Leva aos Bh Income under the Head "Income from House Property" [Sections 22 to 27] SECTIONWISE STUDY [Sections Particulars ppanatiaiae Para [Page i 2 iB ha lincome from House Property — Chargeability and Basis of Charge 5 and 156 52 1536 b3ciy@),(@)& (@) _ [Annual Value, how determined 56 158 [Explanation to 23(1) [Treatment of unrealised rent 58 162 (23(2), (3) and (4) |Computation of Income of a property which is occupied by the owner for his|5.10 167 lown residence or which could not actually be self-occupied owing to| lemployment ba [Deductions from income from house property 59 163 B38) INo notional income for house property held as stod 5.12 12 lone year 25. |Interest when not deductible from "Income from House Property” 5.13 172 25a, ‘Special provision for arrears of rent and unrealised rent received subsequently |5.14 172 bs Property owned by co-owners 5.15 17 [27 |Deemed ownership [5.3 156 HOW TO COMPUTE "INCOME FROM HOUSE PROPERTY" (Gross annual value Ze. expected renvactual rent received or receivable, whichever| 1._|ishigher However, in case of vacancy, expected rent or actual rent received or receivable, whichever is lower 2. [Less (@) The amount of rent which could not be realized (6) Taxes actually paid and borne by owner to local authority [Net annual value (NAV) Less: Deduction allowed ws 24 (@) Standard deduction @ 30% of NAV RRiscawa (b) Interest on borrowed capital [Section 24(1)(¥#] Raven Total 4. [Income Chargeable under the head Income from House Property” (2-3) £™’ Scanned with CamScannerChap.5 ied Systematic Approach 10 Income Tax ap. tenant thereto of which the assessee is the owner fter claiming deduction under section 24 "for the purposes of any business or 5.1 Chargeability [Section 22] The annual value of property consisting of any buildings ot lands appu shall be subject to Income-tax under the head ‘Income from house property’ af provided such property, or any portion of such property is nor used by the assessee profession, carried on by him, the profits of which are chargeable to Income-t8x. ‘An analysis of the above would reveal the following: 5.2 Basis of Charge ; ‘The basis of calculating income from house property isthe annual value. This is the inherent capacity of the property to earn income. Income ftom house property is perhaps the oly income that charged to tx on «notional pais, The charge is not beeause ofthe receipt of any income but ison the inherent potential of house property to generate income. The annual value is the amount for which the property might reasonably be expected to Jet from year to year. The method of determination of annual value is discussed later in this chapter under paras 5.6 and 5.7 5.3 Essential conditions for taxing income under this head The following three conditions must be satisfied before the income of the property can be taxed unde from House Property’ (i) The property must consist of buildings and lands appurtenant thereto, (ii). The assessee must be the owner of such house 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 him, the profit of which are chargeable to tax. Ifthe property is used for own business or profession, it shall not be chargeable to tax. (Property must consist of any buildings or lands appurtenant thereto: Although the Act has used the word ‘property’ in section 22, but income of all types of properties are not taxable under this head. The term ‘property’ has ‘very wide meaning but ‘property’ in sections 22 to 27 has not been used in its wider sense or meaning. It is very ‘much limited to a type defined by the language ofthe section i. buildings of lands appurtenant thereto. In other words, there must be a house property which must consist of buildings or land appurtenant thereto. If any income is derived from vacant land then this income would not be taxed under the head ‘house property’ ‘because there is no building. Such income shall, however, be taxed under the head income from other sources or income from business depending upon the facts ofthe case, (i) Ownership of the property: The assessee must be the owner of such house property. Any income derived from property which is not owned by the assessee cannot be taxed under this head e.g. X takes a house on rent of €25,000 pam, and sublets it to Y and receives a rent of %30,000 p.m. for this house. The rent derived by X cannot be taxed under this head because X is not the owner of the house. This income will be taxed either as business income or as income from other sources. ‘Owmership includes both free-hold and lease-hold rights and also includes deemed ownership. Deemed ownership [Section 27: As per scction 27, the following persons though not the legal owners of @ property are deemed 1o be the owners forthe purposes of sections 22 to 26: ‘« Transfer to a spouse [Section 27()|: If an individual transfers any house property to his or her spouse otherwise than for adequate consideration, the transferor in that case is deemed to be the owner of the property So transferred. This would, however, not cover cases where a property is transfered to a spouse in connection, ‘with an agreement to live apart. «Transfer to a minor child [Section 27(0]: