Income from house property

Compiled by: Bhupendra Jain; 9811255704

Chargeability Sec. 22 The annual value of any property comprising of building or land appurtenant thereto, of which the assessee is the owner, is chargeable to tax under the head Income from house property Essential conditions for taxing income under this headthe property should consist of any building or land appurtenant thereto; the assessee should be the owner of the property; and Note- Ownership includes both free-hold and lease-hold rights and also includes deemed ownership. c. the property should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which are chargeable to income tax. When income from house property is not charges to tax In the following cases income from property is not charges to tax: Farm house: Property held for charitable purposes: Property used for own business/profession: Self-occupied house: Property of registered trace union/local authority: In the case of an authority constituted under any law for marketing of commodities: Palace of ex-ruler: The format given hereunder can be used to determine the taxable income from house property: Gross annual value (GAV) Less: Municipal taxes paid to local authority Net Annual Value (NAV) Less : Deductions u/s.24 Statutory deduction (30% of NAV) Interest on capital borrowed (loans) Income from house property

xxxxx xxxxx xxxxxx

Gross Annual Value: The gross annual value shall be the maximum of the following three values: a) Actual rent (received or receivable) b) Fair rental value c) Municipal value. In case of standard rent has been determined for any property under the rent control act then provisions is as under. Step I Step II Step III FR or MV Which ever is higher Higher value or SR Which ever is less Less Value or AR Which ever is higher

Example: Determine the Gross Annual Value in the following cases. Particulars A B C Rs. Rs. Rs. Municipal valuation 1,00,000 80,000 1,20,000 Fair rent 1,20,000 60,000 1,10,000 Standard rent 1,10,000 1,10,000 1,25,000 Annual rent 1,00,000 1,00,000 1,00,000 GAV

D Rs. 1,20,000 98,000 NA 1,25,000

Municipal taxes : Deduction is permissible in respect of property taxes subject to the following two conditions: It should be borne by the assessee It should be actually paid during the pervious year.

Exp. : X owns three houses in Delhi, particulars of which are as under: Particulars I House II House III House No. of residential units 2 1 3 Municipal value 1,20,000 72,000 60,000 Fair Rental Value 1,50,000 75,000 75,000 Standard Rent 1,30,000 80,000 72,000 Rent per annum 70,000 84,000 21,000 Municipal taxes Rs. 12,000 (due but Rs 8,000 for last Rs. 60,000 (it not paid) year paid in this year includes Rs. 54,000 and Rs. 9,000 of paid as advance for current year due but next 9 years. not paid. Compute the annual value of the above three houses for the assessment yea 2007-08.
Deduction [Section 24] Statutory deduction: 30% of the net annual value deductible irrespective of any expenditure incurred by the taxpayer. Interest on loans: Interest payable on loans borrowed for the purpose of purchase, construction, renovation, repairing, extension etc., can be claimed as deduction. Interest of previous year: interest relating to the year of completion of construction can be fully claimed in that year irrespective of the date of completion interest of pre-construction period: interest accrued during the construction period preceding the year of completion of construction can be accumulated and claimed as deduction over a period of 5 years in equal installment commencing from the year of completion of construction. Pre-construction period means the period commencing on the date of borrowing and ending March 31 immediately prior to the date of completion of construction/date of acquisition or the date of repayment of loan, whichever is earlier.

Exp. : The assessee took a loan for Rs. 5,00,000 on April, 2008 from a bank for construction of a house. The loan carries an interest @ 10% p.a. The construction is completed on 15 th of March, 2011. The entire loan is still outstanding. Compute the interest allowable for the assessment year 2011-2012. Types of House Property The annual value has to be determined for different categories of properties. These could be: 1. House property, which is let throughout the previous year. 2. House property, which is self-occupied for residential purposes or could not actually be self occupied owing to employment at any other place. 3. House property, which is let and was vacant during the whole or any part of the previous year. 4. House property, which is part of the year, let and parts of the year self-occupied.

