INCOME FROM HOUSE PROPERTY
Income From House Property:– Taxable Income under the head “house property” Rental income from a property being land or building appurtenant there to of which the person (taxpayer) is owner is charged to tax under the head “Income from house property”.
Rental income from sub-letting
Rental income in the hands of owner of property is charged to tax under the head “Income from house property”. Rental income of a person (taxpayer) other than the owner cannot be charged to tax under the this head. Hence, rental income received by a tenant from sub-letting cannot be Taxable under the head “Income from house property”. Such income is taxable under the head or profits and gains from business or profession, as the case may be.
Rental income from a shop
Rental income from a property(building and land), being building or land appurtenant thereto, of which the taxpayer is the owner is charged to tax under the head “Income from house property”. To tax the rental income under the head “Income from house property”, the rented property should be building or land appurtenant thereto. Shop being a building, rental income will be charged to tax under the head “Income from house property”.
Meaning of deemed owner
Rental income from property is taxable under the head “Income from house property in the hands of the owner of the property”. If a person receiving the rent is not the owner of the property, then rental income is not taxable under the head “Income from house property”
Example- Rent received by tenant from sub-letting).
In the following cases a person may not be the registered owner of the property, but he will be treated as the owner (i.e., deemed owner) of the property and rental income from property will taxable in his hands:
- If an individual person transfers his or her property to his/her spouse (not being a transfer in connection with an agreement to live apart) or to his/her minor child (not being \married daughter) without adequate consideration, then the transferor will be deemed as owner of the
- Holder of impartible estate is deemed as the owner of the property comprised in the estate.
- A member of company or co-operative society, other association of persons to whom a building (or part of it) is allotted or leased under house building scheme of the society, company or association of person, as the case may be, is treated as deemed owner of the
- A person acquiring property by by satisfying the conditions of sec. 53A of the Transfer of Property Act 1882, will be treated as deemed owner (although he may not be the registered owner). Section 53A of Income tax act 1961 prescribes following conditions:
- There must be an agreement in
- The property purchase consideration is paid or the purchaser is willing to pay
- Purchaser has taken the possession of the purchasing property in pursuance of the
- In case of lease of a property for a period not less than 12 years (whether originally fixed or provision for extension exists), lessee is deemed to be the owner of the property. However, any right by way of lease from month-to-month or for a period not exceeding 1 (one) year is not covered by this
Meaning of composite rent
When apart from recovering rent of the building, in some cases the owner gets rent of other assets (like wooden furniture) or he charges for different services provided in the building (for instance, charges for security,lifts, ac, lighting etc.). The recovered amount is known as “composite rent”.
Income Tax treatment of composite rent of building let out along with other assets
Composite rent includes rent of building and rent towards other assets or facilities (security,lifts, ac, lighting). The Income tax treatment of composite rent is as follows:-
- In a case where letting out of building/flat and letting out of other assets are inseparable (i.e., both the lettings are composite and not separable, e.g., letting of equipped theatre), entire rent (i.e. composite rent) will be taxable under the head “Profits and gains of business and profession” or head “Income from other sources”, as the case may be. Nothing is charged to tax under the head “Income from house property”.
- In a case where, letting out of building and letting out of other assets are separable (i.e., both the lettings are separable,
Example., letting out of refrigerator or ac along with residential bungalow),
rent of building will be charged to income tax under the head “Income from house property” and rent of other assets will be charged to Income tax under the head “Profits and gains of business and profession” or head “Income from other sources”, as the case may be. This rule is applicable, even if the owner receives composite rent for both the lettings.
Income Tax treatment of composite rent in a case of letting of building along with provision of services
In a case letting of building along with provision of services, composite rent includes rent of building and charges for different services (like lift, watchman, water supply, security, etc.):In this situation, the composite rent is to be bifurcated and the sum attributable to the use of property will be taxable under the head “Income from house property” and charges for various services will be charged to tax under the flowing head:-
“Profits and gains of business and profession head” or
“head Income from other sources” (as the case may be).
