Chapter 2 – Income from House Property

Introduction
If you have a house property and you give it on rent, the rental income is taxed under the head
“Income from House Property”.

Section 22: Charging Section of House Property

Rental Income (Annual Value) of House Property is taxable under the head House Property if the
following two conditions are satisfied:

1. There should be House Property

2. Assessee should be the OWNER of such House Property

House Property means Building and Land appurtenant to such building (commercial as well as
residential building).

Types of House Properties

Types of House Properties
Let Out
Self Occupied Property
Property

Always Used for

Used for Residence
Taxable Business

Upto 2 SOPs More than 2 SOPs Ignored

Remaining
Exempt Two SOPs
SOPs

Deemed Let
Exempt
Out

Computation of Income from House Property

1. Computation of Income from House Property
Particulars ₹
Gross Annual Value (GAV) xxx
Less: Municipal Taxes xxx
Net Annual Value (NAV) xxx
Less: Deductions u/s 24
Less: (i) Standard Deduction @ 30% of NAV u/s 24(a) xxx
Less: (ii) Interest on Loan u/s 24(b) xxx
Income from House Property xxx
2. Let’s understand each of these terms:
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 a. Gross Annual Value is the total amount received as rent during the year.
b. Municipal Taxes:
i. These are taxes which are recovered by Municipality, Local Authority, Gram
Panchayat, etc.
ii. They are also known as House Tax, Local Tax, Property Tax, etc.
iii. They are allowed on payment basis, i.e., if the municipal taxes are due but not
paid, deduction is not allowed. However, if the municipal taxes are paid in any
subsequent year, they shall be allowed.
iv. Deduction of Municipal Taxes is allowed only if they are paid by the OWNER;
if payment is made by TENANT, then deduction is not allowed.
v. Sometimes, in questions, Municipal Taxes are given in percentage form. In
such cases, apply this percentage to the Municipal Value. (We’ll see it in detail
in the questions)
c. Interest on Loan: If any loan is taken for the purchase or construction of the house
property, interest on such loan is allowed as deduction from the Net Annual Value.
We’ll discuss this in detail in a little while.
3. A practical problem arose as people started taking rent using black money, thereby declaring
“Gross Annual Value” less than actual. This resulted in a loss to the government. To prevent
this evasion of tax, government gave the following formula to calculate the value of Gross
Annual Value:

Particulars ₹
(i) Municipal Value xxx
(ii) Fair Rent xxx
(iii)Higher of (i) and (ii) xxx
(iv) Standard Rent xxx
(v) Expected Rent [Lower of (iii) and (iv)] xxx
(vi) Actual Rent Received/Receivable xxx
GAV [Higher of (v) and (vi)] xxx
4. Let’s understand each of these terms now:
a. Municipal Value: This is the value as per Municipality records.
b. Fair Rent: This is the rent of similar property in the same locality. It is also known as
Reasonable Rent, or Reasonable Letting Value.
c. Standard Rent: This is the rent as per the Rent Control Act. The owner cannot charge
more than this amount from the tenant.
d. Actual Rent = Rent Received + Rent Receivable – Unrealised Rent
i. Rent Received: This is the rent that is actually received during the year by the
owner.
ii. Rent Receivable: The outstanding rent is known as Rent Receivable.
iii. Unrealised Rent: This is the rent which the tenant doesn’t pay to the owner
and vacates the property. It is like Bad Debts to the owner. It is allowed to be
subtracted only if the following conditions of Rule 4 are satisfied:
1. Tenancy should be bona-fide, i.e., the tenant should have been living
willingly in the house property of the owner.
2. The tenant should have vacated the house property.
3. The tenant should not be occupying any other property of the owner.
4. Reasonable steps should have been taken by the owner to recover
the unrealised rent.