1. House property, which is let throughout the previous year: [As per table above] Exp. : R own a house property in Delhi. From the particulars given below compute the income from house property for the A/y 20111-2012. Rs. Municipal Value 2,00,000 Fair Rent 2,52,000 Standard Rent 2,40,000 Actual rent (Per month) 23,000 Municipal taxes 20% of Municipal value Municipal tax paid during the year 50% of tax levied R had borrowed a sum of Rs. 12,00,000 @ 10% p.a. on 1-7-2009 and the construction of the property was completed on 28-02-2011. 2. Computation of self occupied property or could not actually be self occupied owing to employment. [Section 23(2)] The annual value of a self-occupied property can be adopted as Nil. Deduction u/s 24 are not available except in respect of interest on loans borrowed up to a maximum of Rs.30,000 *(Rs. 1,50,000 where the property is acquired or constructed with capital borrowed on or after April 1, 1999 and such acquisition or construction is completed within 3 years of the end of the financial year in which the capital was borrowed). Therefore, computation in the case of self-occupied property shall be Annual value as per sec. 23(2) Less: Interest on loan borrowed or Rs. 30,000, (1,50,000) Whichever is less Loss from house property Nil xxxx xxxx

Exp. : X has a house property in Delhi. He stay with his family in this house. The rent of the similar property in the neighborhood id Rs. 56,000 per annum. The municipal value is Rs. 45,000. Municipal tax is Rs. 5,000. The house was constructed in 2008 with a loan of Rs. 12,00,000 taken from HDFC. During the previous year, X refunded Rs. 2,30,000 which includes Rs. 1,68,000 as current year interest. Compute the Income under the head Income from House Property for assessment year 2011-12.

3. House property which is let and was vacant during the whole or part of the previous year: According to section 23(1), the annual value of such house property shall be deemed to be: Situation 1 Where the property is let and was vacant for part of the year and the actual rent received or receivable is more than the reasonable expected rent in spite of vacancy period. In this case gross annual value shall be: the sum for which the property might reasonably be expected to let from year to year; or actual rent received or receivable, whichever is higher. Exp. : Municipal value of a house is Rs. 45,000, Fair rent, Rs. 70,000, Standard rent Rs. 60,000. The house property has been let for Rs. 6,000 p.m. and was vacant for one month during the previous year 2010-2011. Municipal taxes paid during the year were Rs. 20,000. Compute the annual value for assessment year 2011-12. Situation 2 Where the property is let and was vacant for whole or part of the year and the actual rent received or receivable owing to such vacancy is less than the reasonable expected rent. In this case gross annual value shall be actual rent received or receivable. Exp. : Take the above illustration, assume the property was vacant for 3 months. Determine the annual value for the assessment year 2011-12. 4. House Property which is part of the year let and part of the year occupied for own residence: Where a house property is, part of the year let and part of the year occupied for own residence, its annual value shall be determined as per the provisions of section 23(1) relating to let our property. In this case, the period of occupation or property for own residence shall be irrelevant and the annual value of such house property shall be determined as if it is let. Hence, the expected rent shall be taken for full year. Exp. : X owns a house property at Delhi. 60% of the house property s self occupied for residence and 40% is let out on a monthly rent of Rs. 5,000. The let out portion was also self-occupied from 1-10-2010 to 31-12-2010. However, w.e.f. 1-1-2011 the entire house was let out for Rs. 12,500 p.m. The construction of the house property was completed on 31-12-2009. The following expenses were incurred for the above house property during the year ending on 31-3-2011. Rs. Municipal tax paid: For financial year 2009-10 5,000 For financial year 2010-11 10,000 For financial year 2011-12 15,000 Insurance premium paid 3,000 Land revenue due 6,000 Interest on money borrowed for construction of house property 18,000 Calculate income under the head house property of X for the A/y 2011-12. Computation of Deemed to be let-out property: Where an assessee owns more then two house properties meant for self-accupation, he can opt one such property as self occupied. This option can be changed year after year in a manner beneficial to the assessee. Generally, the house with the higher gross annual value shall be treated as self occupied so that the house with lesser gross annual value shall be liable to tax as deemed let out property. However, one another aspect that has to be considered before exercising this option is the amount of interest on loan borrowed in respect of each property.