If an individual transfers any house property to his or her minor child otherwise than for adequate consideration, the transferor in that case is deemed to be the owner of the house property so transferred. This would, however, not cover cases where a property is transferred to a minor ‘married daughter. ‘Where the individual transfers cash to hisiher spouse or minor child and the transferee acquires @ house property out of such cash, the transferor shall not be treated as deemed owner of the house property. Such transaction will however, attract clubbing provisions discussed under Chapter 9. ‘© Holder of an impartible estate [Section 27(i)]: The holder of an impartible estate shall be deemed to be the individual owner of all properties comprised inthe estate. The impartible estate, as the word itself suggests, is a property which isnot legally divisible. « Member of a Co-operative Society, ete. [Section 27(i)|: A member of a co-operative a Meer oa Coaprt Say cn 27 A me of cope ay, compo x the head "Income Scanned with CamScannercurs Income under the Head "Income from House Property" 157 ii) Haare ncn nicompany/associaton, shall be deemed tobe owner of that building or pat thereof alloted "ugh the co-operative society/company/association is the legal owner of that building, + Person in possession of a property [Section 27(i)|: A person who is allowed to fake or retain the possession of any balling o* part thereof in part performance ofa contract of the nature referred to in seetion 33, of the ransfer of Property Act shall be deemed owner of that house property. This would cover cases where the (4) possession of property has been handed over to the buyer, (b) sale consideration has been paid or promised to be paid to the seller by the buyer, (c) sale deed has not been executed in favour of the buyer, although certain other documents like power of attorney/agreement to selliwill etc. have been executed. The buyer would be deemed to be the owner of the property although itis not registered in his name. + Person having right in a property for a period not less than 12 years [Section 27(iiib)|: A person who acquires any right in or with respect to any building or part thereof, by virtue of any transaction as is referred to in section 269UA(A) ie. transfer by way of lease for not less than 12 years shall be deemed to be the owner of that building or part thereof. This will not cover the case where any right by way of a lease is acquired from ‘month fo month basis or fora period not exceeding one year. ‘Use of the House Property: For the purpose of charge under the head income from house property, the crucial words are buildings or lands appurtenant thereto. The purpose for which the building, ete. is being used is not material. Thus house property may be let by the assessee for residential purposes ot for any commercial purpose. The income derived from leting out of such house property will always be taxable under this head. Even if it is the business of the assessee to own and give houses on rent the annual value of the houses owned by him during the previous year would be taxable as ‘Income from house property’. The annual value of house property, though ‘belonging to a business, must be charged under this head and not under section 28, if the property is not used by the assessee for the purposes of his business. It will remain so even if property is held by the assessee as stock in trade of a business. House owning, however profitable, is neither trade nor business for the purpose of the Act. However, the following are the exceptions to the above rule: (A) The annual value of the house property/portion of the house property which is used for purpose of the business or profession carried on by the assessee does not fall under this head, provided profits of such business or profession are chargeable to income-tax. Ian assessee is running a hotel or paying guest accommodation ina building owned by him, income from such building shall be taxable under the head business or profession. On the other hand, if such hotel building itself has been let out, income from such hotel building shall be taxable under the head house property. (B) Where the property is let out to employees with the object of carrying on the business of the assessee in an efficient manner, then the rental income shall be taxable as business income (provided letting is not the main business but it is subservientincidental to the main business) because the letting out of the property is incidental to the main business of the assessce and in this ease deductionslallowances would have to be calculated as relating to profits/gains of business and not as relating to house property ‘Similarly, where the premises of the assessee are given to any Government agency for locating a branch of a bank, police station, excise office, ete. for the purpose of running the business of the assessee more efficiently, the rental income from such buildings would be taxable as business income, (©) Where the letting of the property is inseparable from leting of other assets like machinery, furniture, ete. the entire income would be taxable as profits or gains of business and profession or income from other sources. 