4.

150 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 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:

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 INCOME FROM HOUSE PROPERTY 4.151

Step 1: Compare fair rent with municipal value

whichever is higher

Step 2: Compare step 1 value with standard 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.

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 4.152 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) Loan taken on or after 1.4.99: 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).

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(ii) Loan taken before 1.4.99: In case of loan for acquisition or

construction taken prior to 1.4.99 or loan taken for repair,
renovation or reconstruction at any point of time, aggregate
interest paid or payable for one or two self-occupied properties
subject to a maximum of ` 30,000 (including apportioned pre-
construction interest).
Note - Total amount of interest deduction under (i) and (i) in
respect of one or two self-occupied properties owned by the
assessee cannot exceed ` 2,00,000.
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.
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.
(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.

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 4.154 INCOME TAX LAW

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.

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