Subsequent recovery of unrealised rent Recovery of unrealised rent allowed as deduction upto assessment year 2001-02 (Section 25A): Where a deduction has been claimed and allowed to the assessee in respect of unrealised rent in assessment year 2001-02 or prior to that and subsequently the assessee realises any amount in respect of such rent, the amounts so realised shall be deemed to be income chargeable under the head Income from house property and accordingly charged to tax as the income of that previous year, irrespective of the fact whether the assessee is the owner of the property in that year or not. No deduction under section 23 or section 24 whatsoever will be allowed to the assessee from such unrealised rent recovered. Recovery of unrealised rent already reduced from the annual value for assessment year 2002-03 and onwards (Section 25AA): Where the assessee cannot realise rent from a property let to a tenant and subsequently the assessee has realised and amount in respect of such rent, the amount so realised shall be deemed to be income chargeable under the head Income from house property and accordingly charged to income-tax as the income of that previous year in which such rent is realised whether or not the assessee is the owner of that property in that previous year. Special provisions for arrears or rent received (Section 25B) (w.e.f. 1-4-2001) Where the assessee is the owner of any property consisting of any building or lands appurtenant thereto which has been let to a tenant; and has received any amount, by way of arrears of rent from such property, not charged to income-tax for any previous year; the amount so received, after deducting a sum equal to 30% of such amount, shall be deemed to be the income chargeable under the head income from house property. Further, it will be charged to income-tax as the income of that previous year in which such rent is received, whether the assessee is the owner of that property in that year or not. Interest when not deductible from Income from House Property [Section 25] Interest on borrowed money which is payable outside India shall not be allowed as deduction u/s 24(b), unless the tax on the same has been paid or deducted at source and in respect of which there is a person in India, who maybe treated as agent of the recipient for such purpose. Property owned by Co-owners [Section 26] Sometimes the property consisting of building or the buildings and lands appurtenant thereto is owned by two or more persons, who are known as co-owners. In such cases, if their respective shares are definite and ascertainable. Where the house property owned by the co-owners is self occupied by each of the co-owner, the annual value of the property for each of such co-owner shall be nil and each of the co-owner shall be entitled to the deduction of Rs.. 30,000/1,50,000 under section 24(b) on account of interest on borrowed money. As regards, the property or part of the property which is owned by co-owners is let out, the income from such property or part thereof shall be first computed as if this property/part is owned by one owner and thereafter the income so computed shall be apportioned amongst each co-owner as per their definite share. Can Net annual value be negative? The NAV can be negative only when the municipal taxes paid by the owner are more then the gross annual value.

Question on House property Q.1 X owns six houses in Delhi details of which are as under. Particulars I II III IV Municipal value 20,000 24,000 36,000 42,000 Fair Rental Value 24,000 24,000 40,000 42,000 Standard Rent N.A. 24,000 50,000 30,000 Actual Rent 18,000 36,000 48,000 36,000 Compute the gross annual value of the above houses.

V 48,000 50,000 N.A. 54,000

VI 45,000 50,000 48,000 42,000

Q. 2: Municipal value of a house is Rs. 90,000, Fair rent Rs. 1,40,000, Standard rent Rs. 1,20,000. The house property has been let for Rs. 12,000 p.m. and was vacant for one month during the previous year 2010-11. Municipal taxes paid during the year were Rs. 40,000. Compute the annual value for assessment year 2011-12. Q. 3: Take the above question No. Q. 2 . Assume the property was vacant for 3 months. Determine the annual value for the assessment year 2011-12. Q. 4: X, owns a building consisting of three identical units, the construction of which was completed on 1-4-2010. The building was occupied from 1-4-2010 onwards. The particulars pertaining t the three units for the year ended 31-3-2011 are given below: Particulars Fair rent Rent received Municipal taxes: paid Due date not yet paid Land revenue due but outstanding Ground rent due, not yet paid Nature of occupation Unit I 60,000 --3,000 3,000 1,200 2,400 Self occupied For residence Unit II 60,000 72,000 5,000 5,000 1,200 2,400 Let out for residence Unit III 60,000 --3,000 3,000 1,200 2,400 Used for own business.

On 1-4-2008, X had borrowed a sum of Rs. 7,50,000 bearing interest at 8% per annum for construction of this building. The total cost of construction of the building was Rs. 12,00,000. Compute the Income under the head Income from House Property for assessment year 201112. Q. 5: Mr Sehgal owns a house in Bangalore construction of which was completed on 1-7-2005. Half portion is let out for residential purposes on a monthly rent o Rs. 8,000. However, this portion remain vacant for three month during the previous year. 1/4th portion is used by Mr. Sehgal for the purpose of his profession while remaining 1/4th portion used for his own residence for the full year. The other expenses regarding the house were: Rs. 1. Municipal taxes 10,000 2. Repairs 5,000 3. Interest on loan for renovation of house 40,000 4. Fire Insurance Premium 10,000 Compute the Income under the head Income from House Property for assessment year 201111.

Q. 6: Determine the income from house property of X for the assessment year 2011-12 after taking into account the following information relating property income. House I House II Rs. Rs. Fair rent (Rent Control Act is N.A.) 60,000 1,82,000 Actual rent 63,000 1,84,000 Municipal valuation-Annual value 61,000 1,85,000 Municipal taxes paid 14,000 40,000 Repairs 3,500 7,700 Insurance premium on building 3,000 33,000 Land revenue 7,500 24,000 Ground rent 4,000 7,800 Interest on capital borrowed by mortgaging House I (funds are for construction of House 2) 18,000 --Nature of occupation Let out for Let out residence for business Date of completion of construction March,1994 April, 1996