5.4 Cases of Composite Rent certain cases, the owner charges rent from the tenant not only on account of rent forthe house property but also on account of various facilities/services provided with the house. Such rent is known as composite rent. The said composite rent ‘an fall under 2 categories: @ o ‘composite rent on account of rent for the property and for various faciltes/ services provided alongwith the house like lift, gas, water, electricity, watch and ward, air conditioning etc. In this case such composite rent should be split up and the portion of rent attributable to the letting of the premises shall be assessable as "Income from House Property”. The other portion of the composite rent received for rendering facilities or services shall be assessable as “Income from Other Sources". composite rent on account of rent for the property and the hire charges of machinery, plant or furniture belonging to the owner, In this case if the letting of the property is separable from the letting of the other assets, then the portion of the rent attributable to the letting of the premises shall be assessable as "Income from House Property” and the other portion of the composite rent for letting other assets shall be assessable either as "Profits and Gains of Business or Profession" or “Income from Other Sources". On the other hand, if the letting of the property is inseparable from the letting of other assets like machinery, furniture, the entire income would be taxable as "Profits nd Gains of Business or Profession” or "Income from Other Sources” Scanned with CamScanner158 ‘Systematic Approach to Income Tax Chops 5.5 When income from house property is not charged to tax In the following cases income from property is not charged to tax: (@) Farm house: Income from any building owned or occupied by an agriculturst land provided thatthe building is in the immediate vicinity of agricultural land an« a store house or other out-building. (6) Property held for charitable purposes: As per section 11, where the property is held for charitable or religious purposes the income from such property is exempt from tax. ’ (©). House property used for own businessiprofession: It falls under the head ‘Income from business and profession’ and although no income willbe derived but deductionlallowances of such property shall be allowed under that head (@ Self-occupied house: Annual value of two self-occupied house shall be taken as Nil [for detailed discussion see para 5.10] (©) House property of registered trade union/local authority: The income from property held by a registered trade tunion/local authority isnot taxable. (D Palace of ex-ruler: The annual value of any one palace inthe occupation of an ex-ruler shall be exempted DETERMINATION OF ANNUAL VALUE or receiver of renUrevenue of such dis used as a dwelling house or as from tax. 5.6 What is Annual Value? As per section 23(1)(a) the annual value of any property shall be the sum for which the property might reasonably be expected to be let from year to year. It may neither be the actual rent derived nor the municipal valuation of the property. It is something like notional rent which could have been derived, had the property been let. In determining the annual value there are four factors which are normally taken into consideration. These are: ‘+ Actual rent received or receivable: Actual rent received/receivable is an important factor in determining the annual value of a property though this is not the only decisive factor. The actual rent could be dependent upon various considerations. There could be circumstances where the owner agrees to bear certain obligations of the tenant e.g the water and electricity bills of the tenant may be payable by the owner. In this ease, the de facto rent (i.e. what should have been the actual rent) will be calculated by reducing from the rent received/receivable the amount spent by the owner on meeting the obligation of water and electricity bills ofthe tenant as we have to tax rent from house property under this head and not the amount recovered for other services provided in the nature of electricity and gas bills. On the other hand, if any obligation of water and electricity bills ofthe owner is met by the tenant, the de facto rent will be computed by adding to the rent received/receivable, the amount spent by the tenant in discharging the obligation of the landlord. £-g. Ifthe tenant who is in the business of selling gas cylinders, besides giving rent of 25,000 pun. gives 5 gas cylinders every month free to the landlord and the value of each gas cylinder provided free of cost is 8400, then de-facto rent shall be £5,000 + %2,000 (value of 5 gas cylinders) = 27,000 p.m, It may, however, be observed that the municipal taxes of the house property are to be borne by the occupier who in the case of let out property is the tenant. Therefore, if such municipal taxes are borne by the tenant the rent received/receivable should not be increased to calculate de facto rent. Further where repair expenses are bome by the tenant, the rent received/receivable should not be increased to