INCOME FROM HOUSE PROPERTY

Sections 22 to 27 explain the Income form House Property, of the Act.

Section 22 defines the chargeability of the Income under House Property, and
The computation of Income under House Property is governed by Section 23 to 27.

Section 22 : Basis of Chargeability of Tax under HP

There are three conditions must be fulfilled by assessee:
1. The property should consist of any buildings or land appurtenant thereto.
2. The assessee should be the owner of the property.
3. The property should not be used for the purpose of any Business or Profession carried
by assessee, which income is chargeable under the head PGBP.

In this chapter assessee is not employee, rather assessee is the person who owns the
house property.

Dr. Sunil Kumar, DDUC, DU

 1. The property should consist of any buildings or land appurtenant thereto

➢The property which is let-out should be building or any land attached to the building.
➢ Building means a structure or super-structure on land. But the prime objective of letting
is not letting of land rather it is letting out of building.
➢ Building includes residential house, building let out for office building, storage building,
factory, music/ dance/ cinema halls, lecture halls or public auditorium.
➢ Land appurtenant thereto means any land attached to that building like parking area,
approaching roads, compounds, courtyards, backyards, kitchen-garden, motor garage,
stable or cattle-shed are appurtenant to the building.

Dr. Sunil Kumar, DDUC, DU

 2. Assessee Should be the owner of the property
Owner may be an Individual, HUF, Firm, Company, AOP, Co-operative Society etc.

Legal Owner Deemed Owner

A person who has legal title and legal

possession of the property.
It is clear from the above discussion that
House Property Income from sub-letting is
not taxable under this head. Because in case
of sub-letting, the person who let out the
house does not own the property.
a) Transfer to spouse or minor child
without adequate consideration
b) Holder of Impartial Estate.
c) Property allotted or given under
lease to member of the company,
co-operative society, AOP.
d) Property under a Power of Attorney
e) Property given under lease
agreement not less than of 12 years.

Dr. Sunil Kumar, DDUC, DU

3. Property should not be used for the purpose of Business or Profession carried
by assessee
➢The treatment of such property is done under the head PGBP.
➢ The income will not be a part of HP head if the houses are let out to employees/ labour
meant for Business or Profession.
SOME IMPORTANT POINTS
❑ Income from a property situated outside India is taxable in the hands of resident.
❑ In case of Disputed Ownership of the Property, Income Tax Department will decide
who will pay tax on that property. Generally who receipts the income/ who possess
the property is treated as deemed owner.
❑ Property held as stock-in-trade. This is the business of the person to buy and sell
property, the letting out in this case will be mere incidental to Business Income.
❑ Co-ownership
❑ Composite Rent
House Property Income is not Chargeable to Tax in the Following Cases:
1. Income from farm house.
2. Property income of a local authority.
3. Property income of educational institute/ hospital/ scientific research association.
4. Property income of trade union.
5. Annual value of any one palace of an ex-ruler.
6. Property income of a political party.
7. Property used for own business or profession.
8. Two self-occupied properties. Dr. Sunil Kumar, DDUC, DU
 Computation of Income under House Property

Gross Annual Value (GAV) XXXX

Less: Municipal Taxes (paid by owner) (XXX)
Net Annual Value (NAV) XXXX
Less: Deduction under Section 24
a) Standard Deduction (30% of NAV) xxx
b) Interest on Borrowed Capital xxx (XXX)

Income from House Property XXXX

Important Concepts under the Head House Property

1. Actual Rent Received (AR)

2. Municipal Value (MV)
3. Fair Rental Value (FRV)
4. Standard Rent under Rent Control Act (SR)

Dr. Sunil Kumar, DDUC, DU

 Calculation of Gross Annual Value (GAV)
Municipal
Value Whichever is
higher XXX Whichever is low XXX
Standard This amount is called RER
Fair Rental
Value Rent

Reasonable
Expected Rent
Annual Value after Which ever is higher XXX
deducting Unrealised Less: loss due to Vacancy (XXX)
Rent (URR)

URR shall be excluded if following conditions are satisfied.