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 5. From points (1) and (3), the final format for computation of income from house property is as
under:

Computation of Income from House Property

Particulars ₹
(i) Municipal Value xxx
(ii) Fair Rent xxx
(iii) Higher of (i) and (ii) xxx
(iv) Standard Rent xxx
(v) Expected Rent [Lower of (iii) and (iv)] xxx
(vi) Actual Rent Received/Receivable (W.N. 1) xxx
GAV [Higher of (v) and (vi)] xxx
Less: Municipal Taxes xxx
NAV xxx
Less: Deductions u/s 24
Less: 30% of NAV xxx
Less: Interest on Loan xxx xxx
Income from House Property xxx

W.N. 1 - Actual Rent Received/Receivable

Particulars ₹
Rent Received xxx
Add: Rent Receivable xxx
xxx
Less: Unrealised Rent xxx
Actual Rent Received/Receivable xxx

Interest on Loan
1. If a loan is taken for the purchase, construction, repair, or renovation of House Property,
interest on such loan is allowed as deduction.
2. Loans may be taken from Banks, Financial Institutions, Friends, Family, etc.
3. Interest on loan is allowed on “due basis”, i.e., it is allowed even if it is not paid during the
year.
4. Sometimes, when the interest is not paid in a timely manner, an additional interest is levied
on the outstanding amount of interest. This additional interest is known as Penal Interest. It
is to be noted that such penal interest is not allowed as deduction.
5. Sometimes a fresh loan is taken to pay off an earlier loan taken for the purpose of purchase,
construction, repair, or renovation of house property. Interest on this fresh loan is also
allowed as deduction.
6. Loan can also be taken from a person living outside India. Interest paid to such person is
allowed only if tax is deducted at source on such interest.
The provisions of tax deduction at source will be discussed in detail in Chapter 14; however, a
brief overview is as follows: Sometimes, when you’re paying any money to someone, you’re
supposed to deduct a certain portion from that payment as tax. You’re then required to
deposit this tax portion to the government. This process is known as “Tax Deduction at
Source”. For example, suppose you’re required to pay ₹1,00,000 to a friend of yours. As per
the law, suppose you’re required to deduct ₹10,000 as tax at source from this payment. Now,
you’ll pay only ₹90,000 to your friend, and deposit ₹10,000 to the government mentioning

CA NISHANT KUMAR 3
 your friend’s PAN. Your friend will get credit for this amount from his total tax liability at the
end of the year. We’ll be studying this in utmost detail in Chapter 14, don’t worry!
7. Limit of Deduction of Interest on Loan: The extent to which interest on loan is allowed as
deduction is discussed as follows:
a. Let Out Property: If the property is let out, full interest on loan is allowed, i.e., there’s
no limit.
b. Self-Occupied Property: If the property is self-occupied, the limit of interest on loan is
discussed as follows:
Maximum
Particulars
Interest Allowed
• If ALL the following three conditions are satisfied: ₹2,00,000
o Loan is taken on or after 01-04-1999.
o Loan is taken for Purchase or Construction of
House Property.
o If loan is taken for construction, then
construction is completed within 5 years from
the end of the financial year in which the loan
is taken
• In any other case ₹30,000
Note: Maximum interest allowed on self-occupied properties is ₹2,00,000.

Other Expenses
Since a flat deduction of 30% of NAV is allowed as deduction, no deduction is allowed in respect of
any other expense such as Repair & Maintenance, Insurance Expenses, Electricity and Water Charges,
Parking Charges, Society Charges, etc.

Question 1

Anirudh has a property whose municipal valuation is ₹1,30,000 p.a. The fair rent is ₹1,10,000 p.a. and
the standard rent fixed by the Rent Control Act is ₹1,20,000 p.a. The property was let out for a rent of
₹11,000 p.m. throughout the previous year. Unrealised rent was ₹11,000 and all conditions prescribed
by Rule 4 are satisfied. He paid municipal taxes @10% of municipal valuation. Interest on borrowed
capital was ₹40,000 for the year. Compute the income from house property of Anirudh for A.Y. 2023-
24.

Solution

Computation of Income from House Property of Anirudh for A.Y. 2023-24

Particulars Amount
(i) Municipal Value 1,30,000
(ii) Fair Rent 1,10,000
(iii) Higher of (i) and (ii) 1,30,000
(iv) Standard Rent 1,20,000
(v) Expected Rent [Lower of (iii) and (iv)] 1,20,000
(vi) Actual Rent Received/Receivable (W.N. 1) 1,21,000
GAV [Higher of (v) and (vi)] 1,21,000
Less: Municipal Taxes 13,000
NAV 1,08,000
Less: Deductions u/s 24

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 Less: 30% of NAV 32,400
Less: Interest on Loan 40,000 72,400
Income from House Property 35,600

W.N. 1 - Actual Rent Received/Receivable

Particulars ₹
Rent Received (₹11,000 × 11) 1,21,000
Add: Rent Receivable (₹11,000 × 1) 11,000
1,32,000
Less: Unrealised Rent 11,000
Actual Rent Received/Receivable 1,21,000

Pre-Construction Period Interest/Pre-Acquisition Period Interest

This is the interest for the years before the year in which construction was completed. The entire pre-
construction period interest is allowed in 5 equal instalments from the year in which construction was
completed.