calculate de facto tent (i.e. what should have been the actual ent), “Any deposit received from the tenant for property is a capital receipt and thus, it cannot be treated as income. Further while determining the actual rent, no notional interest on such deposit should be considered. ‘© Municipal value: This isthe value as determined by the municipal authorities for levying municipal taxes on house property. Municipal authorities normally charge house tax/municipal taxes on the basis of annual letting value of ‘such house property, which is determined by it based upon many considerations. ‘© Fair rent of the property: Fair rent is the rent which a similar property can fetch inthe same or similar locality, if it is let fora year. ‘© Standard rent: The standard rent is fixed under the Rent Control Act. Ifthe standard rent has been fixed for any property under the Rent Control Act, the owner cannot be expected to get a rent higher than the standard rent fixed ‘under the Rent Control Act. Therefore, ths is also an important factor in determining the annual value. 5.7 Computation of annual value of a property [Section 23(1)] The Income-tax Act has used the term ‘Annual Value’ only in this chapter. As per the Act the annual value is the value after deduction of municipal taxes, if any, paid by the owner. But for sake of convenience, the annual value may be determined in the following two steps: Step I: Determine the gross annual value Step Il: From the gross annual value computed in step 1, deduct municipal tax actually paid by the owner during the previous year. Scanned with CamScannerchap. 5 Income under the Head "Income from House Property” 159 The balance shall be the net annual value which, 5 value which, as per Income-tax Act i the annual value. ‘The annual value has to be determined for different categories of properties. These could be: (A) House property which is let throughout the previous year. (B) House property which is let and was vacant during the whole or any part of the previous year. 9 a peed krre Let year let and part of the year self-occupied. property which is self-occupied for resident ied owi Employact tay othr pace, [Sora arpoes or could nt actully be self ecupod owing 10 (A)_ House property which i let throughout the previous year Step 1: Determine the gross annual value: According to seetion 23(1), the annual value of any property shall be deemed to be— (q) the sum for which the property might reasonably be expected to let from year to year (i.e. expected rent); or (®) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable i.e. the actual rent. It may be observed from the above that for calculating Gi hay culating Gross Annual Value of the property which is let, we have to first calculate expected rent as per clause (a) above and then compare the same with the actual rent received or receivable as per clause (b). Ifthe actual rent so received or receivable as per clause (6) is more than the expected rent computed as per clause (a), the Gross Annual Value shall be the actual rent so received or receivable. On the ‘other hand if the actual rent so received or receivable is less than the expected rent then the Gross Annual Value shall be expected rent so computed. Inother words, the gross annual value ofthe house property let forthe whole year shall be higher of the following (@) Expected rent; (®) Actual rent received or receivable. How to calculate expected rent: The higher ofthe following two is taken to be the expected rent (i. Municipal Valuation; (i) Fair Rental value. However, the Supreme Court in Shiela Kaushish v CIT (1981) 131 ITR 435 (SC) and Amolak Ram Khosla v CIT (1981) 131 ITR 589 (SC) held that where property let out is governed by the Rent Control Acts, the standard rent fixed thereof (or even not fixed but provision thereof is applicable to the area in which the property is situated) will have to be taken for determining the bona fide annual value. From these judgments, itis clear that in case of the property governed by the Rent Control Act, its annual value under section 23(1\/a) cannot exceed the standard rent (fixed or determinable) under the Rent Control Act. Although the expected rent as per section 23(1}(a) cannot exceed standard fent but it can be lower than standard rent. (Balbir Singh (Dr.) v MCD (1985) 152 ITR 388 (SC)]. To conclude: First step is to calculate the Gross Annual Value which will be higher of Municipal Value or Fair Rental Value, but it cannot exceed the standard rent. However if the actual rent received or receivable exceeds such amount then the actual rent so received/receivable shall be the Gross Annual Value. lustration $.1: R owns six houses in Delhi, details of which areas under: [Particulars z a Wi v ¥ W [Municipal Value 2,00,000 | 2,40,000 | 3,60,000 | 420,000 | 480,000 | 450,000 [Fair Rental Value 2,40,000 | 3,00,000_ | 4,00,000 | 4,20,000 | 5,00,000 | _5,00,000 [Standard Rent NA._| 240,000 | 5,00,000 | 3,00,000 | N.A.