Computation of income from a let out property
Income taxable under the head “Income from house property” in the case of a let-out property is computed in the following manner:
| Particulars | Amount |
| Gross annual value | XXX |
| Less:- Municipal taxes paid during the year | XXX |
| Net Annual Value (NAV) | XXX |
| Less:- Deduction under section 24 of income tax act | |
| Ø Deduction under section 24(a) @ 30% of NAV (Standard Deduction) | (XXX) |
| Deduction of section 24(b) of income tax act on account of interest on borrowed capital (Repair, Construction, purchases etc of property) | (XXX) |
| Income from house property | XXX |
Computation of gross annual value of a let out property
Gross annual value of a property which is let-out throughout the year is determined in the following manner:
Step 1:Calculate reasonable expected rent of the property (manner of computation is discussed in later part)
Step 2: Calculate actual rent of the property (manner of tax computation is discussed in later part).
Step 3: Calculate gross annual value (manner of computation is discussed in later part).
Computation of reasonable expected rent of a let out property (land building and other) (i.e. step 1).
Reasonable expected rent value will be higher of the following:
- Municipal value of the property (*); or
- Fair rent of the property (Note 1).
If a property is covered under Rent Control Act, then the reasonable expected rent cannot exceed standard rent (Note 2).
Meaning of Municipal Value
For collection of municipal taxes, local authorities make periodic survey of all buildings in their jurisdiction. Such rent value determined by the municipal authorities in respect of a property, is called as municipal value of the property.
Note 1: Meaning of Fair Rent It is the reasonable expected rent which the property(land bulding and other) can fetch. It can be determined on the basis of rent fetched by a similar property in the same or similar locality.
Note 2:Meaning of Standard Rent value It is the maximum rent value which a person can legally recover from his tenant under the Rent Control Act. Standard rent value is applicable only in case of properties covered under Rent Control Act.
From the following information calculate the reasonable expected rent of each property:
| Particulars | Property A (Rupees.) | Property B (Rupees.) | Property C (Rupees.) |
| Municipal Value | 8,48,484 | 8,48,484 | 8,48,484 |
| Fair Rent | 2,52,252 | 2,52,252 | 2,52,252 |
| Standard Rent | Not Applicable | 84,252 | 9,84,000 |
**
Reasonable expected rent will be higher of the following:
- Municipal value of the property; or
- Fair rent of the
In case of a property covered under the Rent Control Act, reasonable expected rent will be higher of municipal value or fair rent subject to standard rent of the property.
Based on above discussion, the income computation of reasonable expected rent will be as follows :
Computation of reasonable expected rent
| Property A (Rupees.) | Property B (Rs.) | Property C (Rs.) |
| Reasonable expected rent will be 8,48,484 rupees (being higher of municipal value and fair rent). | Reasonable expected rent will be 84,252 rupees (being higher of municipal value and fair rent, but restricted to standard rent). | Reasonable expected rent will be 8,48,484 rupees being higher of municipal value and fair rent, but restricted to standard rent (standard rent is higher and hence restriction of standard rent will not apply in this case). |
Computation of actual rent of a let out property (land building and other) (i.e. step 2)
Actual rent value means the rent for which the property is let out during the (f.Y) year. While computing actual rent, rent pertaining to vacancy time period is not to be deducted. However, unrealised rent (*) is to be deducted from actual rent received if conditions specified in this regard are satisfied.
(*) Unrealised rent is the rent of the property which the owner of the property could not recover from the tenant, i.e., rent not paid by the tenant. If following conditions are satisfied, then unrealised rent is to be deducted from actual rent of the year:
- The tenancy is bona
- The defaulting tenant has vacated the property, or steps have been taken to compel him to vacate the
- The defaulting tenant is not in occupation of any other property of the
- The taxpayer has taken all steps to recover such amount, including legal proceedings or he satisfies the Assessing Officer that legal proceedings would be
- Raj owns a bungalow. Throughout the year 2018-19 the bungalow is rented to Mr. Kumar at a monthly rent of Rs. 84,000. Due to internal dispute, Mr. Kumar did not pay rent for the month of March, 2019. What will be the amount of actual rent value to be used to compute gross annual value of the property?
**
Rent for the month of March, 2019 is not received and, hence, unrealised rent will come to 84,000.rupees
While computing gross annual value of the property, unrealised rent of 84,000 rupees will be deducted from actual rent. Thus, actual rent value to be considered while computing gross annual value will come to 9,24,000 rupees (10,08,000 rupees –84,000 rupees unrealised rent). Unrealised rent of 84,000 rupees will be deducted from actual rent if all the conditions discussed in this regard are satisfied.