Question 2

Mr. Jai has taken a loan from SBI on 01-06-2018 for ₹20,00,000 @ 6%. He made following repayments
of Principal amount:

01-04-2019 4,00,000
01-10-2020 2,00,000
01-12-2021 1,50,000
01-04-2022 2,50,000
Construction completed on 14-02-2022. Compute interest allowable for P.Y. 2022-23 (A.Y. 2023-24).

Solution

Calculation of Interest to be Allowed in P.Y. 2022-23

Particulars ₹
Pre-Construction Interest:
2018-19 (6% × ₹20,00,000 × 10/12) 1,00,000
2019-20 {6% × (₹20,00,000 – ₹4,00,000)} 96,000
2020-21 {(6% × ₹16,00,000 × 6/12) + (6% × ₹14,00,000 × 6/12)} 90,000
2,86,000
Pre-Construction Interest to be allowed every year (₹2,86,000 ÷ 5) 57,200
Add: Interest for P.Y. 2022-23 (6% × ₹10,00,000) 60,000
Interest to be allowed in P.Y. 2022-23 1,17,200

Concept of Vacancy
If the house property has been vacant for some months in a year, then the GAV is calculated as follows:

1. If Actual Rent + Vacancy Rent ≥ Expected Rent, then GAV = Actual Rent
2. If Actual Rent + Vacancy Rent < Expected Rent, then GAV = Expected Rent

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Partly Let Out Property (Area Wise)
If some area of house property is let out and remaining area is self-occupied, then the let-out portion
is treated as LOP, and self-occupied portion is treated as SOP. In this case, Municipal Value, Fair Rent,
Standard Rent, Municipal Taxes, Interest on Loan should be divided between SOP and LOP on area
basis. Actual rent should never be divided, as it is always for LOP.

Interest on Loan

Let Out Property Self-Occupied Property

Full Interest Allowed Maximum ₹30,000/₹2,00,000 Allowed

Question 3

Mr. X owns one residential house in Mumbai. The house is having two identical units. First unit of the
house is self-occupied by Mr. X and another unit is rented for ₹8,000 p.m. The rented unit was vacant
for 2 months during the year. The particulars of the house for the previous year 2022-23 are as under:

Standard Rent ₹1,62,000 p.a.

Municipal Valuation ₹1,90,000 p.a.
Fair Rent ₹1,85,000 p.a.
Municipal Tax (paid by Mr. X) 15% of Municipal Value
Light and water charges ₹500 p.m.
Interest on borrowed capital ₹1,500 p.m.
Lease money ₹1,200 p.a.
Insurance charges ₹3,000 p.a.
Repairs ₹12,000 p.a.
Compute income from house property of Mr. X for the A.Y. 2023-24.

Solution

Computation of Income from House Property of Mr. X for A.Y. 2023-24

Particulars SOP LOP
(i) Municipal Value - 95,000
(ii) Fair Rent - 92,500
(iii) Higher of (i) and (ii) - 95,000
(iv) Standard Rent - 81,000
(v) Expected Rent [Lower of (iii) and (iv)] - 81,000
(vi) Actual Rent Received/Receivable (W.N. 1) - 80,000
GAV (W.N. 1) - 80,000
Less: Municipal Taxes - 14,250
NAV - 65,750
Less: Deductions u/s 24 -
Less: 30% of NAV - 19,725
Less: Interest on Loan 9,000 9,000
Income from House Property (9,000) 37,025
Net Income from House Property 28,025

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 W.N. 1 - Calculation of GAV
Particulars ₹
Expected Rent 81,000

Actual Rent 80,000

Vacancy Rent 16,000

AR + VR 96,000

GAV (Since AR + VR > ER, GAV = AR) 80,000

Partly Let Out Property (Time Wise)

If property is let out for some period and self-occupied for remaining period, then such property is
treated as Let Out Property only. If property is let out even for one day, it’ll be treated as LOP only.