__| 480,000 [Actual Rent/Annual Rent 1,80,000_ | 3,60,000 | 480,000 | 3,60,000 | $,40,000 | 420,000 ‘Compute the gross annual value ofthe above houses. Solution 5s Annval Value 240,000 | 360,000 | 480,000 | 3,60,000 | 540,000 | _4,80,000 Tease off the standard rent will not be considered because it is more than the maximum of other two factors, ‘Step 2: Taxes levied by any local authority in respect of the property i.e. Municipal taxes (including taxes levied for services) to be deducted: Municipal taxes, etc. levied by local authority are to be deducted from the gross annual value ‘ealeulated as above, ifthe following conditions are fulfilled (@) the municipal taxes have been borne by the owner, and Scanned with CamScanner160 Systematic Approach to Income Tax Chap. () these have been actually paid during the previous year. F ‘Therefore deduction for municipal taxes, etc. levied by any local authority is allowed if they are borne and actually paid by the owner. It must be noted thatthe taxes are allowed as deduction only inthe previous year in which these re paid. Municipal taxes, ete. due but not paid shall not be allowed as deduction, However, municipal taxes, etc: paid during the previous year are allowable even if they relate to past years or future years. The deduction of municipal taxes for future Years shal be allowed if the assess follows cash system of accounting. a Even where the property is situated outside the country, taxes levied by local authority in that country are deductible in deciding the annual value ofthe property. [C/T R. Venugopala Reddiar (1965) 58 ITR 439 (Mad). ‘The value arrived at after deducting the municipal taxes, if any, may be referred to as the Net Annual Value (Annual value as per Income-tax Act), A From such net annual value, deductions as permissible w's 4a) & (6) are allowed and the balance is the income under the head ‘Income from house propery” Mlustration 5.2: X owns three houses in Dethi, particulars of which are as under: (Amount in Rupees) Particulars THowse Tt House TM House z z zg |No. of residential units & 1 a Municipal value 720000 72,000 60,000 |Fair Rental Value 1,50,000 75,000 75,000 |Standard rent 130,000 80,000 72,000 [Rent per nit per annum 70,000 $4,000 21,000 [Municipal axes [12,000 (ve but not paid) — [8,000 fr last year paid in [£60,000 (It includes €54,000 this year and €9,000 of paid as advance for next 9 curent year due but not paid. [years) ‘Compute the annual vale of the above tree houses forthe assessment year 2023-24, Solution (Amount in Rupees) Particulars THowse Ti Howe iI House Pecos z z (Gross Annual Value | 140,000, 34,000 72,000 cess: Municipal Taxes = 5.000 60,000 [Net Annual Value 70000 76,000 12,000 (B) House property which is let and was vacant during the whole or part of the previous year: According to seetion 23(1), the annual value of such house property shall be deemed to be:— (a) the sum for which the property might reasonably be expected to let ftom year to year i. the expected rent; or (8) where the property or any part of the property is let andthe actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in elause (a), the amount so received or receivable Le. the actual rent; oF (©). where the property or any part of te property islet and was vacant during the whole or any pat ofthe previous ‘year and owing fo such vacancy the actual rent received oF receivable by the owner in respect thereof i ess {han the sum refered to in clause (a) the amount so received or receivable. the actual rent any. From the perusal ofthe above, the following two situations may emerge 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 sum determined under clause (a) in spite of vacancy period. (This situation falls under clause (6) above) Situation 2: Where the property islet and was vacant for whole or part ofthe year and the actual rent received or receivable owing to such vacancy is less than the sum determined under clause (2). (This situation falls under clause (© above) “The gross actual value in the above two cases shall be determined as under: Situation 1: Where the property islet and was vacant for part ofthe year and the actual rent received or receivable is more than the sum determined under clause (a) in spite of vacancy period. _ Scanned with CamScanner-— pore) Income under the Head "Income from House Property” tot In this case, clause (c) shall not be applicable as it will be applicable only when actual rent received or receivable is less than the sum referred under clause (a). Hence the gross annual value in this case shall be: (1) the sum for which the property might reasonably be expected to let from year to year; oF (2) actual rent received or receivable, whichever is higher. Illustration 5.3: Municipal value of a house is £90,000, Fair rent, 21,40,000, Standard rent 21,20,000. The house ‘Property has been let fr £12,000 pm, and was vacant for one month during the previous year 2022-23. Municipal taxes paid o99| of, Nil Balance loss tobe carried forward to beset off under the head house property in the subsequent assessment year 117,700] (2,00,000 nil Income from other sources 5,40,000[ _5.40,000 [Gross total income 3.40,000] 540,000, Less: Deduction 80C 1,20,000 Nil Total Income 2,20,000| __5,40,000] Scanned with CamScanner- cusp. § Income under the Head "Income from House Property" m Working Note j ‘Assume al the three houses are deemed to be let out Fiowse!