If any of the conditions specified in this regard is not satisfied, then while computing gross annual value, actual rent will be taken as 10,08,000 rupees (i.e., rent for entire year without deducting unrealised rent of 84,000 rupees).
Income Computation of gross annual value of a let out property (land or Building other) (i.e. step 3)
Gross annual value of a property which is let-out throughout the year will be higher of amount computed at step 1 or step 2 (as discussed earlier).
Illustration for better understanding
From the information provided by Mr. Raja in respect of 3 properties rented out by him compute the gross annual value of all the properties.
| Particulars | Property A (Rupees.) | Property B (Rupees.) | Property C (Rupees.) |
| Municipal Value | 8,48,484 | 8,48,484 | 2,52,252 |
| Fair Rent | 2,52,252 | 2,52,252 | 8,48,484 |
| Standard Rent | Not Applicable | 84,252 | 9,84,000 |
| Actual rent for the entire year | 9,60,000 | 60,000 | 9,60,000 |
| Unrealised rent (*) | 1,60,000 | NIL | 80,000 |
Gross annual value will be computed as follows:
Step 1:Compute reasonable expected rent of the property.
Step 2:Compute actual rent of the property.
Step 3:Compute gross annual value.
(subject to standard rent). Computation will be as follows :
Step 1 :Computation of reasonable expected rent, it will be higher of municipal value or fair rent
| Particulars | Property A (Rupees.) | Property B (Rupees.) | Property C (Rupees.) |
| Municipal Value | 9,28,484 | 9,28,484 | 2,52,252 |
| Fair Rent | 2,52,252 | 2,52,252 | 8,28,484 |
| Standard Rent | Not Applicable | 94,252 | 9,84,000 |
| Amount at Step 1 | 9,28,484 | 94,252 | 8,28,484 |
Step 2:Computation of actual rent after deducting unrealised rent. The computation will be as follows :
| Particulars | Property A (Rupees.) | Property B (Rupees.) | Property C (Rupees.) |
| Amount at Step 2 (*) | 8,00,000 | 60,000 | 8,80,000 |
(*) Actual rent after deducting unrealised rent will come to Rs. 8,00,000 (9,60,000 – rupees 1,60,000) in case of property A, Rs. 60,000 in case of property B and rupees. 8,80,000 (rupees. 9,60,000
- rupees 80,000) in case of property
Step 3 :Gross annual value will be higher of amount computed at Step 1 or Step 2. The computation will be as follows :
| Particulars | Property A (Rupees.) | Property B (Rupees.) | Property C (Rupees.) |
| Amount at Step 1 | 9,28,484 | 94,252 | 8,28,484 |
| Amount at Step 2 | 8,00,000 | 60,000 | 8,80,000 |
| Amount at Step 3, i.e., Gross annual value (being higher of above) | 9,28,484 | 94,252 | 8,80,000 |
Computation of gross annual value in the case of a property which is vacant for some time during the year
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 reasonable expected rent than the actual rent so received or receivable (as reduced by the vacant allowance) shall be considered to be the Gross Annual Value of the property.
Expenses to be deducted from gross annual value of a let out property (head of income from house property)
While computing income taxable under the head “Income from house property” in the case of a let-out property, only following items can be claimed as deductions from gross annual value. In other words, deduction cannot be claimed for any expenditure incurred by the taxpayer other than following:
- Deduction on account of municipal taxes paid by the taxpayer during the f.y.
(*) Only municipal taxes paid by the owner during the f.y can be deducted, hence, municipal taxes due but not paid during the year cannot be deducted or taxes borne by the tenant cannot be deducted.
- Deduction under section 24(a) of income tax act @ 30% of Net Annual
- Deduction under section 24(b) of income tax act on account of interest on capital borrowed for the purpose of purchase of property, construction of bulding, repair, renewal or reconstruction of the property. The provisions in this regard are as follows :
While computing income taxable under the head “Income from house property” in case of a let-out property, the taxpayer can claim deduction under section 24(b) on account of interest on loan taken for the purpose of purchase property, construction of property, repair, renewal or reconstruction of the property.
In case of a let-out property, there is no limit on the quantum of interest which can be claimed as deduction under section 24(b). However, in case of a self occupied property, limit is 2,00,000 rupees or 30,000 rupees, as the case may be (discussed in later part).