Question 4

Smt. Rajalakshmi owns a house property at Adyar in Chennai. The municipal value of the property is
₹5,00,000, fair rent is ₹4,20,000 and standard rent is ₹4,80,000. The property was let-out for ₹50,000
p.m. up to December, 2022. Thereafter, the tenant vacated the property and Smt. Rajalakshmi used
the house for self-occupation. Rent for the months of November and December, 2022 could not be
realised in spite of the owner’s efforts. All the conditions prescribed under Rule 4 are satisfied. She
paid municipal taxes @ 12% during the year. She had paid interest of ₹25,000 during the year for
amount borrowed for repairs for the house property. Compute her income from house property for
the A.Y. 2023-24.

Solution

Computation of Income from House Property of Smt. Rajalakshmi for A.Y. 2023-24
Particulars LOP
(i) Municipal Value 5,00,000
(ii) Fair Rent 4,20,000
(iii) Higher of (i) and (ii) 5,00,000
(iv) Standard Rent 4,80,000
(v) Expected Rent [Lower of (iii) and (iv)] 4,80,000
(vi) Actual Rent Received/Receivable (W.N. 1) 3,50,000
GAV [Higher of (v) and (vi)] 4,80,000
Less: Municipal Taxes 60,000
NAV 4,20,000
Less: Deductions u/s 24
Less: 30% of NAV 1,26,000
Less: Interest on Loan 25,000
Income from House Property 2,69,000
.
Net Income from House Property 2,69,000

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 W.N. 1 - Calculation of Actual Rent
Particulars ₹
Rent Received 3,50,000
Add: Rent Receivable 1,00,000
4,50,000
Less: Unrealised Rent 1,00,000
Actual Rent 3,50,000

When Assessee Owns More Than 2 SOPs

Suppose the Assessee owns three House Properties – H1, H2, H3. In such a case, two of them will be
treated as SOPs and the third one will be treated as DLOP. In this situation, you’ll have to solve the
question 3 times:

1. taking H1 as DLOP and H2 and H3 as SOP

2. taking H2 as DLOP and H1 and H3 as SOP
3. taking H3 as DLOP and H1 and H2 as SOP

You’ll go with that case in which your total income from house property is minimum.

Question 5

Ganesh has three houses, all of which are self-occupied. The particulars of the houses for the P.Y.
2022-23 are as under:

Particulars House I House II House III

Municipal Value p.a. ₹3,00,000 ₹3,60,000 ₹3,30,000
Fair Rent p.a. ₹3,75,000 ₹2,75,000 ₹3,80,000
Standard Rent ₹3,50,000 ₹3,70,000 ₹3,75,000
Date of completion/purchase 31.3.1999 31.3.2002 01.4.2015
Municipal Taxes paid during the year 12% 8% 6%
Interest on money borrowed for repair of property during - 55,000 -
the current year
Interest for current year on money borrowed in April, 2015 1,75,000
for purchase of property
Compute Ganesh’s income from house property for A.Y. 2023-24 and suggest which house should be
opted by Ganesh to be assessed as self-occupied so that his tax liability is minimum.

Solution

Computation of Income from House Property of Ganesh for A.Y. 2023-24

Particulars HP 1 HP 2 HP 3
(i) Municipal Value 3,00,000 3,60,000 3,30,000
(ii) Fair Rent 3,75,000 2,75,000 3,80,000
(iii) Higher of (i) and (ii) 3,75,000 3,60,000 3,80,000
(iv) Standard Rent 3,50,000 3,70,000 3,75,000
(v) Expected Rent [Lower of (iii) and (iv)] 3,50,000 3,60,000 3,75,000
(vi) Actual Rent Received/Receivable - - -
GAV [Higher of (v) and (vi)] 3,50,000 3,60,000 3,75,000
Less: Municipal Taxes 36,000 28,800 19,800
NAV 3,14,000 3,31,200 3,55,200

CA NISHANT KUMAR 8
 Less: Deductions u/s 24
Less: 30% of NAV 94,200 99,360 1,06,560
Less: Interest on Loan - 55,000 1,75,000
Income from House Property 2,19,800 1,76,840 73,640

Ganesh can opt to treat any two of the above house properties as self-occupied.