| Howsett] House 11 [Gross annual value aie ‘whichever is higher but subject to maximum of fe ee ee | cece] mole ao -Zess: Municipal taxes (1.e., 15% of &2,30,000/1,70,000 & 10% of 22,10,000) 34,500 25,500 21,000 Netanmusl we 707,500 _1,74,300| __1,89,000) es: Deductions under section 24 (Statutory deduction (30% of €2,07,500/1,74,500/1,89,000) 62,250 32,350 36,700" ier 2,40,000] —|__2:50,000 income fom house propery 94750] 122,130] _©)1.17,700) 5.11 Computation of income of house property which is partly let and partly self occupied In this case the annual value, deductions and the income of the part of the property which is let shall be computed. separately under the let out property and the income ofthe portion or the part ofthe property which is self occupied shall be determined as per para 5.10 under the "self-occupied property" category. ‘Eg, where one unitis let out and the other unit is self occupied, then the whole property cannot be taken 954 single unit, ‘Municipal value or fair rent if not given separately, shall be apportioned between the let out portion ‘and self occupied portion ‘on built up area basis. Similarly, where, ina buildin the ground floor is self-occupied and first floor islet out or vice-versa, such & PROPER shall not be treated as a single unit. Instead, income from first floor ‘which is let shall be computed separately as per let out ‘provisions and the floor which is self-occupied shall be computed separately as per ‘self-occupied provisions. Municipal tax tnd interest shall also be apportioned on the basis of built up/floor area space. ‘Mlatration £16. R owns a house property in Delhi. 60% ofthe property is let out for £15,000 pm. and 40% portion is self ‘occupied by him. ‘Compute his income from house property from the following information submitted 10 you: Particulars z “Municipal value of the house 2,00,000) Fair rent 22,000 p.m. ‘Standard rent 20,000 p.m. Municipal taxes paid 30,000! Tnterest on money borrowed for purchase of house property which was acquired in 2011 1,80,000 Solution: Since 60% ofthe property is let and the balance self-occupied we shall compute the income separately. (A) House property let: Compute expected rent I shall be 60% of municipal value or fair rent whichever is higher. Hence, it shall be (60% of €2,64,000) = 1,58,400 However, if cannot exceed 60% of standard rent L¢. 81,44,000. Expected rent is 81,44,000 ‘Actual rent = 215,000 x 12= 1,80,000 Hence, GAV shall be higher ofthe above two i. €1,80,000. [Compute net annual value 7 [Gross annual valve Taio00 Less: 60% of Municipal tax paid Tae [Net annual value Tent Less: Deductions Standard deduction @ 30% aan Scanned with CamScannerim Systematic Approach o Income Tax cus Interest on money borrowed (60% of €1,80,000) 198.0001 156600 Income ffom portion let = (8) Seltoccupied portion ‘Annual value x“ Less: Deduction 40% of interest of €1,80,000 = Income from self occupied portion ae Income from house property 5,400 ~ 72,000 = (-) 866 600 Notes if an individual or HUF opts to be taxed under section 1ISBAC, helt shall neither be allowed loss of 872,000 on seealint Of self-occupied portion nor the oss of 25,400 on account of portion ofthe property let, as if there is a loss under the eng income from house property, it shall not be allowed to be set off from any other head, ifthe individual or HUF opts to be taxed under section 11SBAC. 5.12 No notional income for house property held as stock-i [Section 23(5)] ‘Where the property— — consisting of any building or land appurtenant thereto is held as stock-in-trade: and — the property or any part of the property is not let during the whole or any part ofthe previous year, the annual value of such property or part of the property shall be taken to be nil for the period up to two years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority. Example: R Ltd. a builder has constructed t house property, the construction of which was completed on 15.12.2021. Tt has obtained a certificate of completion from the competent authority on 6.5.2022. In this case, the annual value of the house Property till 31.3.2025 shall be taken as nil if it has not been let at all till that date. However, w.e.f. 1.4.2025, the notional annual value will have to be computed if such house property which is forming part of stock-in-trade was not let during the whole or any part of the previous year. 5.13 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 w/s 24(6), unless the tax on the same has been paid ot deducted at source and in respect of which there is no person in India, who may be treated as agent of the recipient for such purpose. 