Note: With effect from a.y 2020-21, deduction for interest paid or payable on borrowed capital shall be allowed in respect of two self-occupied house properties. However, the aggregate amount of deduction under this provision shall remain same i.e., 30,000 rupees or 2,00,000, rupees as the case may be.
Interest is classified as pre-construction period house loan interest and post construction period house loan interest.
Pre-construction period
While computing income taxable under the head “Income from house property” in case of a let-out property, the taxpayer can claim deduction under section 24(b) on account of interest on loan taken for the purpose of purchase of property, construction of property, repair of property, renewal or reconstruction of the property.
Deduction of section 24 (b) on account of interest is classified in two forms, viz., interest pertaining to pre- construction period and interest pertaining to post-construction period. The detailed discussion in this regard is as follows:
Post-construction period interest is the interest pertaining to the relevant year (i.e., the year for which income is being computed).
Pre-construction period is the period commencing from the date of (loan receive) borrowing of loan and ends on earlier of the following:
- Date of repayment of loan; or
- 31st March for the f.y immediately prior to the date of completion of the construction/acquisition of the
Interest pertaining to pre-construction period is allowed as deduction in 5 (five) equal annual instalments, commencing from the year in which the house property is acquired or constructed.
Thus, total section 24 (b) deduction available to the taxpayer under section 24(b) on account of interest will be 1/5th of interest pertaining to pre-construction period (if any) + Interest pertaining to post construction period (if any).
Meaning of Self-occupied property
A self-occupied property means a property owned by the Income taxpayer which is occupied throughout the year by the owner for the purposes of his own residence and is not actually let out during the whole or any part of the year. Thus, a house property not occupied by the owner for his residence cannot be treated as a self occupied property. However, there is one exception to this rule. If the following conditions are satisfied, then the house property can be treated as self-occupied and the annual value of a property will be “Nil”, even though the property is not occupied by the owner of property throughout the year for his residence:
- The taxpayer owns a property;
- Such house property cannot actually be occupied by him owing to his employment, business or profession carried on at any other place and he has to reside at that other place in a building not owned to him;
- The property mentioned in (a) above (or part thereof) is not actually let out at any time during the year;
- No other benefit is derived from such
Computation of income from self occupied property
A self-occupied house property means a house property which is occupied throughout the year by the taxpayer for his residence. Income taxable under the head “Income from house property” in case of a self-occupied property is computed in following manner :
| Particulars | Amount |
| Gross annual value | Nil |
| Less:- Municipal taxes paid during the year | Nil |
| Net Annual Value (NAV) | Nil |
| Less:– Deduction under section 24 | |
| Ø Deduction under section 24(a) @ 30% of NAV | Nil |
| Ø Deduction under section 24(b) of income tax act on account of interest on borrowed capital | (XXXX) |
| Income from house property | XXXX |
From the above computation of income it can be observed that “Income from house property” in the case of a self occupied property will be either Nil (if there is no interest on housing loan) or negative ( loss) to the extent of interest on housing loan. Deduction in respect of interest on housing loan in case of a self-occupied housing property cannot exceed Rs. 2,00,000 or Rs. 30,000, as the case may be (discussed later).
Income Tax implication of more than one house property occupied for residence purpose
The SOP benefit (i.e., treating property as SOP and claiming GAV as Nil) is available only when property occupied by the owner for his residence or it is not occupied by the owner owing to employment or business or professional at any other place.
If a person has more than one such property, then the SOP benefit will be granted only in respect of any one property as selected by him and other property/properties will be treated as “Deemed to be let-out”. Income from deemed to be let-out property is computed in the same manner as discussed in the case of “Let-out” Property.
However, with effect from Assessment Year 2020-21, a person can claim two properties as self- occupied house properties.
Deduction in respect of interest on housing (house property) loan in case of self-occupied property
The provisions relating to deduction under section 24(b) of income tax act on account of interest on housing loan in case of self-occupied property are same as applicable in case of let-out property. In other words, deduction available to taxpayer under section 24(b) of income tax act in respect of self-occupied property will be 1/5th of interest pertaining to pre-construction period (if any) + Interest pertaining to post-construction period (if any) [provisions of section 24(b) of income tax act are already discussed earlier].
However, in the case of self-occupied properties, aggregate deduction under section 24(b) of income tax actcannot exceed Rs.2,00,000 or Rs. 30,000 (as the case may be). If all the following conditions are satisfied, then the limit in respect of interest on (loan) borrowed capital will be 2,00,000 rupees
- Capital is borrowed on or after 1-4-1999.