Option 1 - HP1 and HP2 Self Occupied; HP3 Deemed Let Out
Particulars ₹
House Property I (Self Occupied) -
House Property II (Self Occupied) (30,000)
(Since the loan was taken for repairs, the interest is restricted to ₹30,000)
House Property 3 73,640
Income from House Property 43,640

Option 2 - HP1 and HP3 Self Occupied; HP2 Deemed Let Out
Particulars ₹
House Property I (Self Occupied) -
House Property II 1,76,840
House Property 3 (Self Occupied) (1,75,000)
Income from House Property 1,840

Option 3 - HP2 and HP3 Self Occupied; HP1 Deemed Let Out
Particulars ₹
House Property I 2,19,800
House Property II (Self Occupied) (30,000)
(Since the loan was taken for repairs, the interest is restricted to ₹30,000)
House Property 3 (Self Occupied) (1,75,000)
(2,05,000)
Restricted to (2,00,000)
Income from House Property 19,800

Since the income from House Property is minimum in option 2, Ganesh should treat House Property
1 and House Property 3 as Self Occupied, and House Property 2 as deemed to be let out.

Concept of Co-Ownership (Joint Ownership)

It means property is owned by more than one owner. In this case, Income from House Property is
calculated normally and thereafter it should be divided between co-owners in their ownership ratio.

LOP/DLOP No Limit

Interest on Loan
Limit:
SOP ₹30,000/₹2,00,000
 No. of Co-Owners

CA NISHANT KUMAR 9
Question 6

Mr. Raman is a co-owner of a house property alongwith his brother holding equal share in the
property.

Particulars ₹
Municipal value of the property 1,60,000
Fair rent 1,50,000
Standard rent under the Rent Control Act 1,70,000
Rent received 15,000 p.m.
The loan for the construction of this property is jointly taken and the interest charged by the bank is
₹25,000, out of which ₹21,000 has been paid. Interest on the unpaid interest is ₹450. To repay this
loan, Raman and his brother have taken a fresh loan and interest charged on this loan is ₹5,000. The
municipal taxes of ₹5,100 have been paid by the tenant.

Compute the income from this property chargeable in the hands of Mr. Raman for the A.Y. 2023-24.

Solution

Computation of Income from House Property for A.Y. 2023-24

Particulars ₹
(i) Municipal Value 1,60,000
(ii) Fair Rent 1,50,000
(iii) Higher of (i) and (ii) 1,60,000
(iv) Standard Rent 1,70,000
(v) Expected Rent [Lower of (iii) and (iv)] 1,60,000
(vi) Actual Rent Received/Receivable 1,80,000
GAV [Higher of (v) and (vi)] 1,80,000
Less: Municipal Taxes -
NAV 1,80,000
Less: Deductions u/s 24
Less: 30% of NAV 54,000
Less: Interest on Loan 30,000
Income from House Property 96,000
.
Share of Co-owner 1 48,000
Share of Co-owner 2 48,000
Notes:

1. Interest on Loan: Interest on Loan is allowed on due basis, therefore, the entire ₹25,000 will
be allowed as deduction even though the interest paid is ₹21,000.
2. Interest on Interest (Penal Interest) is not allowed as deduction.
3. If any fresh loan is taken for repayment of earlier loan and earlier loan was taken for the
purpose of House Property, then interest on fresh loan is allowed as deduction. In the present
case, interest on fresh loan of ₹5,000 is also allowed as deduction.
4. Municipal taxes paid by the OWNER are allowed as deduction. In the present case, the
municipal taxes have been paid by the tenant, hence NOT allowed.

CA NISHANT KUMAR 10
Question 7

A and B construct their houses on a piece of land purchased by them at New Delhi. The built-up area
of each house was 1,000 sq. ft. (ground floor and an equal area on the first floor). A starts construction
on 01-04-2021 and completes on 01-04-2022. B starts the construction on 01-04-2021 and completes
the construction on 30-06-2022. A occupied the entire house on 01-04-2022. B occupied the ground
floor on 01-07-2022 and let out the first floor for a rent of ₹15,000 per month. However, the tenant
vacated the house on 31-12-2022 and B occupied the entire house during the period 01-01-2023 to
31-03-2023. Following are the other information:

1. Fair rental value of each unit (ground floor/first floor) ₹1,00,000 per year
2. Municipal value of each unit (ground floor/first floor) ₹72,000 per year
3. Municipal taxes paid by A ₹8,000
Municipal taxes paid by B ₹8,000
4. Repair and Maintenance charges paid by A ₹28,000
Repair and Maintenance charges paid by B ₹30,000
A has availed a housing loan of ₹20 lakhs @ 12% p.a. on 01-04-2021. B has availed a housing loan of
₹12 lakhs @ 10% p.a. on 01-07-2021. No repayment was made by either of them till 31-03-2023.
Compute income from house property for A and B for the previous year 2022-23.