5.14 Special provision for arrears of rent and unrealised rent received subsequently [Section 25A] (1) Arrears of rent or unrealized rent received subsequently to be taxed under the head "Income from House Property [Section 25A(1)]: The amount of — — arrears of rent received froma tenant, oF — the unrealised rent realised subsequently from a tenant by an assessee shall be deemed to be the income from house property in respect of the financial year in which such rent is received or realised, and shall be included in the total income of the assessee under the head “Income fom house property”, whether the assessee is the owner of the property or notin that financial year. @) Standard deduction @ 30% to be allowed from such arrears of rent or unrealized rent [Section 25A(2)|: A sum equal to 30% of the arrears of rent or the unrealised rent referred to in section 25A(1) shall be allowed as deduction, 5.15 Property owned by Co-owners [Section 26] ‘Sometimes the property consisting of buildings 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, such persons shall not be assessed as an AOP in respect of such property, but the share of each such person in the income from the property, as computed in accordance with sections 22-25, shall be included in his total income as under: (@)_ Where house property is self-oceupied by each co-owner: Where the house property owned by the co-owners is self ‘occupied by each of the co-owner, the annual value ofthe property for each of such co-owner shall be nil and each of the co-owner shall be entitled to the maximum deduction of €30,000/ 2,00,000 under section 24(6) on account of interest on borrowed money. (8) Where the entire or part ofthe property let: As regard, the propery or pat ofthe property which is owned by co- ‘owmers is let out, the income from such property or part thereof shall be first computed as i this propertypert is trade for a period upto two years Scanned with CamScannereo 5 Income under the Head "Income from House Property" = ‘owned by one owner and thereafter the income so computed s oti gst each co-owner a5 pet ther definite share. me So computed shall be apportioned amongst inustration .17: Thee brothers A, B and C having equal share are co-owners of a house property consisting of sx identical aio e000 ee ‘on 31.5.1995, Each of them occupies one unit for his residence and the other three units are let ‘out at a rent ‘of 87,000 per. | per unit. The Municipal Value of the house property is %4,00,000 and the Municipal Taxes are {eof such Municipal Valu, which were paid during the year. The other expenses were a follows: z (Repairs 20,000 (i) Colleton charges 5,000 (Gi) Insurance Premium (paid) 11,000 (i) Payable on loan taken for construction of house 2.42,000 One ofthe let out units remained vacant for three months during the year. A could not occupy his unit for six months as he was transfered to Mumbai. He does not own any other house. The other income of A, B and C are 80,000; 21,90,000; and €2,10,000 sively. — ‘the income under the head “Income from House Property" and the total income of the three brothers for assessment Satin z q [Let out Property (50% Le. 3 units) [Gross anual value 2,00,000| (a) Municipal value (50% of €4,00,000) 6) Actual rent (9,000 « 12 x 3) 3,24,000 - 27,000 (vacancy of one unt for 3 months) 2,97,000] 2,97,000] Less: Municipal taxes paid (50% of €1,60,000) 80,000 Net annual value 2,17,000] Tess: Deductions w/s 24 (@) Standard deduction @ 30% 65,100] (@ Interest on loan (50%) 121,000] 1,86 100] Income from let out property 30,900] [Therefore, share of each co-owner is 1/3rd of 30,900 10,300] Self-occupied property Al BI q @) @) @| [Annual value nil nil Nil Wess: Deduction ws 24(0) interest on loan (81,21,000 = 3 = 40,333) lesticted to maximum £30,000 for each co-owner 30,000] 30,000] 30,000| Income from self-oceupied property ©30.000| 30,000) 30,000) Computation ofthe total income of the three brothers Al Bl q @ @) @ Income from House Property [Let out portion 10,300] 10,300] 10300] Selfoccupied portion 30,000] 30,000] (-) 30,000] [Net income from house property 419,700} 19,700] 19,700) [Other Income 1,80,000} 1,90,300) 2,10,000) [Total Income 160,300] 1,70;300 7.903300 Scanned with CamScannerm4 ‘Systematic Approach to Income Tax Chap. 5 individual or HUF opts tobe taxed under section 115BAC, het shall neither be allowed loss of £30,000 on account of sef-occupied portion nor the loss of €19,700 on account of portion of the property let as if there isa loss under the head income from house property, it shall not be allowed to be set off from any other head, if the individual or HUF opts tobe taxed under section 11SBAC. Interest on borrowed capital is allowable subject to maximum of €30,000/2,00,000; even ifthe assessee could not occupy the hhouse property for parventie previous year due to his employment elsewhere, provided he does not own any other house 5.16 Can Annual Value (Net Annual Value) be negative? The Annual Value (NAV) can be negative only when the municipal taxes paid by the owner are more than the gross annual value. 5.17 Can there be any loss under the head income from house property? This brings us to the question as to whether there can be any loss under this head. ee etl (9 In s0 far as income from one/two self-occupied property/(es) is concerned, the annual value is taken as nil deductions are allowed excep fur intrest on borowed funds up toa maximum of €30,000/2,00,000. Naturally, therefore, there may be a loss in respect of such property/(ies) up to a maximum of 30,000/2,00,000, as the case may be. Note.