scientific Research Association;
(iii) Trade Union;
(iv) Charitable Trust;
(v) Political Party;
(vi) University or other educational institution existing for educational purposes and not for purposes of profit;
(vii) Hospital or medical institution existing for philanthropic and not for purposes of profits.
(4) Income from property used for assessee's own business or profession.
(5) Income from one self-occupied house.
(6) Income from the house meant for self-resident but could not be occupied throughout the previous year on account of his service business or profession at any other place.
ANNUAL VALUE (Sec. 23)
(A) BUILDINGS LET OUT [Sec. 23(1)]
Income from house property does not mean rental income; but it means the sum for which the building might reasonably be expected to be let from year to year. An assessee's income from house property is computed on the basis of its annual value. Hence, it is very important to understand properly the method of determining the annual value of the house property. If the annual value is not determined correctly, the taxable income from house property will be wrong.
- Definition of the annual value
(a) the sum for which the property might reasonably be expected to be let from year to year; or
(b) where the property or any part of property is let and the actual rent received or receivable by the owner is in excess of the sum referred to in (a), the amount of rent received or receivable ; or
(c) where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in (a), the amount so received or receivable.
- Deduction of Municipal Taxes
From the value determined under (a) or (b) the taxes (including service taxes) levied by any local authority and paid by the owner during the previous year (irrespective of the previous year to which such taxes relate) shall be deducted in determining the annual value of the property.
Generally, service taxes include fire tax, water tax, conservancy tax, education cess, etc.
(i) Municipal value determined by the local authority for charging house tax, etc.; or
(ii) Fair Rent- Rent of similar properties in the same locality.
(b) Where standard rent has been fixed. One of the following (whichever is less) shall be the expected rent of the building :
(i) The value as determined under (a): or
(ii) The standard rent fixed under the Rent Control Act of a State.
[Note : The expected rent cannot be more than the standard rent but it can be less than the standard rent.]
(1) A sum equal to 30% of the annual value as the standard deduction for expenses (expect interest). [Sec. 24(a)]
Points to note :
(i) Standard deduction @ 30% of annual value shall be deducted whether any expenditure is incurred or not.
(ii) If the owner of the house occupies more than one house for his residential purposes, expect one house all other self-occupied house/houses are deemed as let-out. In such a case standard deduction @ 30% of annual value shall be allowed.
(iii) In respect of one house which is treated as self-occupied house, the standard deduction is not allowed.
(2) Interest on loan taken in respect of house property. Interest on loan taken for the purpose of purchasing, constructing, reconstructing or repairing the house property is allowable as a deduction on the accrual basis.
Points to note :
(i) Interest on unpaid interest is not deductible.
(ii) Interest on a fresh loan raised merely to repay the original loan taken for the above purposes is allowable as a deduction under this section.
(iii) Any brokerage or commission paid for raising the loan is not deductible.
Deduction from Annual Value. Interest :
(a) where such property has been (i) acquired, (ii) constructed, (iii) repaired, (iv) renewed or (v) reconstructed with capital borrowed on or before 31.3.1999, the maximum limit for deduction of interest shall be Rs. 30,000;
(b) where such property has been (i) repaired (ii) renewed or (iii) re-constructed with the capital borrowed after 31.3.1999 the maximum limit for deduction of interest shall be Rs. 30,000;
(c) where such house property is (i) acquired, or (ii) constructed with capital borrowed after 31.3.1999, the deduction on account of interest shall be allowed up to Rs. 2,00,000. The acquisition or construction should be completed within five years from the end of the financial year in which capital was borrowed.
Generally, service taxes include fire tax, water tax, conservancy tax, education cess, etc.
- Determination of Actual Rent
(i) Municipal value determined by the local authority for charging house tax, etc.; or
(ii) Fair Rent- Rent of similar properties in the same locality.
(b) Where standard rent has been fixed. One of the following (whichever is less) shall be the expected rent of the building :
(i) The value as determined under (a): or
(ii) The standard rent fixed under the Rent Control Act of a State.
[Note : The expected rent cannot be more than the standard rent but it can be less than the standard rent.]
- Deductions from Annual Value (Sec. 24)
(1) A sum equal to 30% of the annual value as the standard deduction for expenses (expect interest). [Sec. 24(a)]
Points to note :
(i) Standard deduction @ 30% of annual value shall be deducted whether any expenditure is incurred or not.
(ii) If the owner of the house occupies more than one house for his residential purposes, expect one house all other self-occupied house/houses are deemed as let-out. In such a case standard deduction @ 30% of annual value shall be allowed.
(iii) In respect of one house which is treated as self-occupied house, the standard deduction is not allowed.
(2) Interest on loan taken in respect of house property. Interest on loan taken for the purpose of purchasing, constructing, reconstructing or repairing the house property is allowable as a deduction on the accrual basis.
Points to note :
(i) Interest on unpaid interest is not deductible.
(ii) Interest on a fresh loan raised merely to repay the original loan taken for the above purposes is allowable as a deduction under this section.
(iii) Any brokerage or commission paid for raising the loan is not deductible.
Deduction from Annual Value. Interest :
(a) where such property has been (i) acquired, (ii) constructed, (iii) repaired, (iv) renewed or (v) reconstructed with capital borrowed on or before 31.3.1999, the maximum limit for deduction of interest shall be Rs. 30,000;
(b) where such property has been (i) repaired (ii) renewed or (iii) re-constructed with the capital borrowed after 31.3.1999 the maximum limit for deduction of interest shall be Rs. 30,000;
(c) where such house property is (i) acquired, or (ii) constructed with capital borrowed after 31.3.1999, the deduction on account of interest shall be allowed up to Rs. 2,00,000. The acquisition or construction should be completed within five years from the end of the financial year in which capital was borrowed.
SHORT SUMMARY OF INCOME FROM HOUSE PROPERTY
Basis of charge :
The annual value of any property is assessable under this head if :
(1) Assessee is the owner of property.
(2) Property means building and attached land.
(3) Property should not be used by the owner for his business or profession.
Points to note :
(1) Income is charged on the basis of annual value.
(2) Rent from the vacant plot of land is assessable under the head 'Income from Other Sources'.
(3) Sub-letting is chargeable under 'Income from Other Sources'.
(4) Paying-guest accommodation is chargeable under 'Profit and gains of business or profession'.
(5) House property situated abroad- Income is chargeable under this head if the assessee is ordinarily resident in India.
(6)Disputed ownership. If the title of ownership is disputed in a court of law, the income is chargeable in the hands of the recipient of income.
(7) Property owned by co-owners. If respective shares of co-owners are definite and ascertainable, income is chargeable individually and not as AOP.
Computation of G.A.V. :
(a) or (b) whichever is greater.
(a) Expected rent- municipal value or fair rental value, whichever is more but not more than standard rent.
(b) Actual rent received or receivable.
Computation of Annual Value
Gross Annual Value -----
Less : (i) Local taxes paid by the owner during the P.Y -----
(ii) Unrealised rent (Subject to certain conditions) -----
Annual Value -----
Deductions from annual value :
(i) 30% of Annual Value,
(ii) Interest on loan is taken to purchase, construct, repair or renovation of the house (on due basis).
Self-occupied House. Annual Value- Nil.
Deduction. Interest up to Rs. 30,000/2,00,000.
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