Income from House Property

1. Volume-I
Classroom Deliberations
Tax planning for
Income from
House Property
Section 22- 27
CA. Dr. Prithvi Ranjan Parhi
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Sec. 22-Chargebility & Conditions
• The Annual Value of a house property shall be chargeable to
income tax in the hands of owner, provided the property is not
used for the purpose of a business or profession carried on by
assessee.
• Consists of buildings & lands appurtenant thereto.
• May be residential / commercial.
• Commercial house need not have a roof.
• Incomplete house/ Ruined House/ Vacant land are not house.
• Each flat in an apartment is a separate house.
• Assessee must be the owner .
• Should not be used by the owner for the purpose of any
business or profession carried on by him.
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Ownership
• Registration document is not indispensible.
• Legal as well as beneficial owner are treated as
owner.
• Owner of the house need not be owner of the land.
• Even when owner can not transfer the property
without consent of 3rd party, still he is the owner.
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Sec.27- DEEMED OWNERSHIP : 5 Situations
1.Individual who transfers his house property
otherwise than for adequate consideration to –
(a) His or her spouse (not being a transfer in
connection with an agreement to live apart) or
(b) Minor child
is deemed to be the owner of such house
property.
2. The holder of impartible estate of an HUF.
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Sec.27- DEEMED OWNERSHIP : 5 Situations
3. Member of a co-operative society, company or an
Association of Persons to whom a house is allotted against
membership.
4. Person in Possession of a property under the provisions of
sec 53A of Transfer of Property Act.
5. Person having right by way of lease, in a property for a
period not less than 12 years.
Exceptions :
The above provisions excludes any rights by way of
renewal of a lease from month to month or for a period
not exceeding one year.
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6. Computation
Particulars Amount
(Rs)
1 Gross Annual Value (GAV) XXX
2 Less: Taxes by Local Authorities
e.g. Municipal Taxes & Water Tax etc (XXX)
3
(=1-2)
Net Annual Value (NAV) XXX
4 Less : Standard deduction u/s 24(a) ~ (30%) (XXX)
5 : Interest on borrowed Capital u/s 24(b) (XXX)
6
(=3-4-5)
Income from House Property XXX
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Conditions-Sec 22
1. Assessee must be the owner:
Subletting ~ IFOS.
2. House is not used for own business or
profession :
Rent received from a house used in business
~ PGBP
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8. Gross Annual Value (GAV)
• A sum which the property is reasonably
expected to fetch if let out.
• If the property or part of the property is
let-out and actual rent received or
receivable is more than the reasonable
rent, then Actual rent so received or
receivable.
• If the property or part of the property is
let-out and was vacant during the whole
or part of the previous year and owing
to such vacancy the actual rent receive
or receivable is less than the reasonable
rent, then Actual rent so received or
receivable.9:25 PM © CA. Dr. Prithvi R Parhi 8
GAV
Reasonable Expected
Rent (RR)
If Let out
AR or RR
w.e.
Higher
Vacant
AR< RR
AR
Not Vacant

9. Computation :Gross Annual Value
a) Compute Reasonable Expected Rent of the property
(See below)
b) Compute Rent Actually Received or Receivable
c) Gross Annual Value= (a) or (b) which ever is higher.
Reasonable Expected Rent :
1. Compute Municipal Valuation ~ For Municipal Taxation purpose
2. Compute Fair Rent ~ Rent fetched by a similar property in similar
location
3. Standard Rent ~ Where property is covered under a Rent
Control Act.
4. Expected Rent = Higher of (1) or (2) subject to a maximum of (3)
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GAV
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Municipal Value
Fair Rent
Standard Rent
Actual Rent
received/ receivable
Higher
Lower
Higher
1
2
3

11. Actual Rent Received/ Receivable
Rent of the previous year for which property is
available for letting out
XXX
Less : Unrealized Rent ( if few conditions are
satisfied;- Bona fide tenant, - Steps for vacancy, -
legal proceeding)
Unrealized rent is different from outstanding rent
(XXX)
Rent Received / Receivable before deducting loss
due to vacancy
XXX
Rent for Vacant period shall not be deducted here .