—If the individual or HUF opts to be taxed under section 11SBAC, he/it shall not be allowed the deduction of interest of 230,00022,00,000, as the case may be. (i) In respect of any other type of house property, namely a house property which is fully let out or part of the year let ‘out, etc., there are no restrictions on deductions and therefore, there can be loss under this head in respect of such properties due to municipal taxes as well as deductions, Similarly, deductions under section 24 in case of property deemed to be let out, ean be more than net annual value. ILLUSTRATIONS ON HOUSE PROPERTY Mlustration 5.18: X has a house which has two identical units. One of the units is self-occupied throughout the previous year and the other unit is let out throughout the previous year on a rent of 250,000 p.m. Municipal taxes for the complete house amounting to 860,000 have been paid during the previous year. The construction of the property was completed on 1.1.1995. Determine the income from house property for assessment year 2023-24, if: (does not opt to be taxed under section 11SBAC (©) opts tobe taxed under section 11 SBAC Solution Unit T Unit It (Let out) (Self-occupied) z z Particulars Does not] Opts tobe| Does not opt] Opts to be| opttobe| taxed wis] tobe taxed| taxed ws taxed ws! 11SBAC| wis 11SBAC| —_115BAC 1ISBAC [Gross Annual Value 6,00,000| _6,00,000 Nil Nil [Less: Municipal Taxes 30,000 30,000 —| = Net Annual Value '5,70,000] __§,70,000 Nil Nil Less: Statutory deduction @ 30% 1,71,000[ 1,71,000 Nil Nil 399,000] 399,000 Nil Nil Illustration 5.19: In Illustration No. 5.18 if the self-occupied portion was let out for three months then what will be the income from house property? Solution: In this ase, the sef- occupied property has been let out for par of the year and as such annual value shall not be ail Iwill be determined a ifthe property islet sper provisions of section 23(1), Does not opt to| Opts to be taxed] Docs not opt to] Opts to be taxed betaxed ws} ws 11SBAC| —betaxed w/s| wis 11SBAC. 1ISBAC TISBAC Unit Unit Unit Unie Ht (Gross annual value 6,00,000] 6,00,000] 6,00,000) 6,00,000 Less: Municipal value 30,000 30,000) 30,000] 30,000 Scanned with CamScannerchap. 7 income under the Head "Income from House Property” fouse Property 175, [Net annual value Les Stator ddacion @ URC 3,70,000 3.70000 570,000 5,70,000 acid fea hue pracin 1,71,000 1,71,0 171,000] 1,710 Tiusiee Sau ie a 3,99,000| 3,99,000) 3,99,000] 3.99,000) months. "income from house property ifn illustration No. 5.19, the let out portion is self-occupied for 3 Solution: Since unt Is part of the residence shall be inelevant atthe ne 28 It ut and part ofthe year self occupied, the period of occupation ofthis unit for own rant and the annual value of such unit stall, cas hal rea the ‘unit shal be determined as if itis et. 7 pectec Per section 23(1)(a) shall be taken for the full year but the actual rent shall be taken for the period In the above question the expect jl absence ofany other information reales een Yi Oe taken on the basis of actual rent which can be assumed as fair rent in the Hence, there will be no change i receivable shall be 84,50,000 Le, £50,000 ro © IM exPected rent willbe 6,00,000 although the actual rent received and Illustration 5.21: X is the owner of a hous =o hone wie ait of no ee nis ch of wich hs bern enon eto pried Bitersereet pcre Som while the fair rental value is %4,20,000. One of the units was vacated iby vost aS eae 42000. Oc ft sn eect te pid 0000. Te contacto oe tn cy fe nef oer Conte one fom ae rng ee (a) does not opt to be taxed under section 11SBAC (b) opts to be taxed under section 11SBAC Solution Does not opt] Opts to be| tobetaxed| taxed ws ws11SBAC| _11SBAC| Unit T (let out) q q Gross annual value [Gross annual value shall be the higher ofthe following two: (a) Expected rent i. Municipal value (€1,80,000) Fair rent (22,10,000) whichever is more 2,10,000 (®) Actual rent received or receivable (%20,000 = 12) 2,40,000 | Therefore, gross annual value 2,40,000| _2,40,000) Less: Municipal taxes paid (50%) 40,000 40,000] Net annual value 2,00,000 | 2,00,000) Unit It (Part of the year let and part ofthe year sel-occupled, therefore benefit of self occupation for residential purposes shall not be allowed. The annual value shall be determined as per section 23()) Does not opt] Opts tobe tobetaxed ws| taxed ws 11SBAC|__115BAC (Gross annual value 2,10,000] _2,10,000 Less: Municipal taxes (50%) 40,000 40,000 Net annual value 1,70,000 1,70,000 Total annual value of two units (%2,00,000 + 1,70,000) 3,70,000, 370,000 Less Statutory deduction @ 30% 110,100] 110,100 Income from house property 2.50900] __2,50,900 llustration 5.22: R is a Sales-tax Officer at Jaipur. He owns two residential houses. The first is in Delhi and was constructed 0 31.12.1991, This has been let out on 2 rent of £30,000 p.m. to a company for its office. The second house is in Jaipur which was constructed on 1.3,2022 and has been occupied by him for his own residence since then. He took a loan of €9,00,000 on 1.8.2020 @ 8% per annum interest fr the purpose of construction ofthis house. The entre loan is stil oustanding Other relevant particulars in respect of these houses are given below: Scanned with CamScanner