- Capital is borrowed (loan) for the purpose of acquisition or construction (i.e., not for repair, renewal, reconstruction).
- Acquisition or construction is completed within 5 years from the end of the F.Y in which the capital was
- The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for acquisition or construction of the house property.
If any of the above condition is not satisfied, then the limit of 2,00,000 rupees will be reduced to 30,000 rupees.
Computation of income (house property) when property is self-occupied for part of the year and let out for part of the year
At times a property (building, land and other) may be let-out for some time during the year and is self-occupied for the remaining period (i.e., let-out as well as self occupied during the year). For the purpose of computation of income taxable under the head “Income from house property”, such a property will be treated as let-out throughout the year and income will be computed accordingly.
However, while calculate the taxable income in case of such a property, actual rent will be considered only for the let-out period.
Computation of income when, part of the property is self-occupied and part is let out
A house property may consist of 2 (two) or more independent units, one of which is self-occupied and the remaining is/are used for any other purpose (i.e., let-out or used for own business). Income from such house property will be computed in the following manner:
A Part/unit which is occupied by the taxpayer for his residence throughout the year will be treated as an independent property and income from such a part/unit will be computed in the manner as discussed in case of a self-occupied house property.
A Part/unit which is let out will be treated as an independent property and income from such a part/unit will be computed in the manner as discussed in case of let out property.
Computation of income when property is held as stock-in-trade and not let out during the whole or any part of the year
A new sub-section (5) has been inserted in Section 23 of the Income-tax Act with effect from assessment year 2018-19 to provide that the annual value of a property or part thereof which is held as stock-in-trade by the owner of the property and not let out during the whole or any part of the year shall be taken to be nil.
However, this concession will be available only for the period up to 1 year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority.
The Finance Act, 2019 has further extended the benefit and raised the time limit to 2 years. Thus, with effect from Assessment Year 2020-21, annual value of a house property shall be taken to be ‘nil’ if it is held as stock-in-trade upto two years from the end of the financial year in which completion certificate is received.
Tax treatment of unrealised rent value which is subsequently realised
Any subsequently recovery of unrealized rent value shall be deemed to be the income of taxpayer under the head “Income from house property” in the year in which such rent is realized (whether or not the income tax assessee is the owner of that property in that year). The amount received is charged to tax after deducting a sum equal to 30% of such unrealised rent.
Tax treatment of arrears of rent
The amount received on amount of arrears of rent (not charged to tax earlier) will be charged to tax after deducting a sum equal to 30% of such arrears. It is charged to income tax in the year in which it is received. Such amount is charged to income tax whether or not the taxpayer owns the property in the year of receipt.
Deduction in respect of interest on loan taken for residential house property Deduction under Section 80EE from Assessment Year 2017-18
As per Sec. 80EE of the Income-tax Act, deduction of up to 50,000 rupees is allowed to an Individual person towards interest on loan taken for acquisition of a residential house property. However, the Sec. 80EE deduction is allowed subject to following conditions::
- the loan should be sanctioned by the financial institution during the period beginning on the 01-04-2016 and ending on 31-03-2017;
- the amount of loan should not exceed Rs. 35 lakhs;
- the value of residential house property should not exceed 50 rupees lakh; and
- the income assessee should not own any residential house property on the date of sanction of loan.
Deduction under Section 80EEA from Assessment Year 2020-21 for Individuals who are not eligible for deduction under Section 80EE
With an objective to provide an impetus to the ‘Housing for all’ initiative of the Government and to enable the home buyer to have low-cost funds at his disposal, the Finance (No. 2) Act, 2019 has inserted a new Section 80EEA under the Income-tax Act for those individuals who are not eligible to claim deduction under Section 80EE. An individual can claim deduction of up to 150,000 rupees under section 80EEA subject to following conditions:
- Loan should be sanctioned by the financial institution during the period beginning on 01-04-2019 and ending on the 31-03-2020;
- Stamp duty value of residential house property should not exceed Rs. 45 lakhs;
- The assessee should not own any residential house property on the date of sanction of loan; and
- The assessee should not be eligible to claim deduction under Section
Hence, an individual who does not meet the criteria of section 80EE shall be eligible to claim deduction under section 80EEA of up to Rs. 150,000 in addition to deduction under section 24(b).
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