Solution

Computation of IFHP for A for A.Y. 2023-24

Particulars SOP
NAV -
Less: Deductions u/s 24
Less: 30% of NAV -
Less: Interest on Loan (Note 1) 2,00,000
Income from House Property (2,00,000)

Computation of Income from House Property of B for A.Y. 2023-24

Particulars SOP (50%) LOP (50%)
(i) Municipal Value - 54,000
(ii) Fair Rent - 75,000
(iii) Higher of (i) and (ii) - 75,000
(iv) Standard Rent - -
(v) Expected Rent [Lower of (iii) and (iv)] - 75,000
(vi) Actual Rent Received/Receivable - 90,000
GAV [Higher of (v) and (vi)] - 90,000
Less: Municipal Taxes (Note 4) - 4,000
NAV - 86,000
Less: Deductions u/s 24
Less: 30% of NAV - 25,800
Less: Interest on Loan (Note 3) 69,000 69,000
Income from House Property (69,000) (8,800)
.
Net Income from House Property (77,800)

Notes:

1. Interest on Loan
CA NISHANT KUMAR 11
 Particulars ₹
Interest for 2021-22 (12% × ₹20,00,000) 2,40,000
.
Since the construction got completed on 01-04-2022, i.e., P.Y. 2022-23, the
interest for the P.Y. 2021-22 will be considered as Pre-construction period
interest. Therefore, ₹2,40,000 ÷ 5 = ₹48,000 will be allowed every year for the
next 5 years.
.
Interest for 2022-23 (12% × ₹20,00,000) 2,40,000
Add: Pre-construction period interest 48,000
2,88,000
.
Restricted to 2,00,000
2. There is no vacancy in this house of B. As soon as the tenant left, B occupied the first floor
also. In case of timewise partly let out property, even if the property is let out for a single day,
it is considered to be let out for the entire year. Therefore, since first floor was let out from
July to December, it will be considered to be let out for the entire period.
3. Interest on Loan

Particulars ₹
Interest for 2021-22 (10% × ₹12,00,000 × 9/12) 90,000

Since the construction got completed on 30-06-2022, i.e., P.Y. 2022-23, the
interest for the P.Y. 2021-22 will be considered as Pre-construction period
interest. Therefore, ₹90,000 ÷ 5 = ₹18,000 will be allowed every year for the
next 5 years.

Interest for 2022-23 (10% × ₹12,00,000) 1,20,000

Add: Pre-construction period interest 18,000
1,38,000
.
Appropriated towards SOP (50%) 69,000
Appropriated towards LOP (50%) 69,000
4. Municipal Taxes – Municipal Taxes are not allowed for SOP. Therefore, only the portion
attributed to LOP will be allowed, i.e., 50%. Therefore, amount allowed = 50% × ₹8,000 =
₹4,000. Since Municipal Taxes are allowed on paid basis, month-wise apportionment is not
required.

Arrears of Rent
It means rent under dispute.

Section 25A: Recovery of Unrealised Rent or Arrears of Rent

Recovery is taxable in the year in which it is recovered under the head Income from House Property,
whether the assessee is the owner of the property or not in that financial year. Any expenditure
incurred for recovery shall be ignored.

CA NISHANT KUMAR 12
Question 8

Mr. Anand sold his residential house property in March, 2022.

In June, 2022, he recovered rent of ₹10,000 from Mr. Gaurav, to whom he had let out his house for
two years from April 2016 to March 2018. He could not realise two months’ rent of ₹20,000 from him
and to that extent his actual rent was reduced while computing income from house property for A.Y.
2018-19.

Further, he had let out his property from April, 2018 to February, 2022 to Mr. Satish. In April, 2020,
he had increased the rent from ₹12,000 to ₹15,000 per month and the same was a subject matter of
dispute. In September, 2022, the matter was finally settled, and Mr. Anand received ₹69,000 as arrears
of rent for the period April, 2020 to February, 2022.

Would the recovery of unrealised rent and arrears of rent be taxable in the hands of Mr. Anand, and
is so, in which year?

Solution

Unrealised rent and arrears of rent is recovered by Mr. Anand in P.Y. 2022-23. As per section 25A, it is
taxable in the year of recovery, i.e., P.Y. 2022-23 even though Mr. Anand is not the owner of house
property in the year of recovery. Standard deduction of 30% is allowed while calculating income from
house property.