But shall be deducted after comparing with Reasonable Rent.
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Conditions for Unrealized Rent
1. Bona-fide Tenancy agreement
2. Reasonable steps must have been taken to
recover the rent.
3. Reasonable steps must have been taken to get
the property vacated.
4. Defaulter tenant is not occupying any other
property of the assessee.
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GAV : Computation Steps
1. Compute Reasonable Expected rent (MV or FR w.e. is higher
but subject to maximum of SR)
2. Compute Actual Rent Received / Receivable after
adjusting unrealized rent but before loss due to
vacancy.
3. GAV before vacancy allowance is the higher of Step 1
& 2
4. Deduct loss due to vacancy
5. Gross Annual Value = 3-4.
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Standard deduction-Sec 24(a)
• 30% of Net Annual Value
• Actual expenditure is irrelevant.
• Not allowed if NAV is zero or Negative.
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Interest on Borrowed Capital –Sec 24(b)
• Loan must be taken for purchase, construction,
repair, renovation, renewal of house property.
• Interest on loan taken for payment of
municipal tax is not allowed as a deduction.
• Allowed on accrual basis, irrespective of
method of accounting followed.
• Loan may be taken from anyone.
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Interest on Borrowed Capital –Sec 24(b)
• If new loan is taken to repay the earlier loan,
interest on new loan is allowed.
• If new loan is taken to pay the outstanding
interest on earlier loan, interest on new loan is
not allowed.
• If loan is taken by mortgaging one house
property for construction of another house,
interest is eligible for deduction from the
income of second house.
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Interest on borrowed capital –Sec 24(b)
• Brokerage/ Commission paid for loan shall be
treated as interest [ Sec 2(28A)] & hence allowed.
• Penal interest is not allowed.
• Deductions u/s 24 is exhaustive. No deduction for
repair, insurance etc.
• Separate treatment of interest for Pre construction
period & Post Construction period.
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Treatment of Interest on borrowed capital
Pre construction Period Post Construction Period
Commences From the
•date of borrowing of loan or
•commencement of
construction
whichever is latter.
From the beginning of the
year in which the
construction is completed.
Completes
on
31st March of the FY
immediately preceding the year
of completion of construction
When the loan is repaid or
property is transferred.
Treatment of
Interest
Allowed in 5 equal installments
commencing from the year in
which post construction period
begins.
Shall be allowed in the
respective years
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Year of borrowing same as
year of completion of construction
• In case the year of borrowing & year of
completion of construction is the same year
then interest will be computed from the date
when construction is started.
• In such case the date of borrowing of loan or
commencement of construction whichever is
latter.- shall not be taken into consideration.
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Disallowance of Interest on borrowed capital – Sec 25
• Interest payable outside India is not deductible if;
1. No TDS has been deducted and deposited, and
2. The payee has no person in India who may be treated as
his agent u/s 163.
Note:
1. Interest paid without TDS to non resident, in India shall
be allowed as expenditure.
2. Interest paid without TDS to a resident, out of India shall
be disallowed as expenditure.
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Computation :classification
• Let out property includes a property let-out even for a
part of the year, but it should not be self occupied for
part of the year.
House Property
Let out
Property
Self
Occupied
Property
Un-Occupied
Property
Partly Self
Occupied &
Partly Let-
out
Property
Deemed to
be Let-out
Property
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1. Self Occupied Property- Sec 23 (2) (a)
• Self occupied by owner or his family for residence.
• Can be self occupied for part of the year & remain vacant for remaining
part.
• Must not be let out for any part of the year. ~ Partly self occupied &
partly let out.
• Must not be vacant for the whole year ~ Deemed to be let out/
Unoccupied.
• Benefit is available to individuals & HUF.
• In case more than one self occupied house, one of them shall be
treated as self occupied & others shall be treated as Deemed to be let
out.
• Shall not be treated as self occupied ,- if occupied in some other
capacity, ( Renting to employer & occupying as rent free
accommodation)
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1. Self Occupied Property- Sec 23 (2) (a)
• Net Annual Value = Nil.
