Chapter-11

Income from House Property

Under Section 24 of the Income Tax Ordinance, 1984, Income from House property
means:
1. Income from let out house on Annual Value:
Income in respect of Annual value of any property whether used for commercial or
residential purpose consisting of:
a) any building, furniture, fixture & fittings
b) land apartment there to of which assessee is the owner;

Other than:
Such portion of property is as used for his business or profession (Which is
assessable separately under Business Income Head).

Here is to be mentioned that:

The owner of the house property, legal or beneficial, is liable to pay tax under this
section. Here following typical situations deserve attention:
i) Where the property is held under Trust: Tax may be paid either by the Trustee or
by the beneficiary.
ii) Where the property is mortgaged: Tax will be paid by the mortgagor.
iii) Where the property is leased: If the lease is for long time, lessee is to pay tax.
Where the lease is for short time, the lessor will be assessed, but not under this head
rather under the head ‘other income’.
iv) Where the property is under Co-ownership: Where the house is owned by many
persons and share is identifiable, each co-owner will be assessed separately for his
own share.
v) Where the Owner is under insolvency: Where the owner of the house property
become insolvent, the official receiver will be liable for tax.

Conditions for Assessment: To be assessable, a house property needs to fulfill the

Following conditions:
i) Assessee must be legal owner or beneficiary of the house.
ii) Income must come from the let out house property and its adjacent premises.
Vacant land having no house will not be taxed.
iii) For assessment, Annual value is to be determined.
iv) Property be building, furniture, fittings & adjacent land there to.
v) In case of joint owner, proportionate amount of asseessee be taxable.
vi) Unadjusted advanced of house rent be treated as income of H.P.
vii) Tax will be on gross rent i.e. Annual value minus allowable expenses.

Annual Value of the House

Section 24 of the Income Tax Ordinance, 1984 provides that tax on house property
will be charged on the basis of Annual Value. Annual Value may be defined as the
sum for which the property consisting of building, furniture & fixture, land and
apartments thereof they might reasonably be expected to let out from year to year.
In this case prevailing circumstances such as locality, demand for house etc., need to
be considered. However, under section 2(3) of the I.T. Ordinance, the term Annual
Value in relation to house property means the following:

In respect of let out property:

i) The sum of Municipal estimated annual rent (MV)
ii) The sum of the actual annual rent (RV)
The higher one.
That is AV = Municipal Value (MV)
(Which is assumed based on estimated rent)
or
Actual Rental Value (R.V)
Whichever is higher
(Municipal Value represents value estimated by municipally or City Corporation)

Owners’ Residential House:

It may be noted that previously till 1992 house occupied by owner for his residential
purpose would also come under taxation. Now, Owner’s occupied one residential
house is exempted from tax and thus its annual value needs not be computed.

In connection with house rent for, let out property, it is to be noted that the
expenses that are generally need to be borne by the owner such as municipal
tax/local tax, repair if paid by the tenant will be added with rent to determine actual
rent. Conversely, expenditure such as water tax is generally need to be paid by the
tenant. If water tax is paid by owner it will be deducted from rent to determine
actual rent.

Allowable Expenditures: Following expenditures will be allowed as deductions to

determine the value of house property subject to tax:
i) Repairs and Collection: A fixed amount of 1/4 of the annual value of the house
will be allowed as repair charge irrespective of whether any repair has been
undertaken or not. This will include collection charge, electricity, sewerage bill,
salary of guard, liftman, caretaker and such incidental charge. But for commercial
houses this rate has been increased to 30% by F.A 2004.
In this connection it can be mentioned that house can be of 3 types:
House used for commercial purpose, House used for residential purpose & rented to
tenant and House used for resident of asseessee i.e. owner-occupied residential
house, one residential house used for residence of asseessee is not assessable, so
exemption for repair or other items will not be relevant to this house as income from
it is not taxable.
ii) Land Revenue: Any sum paid (not merely payable) by the assessee as land
revenue is allowable expenditure.
iii) Insurance premium: Insurance premium for the house against risk of damaged or
distraction treated as allowable expenditure.
iv) Mortgage interest: Interest on loan received by giving mortgage of the property
for development and renovation of the house will be an allowable expense. Under
Finance Act, 2002, the interest on loan taken at the times of construction of house
will also be allowed as deduction but it will be divided into first three years when the
property comes under taxation.
v) Municipal/Local Authority Tax: Tax payable to Municipality or any other Local
Authority is called Annual charge and it is allowed as deduction for tax.
vi) Ground Rent: Ground rent in respect of land, it is allowable expense.
vii) Interest on borrowed Capital: When the property has been acquired,
constructed, repaired, renewed or reconstructed with borrowed capital, the amount
of any interest payable on such borrowed capital shall be deductible from house
property income.
 Specimen Preformat for Computing Income from House Property
Name of Assess:-------------------------
Income Year----------------------------------------
Assessment Year----------------------------------

Computation of Income from House Property

Income under the Head House Property Tk. Tk.
Annual Value of Let-out House:
Municipal Value
Or
Annual Rental Value
-Higher one Xxxxxx
Less: Allowable Deductions:
i) Repair (1/4 of AV) xxxx
ii) Land Revenue paid xxxx
iii) Insurance Premium xxxx
iv) Mortgage interest xxxx
v) Municipal Tax, etc. xxxx xxxxx
xxxxx