Computation of Income from House Property

Particulars ₹
Unrealised Rent 10,000
Arrears of Rent 69,000
79,000
Less: Deduction @ 30% 23,700
Income from House Property 55,300

Concept of Composite Rent (Rent of House Property + Rent of Other

Assets)

Composite Rent
Agreement is not
Agreement is Separable
separable

Rent of House Total Rent is taxable

Rent of Other Assets
Property under PGBP/IFOS

Taxable under Income Taxable under

from House Property PGBP/IFOS

Note: If let out of property is not possible without other assets, then total rent is taxable under the
head PGBP/IFOS, whether agreement is separable or not.
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House Property Held as Stock in Trade (Builder)
1. Income from Sale of House Property → Taxable under the head PGBP
2. Income from Let Out of House Property → Taxable under the head IFHP

Amendment

Where the House Property is held as Stock-in-Trade and not let out during the Previous Year, then
NAV shall be treated as NIL for the period of 2 years from the end of F.Y. in which construction is
completed.

Example: DLF Builder completed construction of 1 House Property on 16-07-2022. In this case, if such
HP is NOT let out, then NAV of such HP shall be treated as NIL till 31-03-2025. From P.Y. 2025-26, this
HP shall be treated as DLOP, and income shall be taxable under IFHP.

Section 27: Deemed Ownership

1. If any individual transfers House Property to his/her spouse without consideration or for
inadequate consideration, then such individual is treated as deemed owner of such House
Property.
Exception: Transfer in connection of live apart.
2. If any individual transfers any house property to minor child without consideration or for
inadequate consideration, then such individual is treated as deemed owner.
Exception: Transfer to minor married daughter.
3. Holder of Impartible Estate: It means property which is not legally divisible. The main holder
of Impartible Estate is treated as Deemed Owner.
4. Member of co-operative society: In case of co-operative society, shareholders/members are
treated as deemed owners of property.
5. In case of immovable property, if possession is acquired in part performance of a contract,
then assessee is treated as deemed owner from the date on which he obtained possession.
6. If any house property is acquired under long term lease (12 years or more), then acquirer is
treated as deemed owner.

Question 9

Answer the following:

1. Mr. Rajesh transfers a property of market value ₹38,00,000 to his wife out of natural love and
affection. The income from such property is ₹2,00,000. How will the property income be
taxed?
2. Mr. Amit gifts a property valuing ₹10,00,000 to his minor child. The annual income from such
property is ₹2,00,000. How will the property income be taxed?
3. What will your answer be, if in the above case Mr. Amit has gifted the house property to his
minor married daughter?
4. Mr. Anuj gives his house property to Mr. Dinesh on lease for 20 years. However, the lease is
to be renewed by Mr. Dinesh every year. How will the property income be taxed?
5. What will your answer be if in the above case Mr. Anuj gives his house property on lease to
Mr. Dinesh for 2 years and Mr. Dinesh can get the lease renewed for another 2 years on
payment of a specified sum and so on for indefinite period?

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Solution

1. In this case, Mr. Rajesh has transferred his house property to his wife in natural love and
affection, i.e., otherwise than for adequate consideration. Therefore, he will be the deemed
owner of such property and hence income of ₹2,00,000 will be assessed in the hands of Mr.
Rajesh as “Income from House Property”.
2. Here, Mr. Amit has gifted the property to his minor child, i.e., without any adequate
consideration. Thus, Mr. Amit shall be the deemed owner of such property and the income of
₹2,00,000 from the said property shall be taxable in his hands.
3. In case, an individual transfers the property without adequate consideration to his minor
married daughter, then he shall not be treated as deemed owner in respect of such property
as per Section 27. Hence, the income from such property will be taxed in the hands of the
minor married daughter.
4. In this case, the lease is for 20 years, i.e., for more than 12 years, but the same is to be renewed
every year by Mr. Dinesh, i.e., for a period of not more than one year. Thus, Mr. Dinesh is not
treated as the deemed owner of such property and income from such property will be taxable
for Mr. Anuj.
5. Here, the lease is for 2 years but Mr. Dinesh can renew it after every 2 years for indefinite
period, which implies that the lease can be for more than 12 years. Thus, Mr. Dinesh will be
the deemed owner of such property and income therefrom will be taxable in his hands.

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