• Standard deduction u/s 24(a) = Nil.
• Interest on loan allowed =Maximum Rs.. 30,000/-.
• Higher amount of interest , maximum 2,00,000/- shall be
allowed if,
– Loan is taken on or after 1st April 1999
– Loan is for purchase or construction of house.
– Construction completed within 5 years from the end of the financial
year in which loan was taken.
– Lender certificate must be obtained to fulfill the above condition
• The above limit of Rs.30,000 /2,00,000 is on the total amount
of interest ( Pre Construction + Post construction)
• Income from house property may be negative.
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2.Let out Property
• Compute GAV
– Less : Municipal Tax Paid
• Arrive at NAV
• Less: Deduction u/s 24
– (a)Standard deduction 30% of NAV
– (b)Interest on borrowed capital
(without any ceiling)
Income from Let out House Property
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3. Deemed to be Let out- Sec 23(4)
• In case more than one self occupied house, one of
them shall be treated as self occupied & others shall
be treated as Deemed to be let out.
• Assessee may chose any house as self occupied.
• The choice may vary from year to year.
• In absence of Actual Rent & unrealised rent, the
reasonable expected rent shall be treated as Gross
Annual Value. Then it shall be treated just like let out
property.
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4. Unoccupied / Vacant Property- Sec 23(2)(b)
• Assessee has a residential house meant for self
occupation.
• Can not be self occupied owing to employment.
• Such house is lying vacant & no other benefit is derived.
• Assessee resides in a house not belonging to him.
• Net Annual Value = Nil.
• Standard deduction u/s 24(a) = Nil.
• Interest on borrowed capital Rs.30,000/ 2,00,000 as the
case may be.
• Income from house property may be negative.
• Assesee can not claim benefit for self occupied house
property & un occupied property together.
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More than one house used by assessee
• If more than 1 house/ floor are used as a single
unit : Assesee can claim sec 23(2)(a) for the
combined house.
• If more than 1 house/ floor are used as separate
units : Assesee can claim sec 23(2)(a) for any one
of the houses.
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5. Partly self Occupied & Partly letout- Sec 23(3)
• Area Wise - Sec 23(2)(a)
• Time Wise - Sec 23(3)
• Area as well as Time wise - Sec 23(3)
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Area Wise
Partly self Occupied & Partly letout - Sec 23(2)(a)
• Self Occupied portion & letout portion shall be treated
as 2 separate houses.
• Income shall be computed separately for both the
houses.
• Reasonable rent, municipal tax, interest etc shall be
divided in proportion to area.
• Actual rent receivable/ un realized shall be for let out
portion only.
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Time Wise
Partly self Occupied & Partly letout - Sec 23(3)
• No benefit for Self Occupied period.
• Income shall be computed separately as if the house is let out
throughout the year.
• Actual rent receivable shall be computed for let out period only.
• Steps:
1. Calculate Reasonable Rent for the whole year.
2. Calculate Actual rent receivable (less Unrealized rent) only for the let out
period.
3. GAV shall be higher of 1 & 2.
4. However, if Step 2 is less than step 1 due to vacancy period , then Step 2 is
the GAV. This point is not applicable if step 2 is already higher than step 1
• Self occupied period can not be treated as vacant period.
• If Fair Rent is not available, the same shall be computed by using Actual
rent receivable ( of the letout period) for the entire PY.
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Area wise as well as Time Wise
Partly self Occupied & Partly letout - Sec 23(3)
• Shall have both the features of Area-wise & Time
Wise Partly self Occupied & Partly letout .
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Exempted Buildings
1. Farm houses outside the specified area-section 10 (1);
2. Buildings owned by an educational or charitable institution –
section 10(203C) or section 11;
3. Buildings owned by a trade union - section 10 (24);
4. Buildings owned by a political party in-section 13A;
5. Buildings owned by a local authority -section 10 (20); and
6. Buildings owned by Approved scientific research institution -
section 10(21).
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Consideration of HP loss for TDS on salary
• The deductor shall consider loss on House
property for TDS on Salaries.
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35. Thank you
prithvi.baps@gmail.com
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