Problem

Problem- 1. Mr. Bashir Iqbal has a house at Nasirabad, Chattogram. The house is let
out at Tk. 40,000 per month. She spends the following amounts for the house for the
year 2020-21.
a) White wash of the house Tk. 25,000
b) Mosaic/tiles Tk. 1,30,000
c) Rent collection expense Tk. 4000
d) City Corporation tax Tk. 5000
e) Land revenue paid Tk. 5000
f) Salary of guard Tk. 60,000
g) Loan repayment to HBFC Tk. 20,000
(Including Tk. 2000 is interest)
h) Fire insurance premium Tk. 8000
The owner bears the water and gas bill of the tenant which amounted to Tk. 10,000
for the year. Compute taxable income of Mr. Bashir Iqbal for the house.
Solution:1

Assess: Mr. Bashir Iqbal

Income Year: 2017-2018
Assessment Year: 2018-2019
Computation of Income from House Property

Income Under House Property (Sec:24-25) TK. TK. TK.

A) Annual value:

Municipal Value=?
Rental value=Tk (40000*12) 4,80,000
Less: Cost of water and gas bill need to be
born by the tenant but paid by the house
owner: - 10,000
Actual Rental value: 4,70,000
Annual value (M.V or A.R.V – The higher 4,70,000
one)

Less: Allowable deductions (sec 25):

i. Repair =1/4 of AV 1,17,500
ii. City Corporation tax 5,000
iii. Land revenue paid 5,000
iv. Interest on loan 2,000
v. Fire insurance premium 8,000
1,37,500
Income from house property: 3,32,500

Notes:

i) Repair charge includes Rent collection charge, the salary of guard etc.
Whitewash is also included in a repair charge. It is, on the whole, exempted up to
1/4 of the annual rental value.
ii) Mosaic expense is a capital expenditure and thus not allowed.
iii) Land revenue is allowed. If payment is paid but the due portion is not
allowed.
iv) Interest on loan is allowed but not repayment of capital (loan) portion.
Problem-2: (For Practice) Mr. Naser Iqbal has a house at Nasirabad, Chattogram.
The house is let out at Tk. 60,000 per month. He spends the following amounts for
the house for the year 2020-21.
a) White wash of the house Tk. 37,000
b) Mosaic/tiles Tk. 1,45,000
c) Rent collection expense Tk. 6000
d) City Corporation tax Tk. 7000
e) Land revenue paid Tk. 8000
f) Salary of guard Tk. 70,000
g) Loan repayment to HBFC Tk. 30,000
(Including Tk. 2000 is interest)
h) Fire insurance premium Tk. 9000
The owner bears the water and gas bill of the tenant which amounted to Tk. 20,000
for the year. Compute taxable income of Mr Naser Iqbal for the house.

Problem-3. Mr. Jamil Chowdhury has a house at Uttara, Dhaka. He resides in one
floor of the house & the other floor has been let out to a Govt. employee at
Tk.32,000. The
authority pays the same house rent after deducting tax at source @5%. The
Municipal value of the house is Tk.8,40,000.

The expense of the house of the year 2020-21 were as follows:

a) Municipal tax Tk.11,000
b) Repair 25,000
c) Insurance premium 8,000
d) Legal Expense 6,000
e) Electricity connection expense Tk.6,000
Compute taxable income for the house.
 Solution -3:

Assess: Mr. Jamil Chowdhury

Income Year: 2020-2021
Assessment Year: 2021-2022
Computation of Income from House Property

Particulars Tk. Tk.

Income from let out house:

i) Rent received 30,400 x 12= 3,64,800
Add: Tax deducted at source=1600 x 12 19,200
Actual Rental value 3,84,000
ii) Municipal Value (1/2) 4,20,000
Annual Value (Higher one) 4,20,000

Less: Allowable expenses:

i) Repair @1/4 of Annual Value 1,05,000
ii) Municipal Tax (1/2) 5,500
iii) Insurance (1/2) 4000 1,14,500
3,05,500

Note:
(1) Repair irrespective of expenses allowed 1/4 or Residential house & 30% for
commercially used house. As it is residential house repair has been allowed 1/4.
Legal expenses are considered as a part of repair & maintenance & thus has not
been considered separately.
(2) Electricity connection is a capital expenditure & thus has not been considered
separately.
(3) Residential house of asseessee is non-asseessable & thus value of residentially
used part of the house is not subject to tax & thus no income for it has been
computed.

Problem-4. Mrs Fatema Bushra has a house at Nasirabad, Chottogram has been fully
let out at Tk.25,000 per month. The municipal value of the house is Tk.1,25,000. Mrs
Fatema claims the following as expenses for the houses:
i) Repair and maintenance Tk.18,000
ii) Local Govt. Tax 12000
iii) Fire insurance premium 10,000
iv) Salary of Guard 30,000
v) Interest paid on loan taken for repair of the house 13,000
vi) Ground rent 13,000
Compute taxable income under the head House Property for the Income year 2020-
2021.

Problem-5: Mrs. Chand Sultana purchased a house property at Gulshan for

Tk.6,00,000 which was let out at a monthly rent of Tk.20,000.
She paid municipal tax of Tk.4000 and urban property tax which was assessed by the
taxation office in June 2020 for Tk.3000. Collection charge of Tk.4800 was claimed in
the return. Out of the rent received, she paid Tk.30,000 towards repayment of the
loans obtained from a bank for the rental house at the time of the purchase of the
house property. The interest of Tk.5000 was paid for the loan taken for rental
building.

She is an employee of a firm and carries a lump sum salary of Tk. 25,000 per month.
She earned interest on debenture of Port Trust amounting to Tk.12,000. She
maintains a Post Office Savings bank account. She took loan for Construction of her
residential house from a bank on which interest paid Tk.6000.

The Post Office saving bank account shows Interest credit of Tk.2500 for the year
ending June 2018. Life Insurance premium of Tk.25000 was paid during the year.
Defense Certificate of Tk.60,000 and books worth Tk.2000 was purchased in
November 2017 by her. Education allowance of Tk.20000 also claimed for one son
who is a student of a Cadet College. Determine her total income and tax credit and
tax to be paid for the assessment year 2021-2022.

Solution: 5

Assess: Mrs Chand Sultana

Total Income & Taxable Income
 Income Year: 2020-2021
Assessment Year: 2021-2022
Particulars Tk. Tk. Tk.
1. Income from salary (25,000 X12) 3,00,000
2. Income from securities 12,000
3. Income from House Property: (Sec. 24-25)
a) Annual Rental Value 20,000 X12 2,40,000
b) Municipal Value ?

Annual Value: Higher one= 2,40,000

Less: Admissible Expenses:
(i) Repair =1/4 of A.V 60,000
(ii) Municipal Tax 4000
(iii) Urban property Tax 3000
(iv) Interest on Loan taken for the purchase of
rental house property 5000 72,000
1,68,000
4. Income from another source:
Interest on Post office saving Bank Account: ---- 2500
Fully Assessable from 2007-2008 as per finance
ACT 2007

Total & Taxable Income 4,82,500

Tax Credit Income/Actual Investment:

Investment Allowance:
i) Life insurance Premium Tk. 25,000
ii) Defense Certificate Tk 60,000
 85,000

Tax Credit @15% of the Lower of the followings:

Actual Investment Tk.85,000

Or
25% of total income (4,82,500X25%) =Tk.1,20,625

Or Tk.1,00,00,000

Assess will get a tax credit on Tk.85,000@15%

and tax rebate @10% on interest of postal savings Account if the deduction of tax
was made at source.

Rebate 85,000@15%=Tk.12,750 and 10% on interest of postal savings account

2500@10%=Tk.250

Tax to be paid on Taxable income Tk. 4,82,500

On 1st Tk. 3,50,000 Nill

On next Tk. 1,00,000 @5% 5,000
On next Tk.3,00,000 @ 10% 3250
(Here is on Tk.32,500 @10%)
Gross Tax 8,250
Less: Rebate (12,750+250) 13,000
Net Tax pay (4,750)

Notes:
1. Education allowance is not allowed at present.
2. Collection charge included with repair expense.
3. A residential house is not assessable but interest on loan taken for the house was
deductible from total income. But through the Finance Act. 2012 this facility of
deduction has been withdrawn. So, interest paid for the loan of the residential house
has not been deducted. In fact, income from a residential house occupied by
assessing for his residence is not taxable. So, deduction from estimated income from
such property is not considered.
4. For women assess minimum taxable limit is Tk.3,50,000; so, the assesses will pay
tax on the rest of the amount subject to investment rebate receivable.
5. Repayment of loan Tk.30,000 is capital expenditure-thus it is not subject to
deduction.
 Problem-6: Mrs. Sumi Biswas purchased a house property at Gulshan for
Tk.50,00,000 which was let out at a monthly rent of Tk.50,000.
She paid municipal tax of Tk.6000 and urban property tax which was assessed by the
taxation office in May 2019 for Tk.5000. Salary of Guard Tk. 15,000, Rent Collection
charge of Tk.6500 was claimed in the return. Out of the rent received, she paid
Tk.60,000 towards repayment of the loans obtained from a bank for the rental house
at the time of the purchase of the house property. The interest of Tk.8000 was paid
for the loan taken for rental building.

She is an employee of a firm and carries a lump sum salary of Tk. 30,000 per month.
She earned interest on debenture of Port Trust amounting to Tk.15,000. She
maintains a Post Office Savings bank account. She took loan for Construction of her
residential house from a bank on which interest paid Tk.10,000.

The Post Office saving bank account shows Interest credit of Tk.5000 for the year
ending June 2019. Life Insurance premium of Tk.70,000 was paid during the year.
Defense Certificate of Tk.80,000 and books worth Tk.2000 was purchased in
November 2018 by her. Education allowance of Tk.20000 also claimed for one son
who is a student of a Cadet College. Determine her total income and tax credit and
tax to be paid for the assessment year 2020-2021.