1. The tenancy is bona fide; GAV
2. The defaulting tenant has vacated the property, or steps
are taken to vacate the property.
3. The defaulting tenant has not occupied any other
property of the same assessee.
4. Legal proceedings have been instituted in order to
recover the rent.
Dr. Sunil Kumar, DDUC, DU
 illustration
Particulars: H-1 H-2 H-3 H-4 H-5
Municipal value 105 105 105 105 105
Fair rental value 107 107 107 107 107
Standard rent NA 88 88 135 135
Annual rent 103 112 86 114 97
Unrealised rent 1 2 1 2 1
Let out period in months 12 12 12 12 12

Solution H-1 H-2 H-3 H-4 H-5

i) MV or FV whichever is higher 107 107 107 107 107
ii) Standard rent NA 88 88 135 135
iii) Higher value from (i) or SR (Iii) W.E. Lower
will be called as Reasonable Expected Rent (RER) 107 88 88 107 107
iv) Annual rent received less unrealised rent 102 110 85 112 96
v) Step (iii) and (iv) which ever is higher 107 110 88 112 107
vi) Loss due to vacancy is 0 0 0 0 0
Step (v) less (vi)= GAV U 107 110 88 112 107
Dr. Sunil Kumar, DDUC, DU
 Illustration : To Compare GAV as per 23(1)(a),(b)and(c) or Otherwise

H-1 H-2 H-3 H-4 H-5 H-6

R.E.R. 62 63 115 68 115 120
Ann Rt 67 72 121 73 110 96
U.R.R 2 2 50 5 40 Nil
V. Loss 1 30 1 1 Nil 80

H-1 H-2 H-3 H-4 H-5 H-6

R.E.R. 62 63 115 68 115 120

AnR after UR 65 70 71 68 70 96
W.E.H. 65 70 115 68 115 120
Less: V. Ls 1 30 1 1 Nil 80
GAV 64 40 114 67 115 40

Dr. Sunil Kumar, DDUC, DU

 GAV in Different Cases

Two self occupied Let out (LO) property(ies) Deemed to be Let out (DLO)
properties (SO)
If assessee owns more than two properties,
NAV is NIL u/s 23(1)(a) then NAV of any two properties (as per
assessee’s option) will be NIL, and other(s)
property(ies) will be deemed to be let out.

NAV is always zero in GAV will be computed as discussed in slide no. 6 then
case of self occupied municipal taxes paid by owner will be deducted to arrive at
property NAV.

Dr. Sunil Kumar, DDUC, DU

 Division / Use of Property on Geographical Basis or Time Basis

A part of the A geographical division will be made. First, RER will be computed for
property is SO full property then, secondly, RER will be divided on the basis of
and another part proportionate area meant for SO and LO respectively. The NAV of SO
of the property will be Nil, LO will have some GAV. Deduct municipal taxes on
is LO proportionate basis. If any interest on borrowed capital is given in the
question, then proportionate deduction will be allowed subject to
maximum limit in individual cases.
Property is SO Full property will be deemed to be let out. No benefit u/s 23(1)(a) will
for a part of the be available. In other words, benefit of ‘NIL NAV’ for part of the year
year and LO for SO period will not be available. Rather property will be treated as
another part of deemed to be let out.
the year
Business S.22 condition number 3 excludes the treatment of property used for
purpose business or profession purpose under the head house property.
However, if a part of the property is used for business purpose and
other part is used for SO or LO, then calculation will be made
proportionately. In other words, the portion of property used for
business purpose will be separated from total expenditure as it will be
deducted from P&L A/c of the business. The remaining exp. will be
distributed among SO or LO, as the case may be, accordingly.
Dr. Sunil Kumar, DDUC, DU
Illustration 5.16 to 5.21, Girish Ahuja Book , pg. 150-
155.

Problem 68.3P1, VKS, pg. 142

Dr. Sunil Kumar, DDUC, DU

 Limits for Interest on Borrowed Capital

Interest on Home Loan

Taken before 1st April, 1999 Taken on after 1st April, 1999

S/O, L/O, DL Purchase/ Construction is Reconstruction

completed within 5 years Repair/ Renew
Rs. 30000

S/O L/O, DOL S/O L/O, DL

Rs. 200000 No Limit Rs. 30000 No Limit

The limit of Rs. 200000 as an interest on loan on self occupied properties is the maximum
limit of deduction u/s 24(b) either assessee occupied one property or two properties for
self occupation purposes.
Pre-Construction period’s interest on borrowed capital

Dr. Sunil Kumar, DDUC, DU

➢ The benefit of the interest on borrowed capital (IoBC) is available from the year when
property is acquired/ construction is completed.
➢ It is to be keep in mind that the benefit of interest on borrowed capital (IoBC) is
available only if the house is either acquired or constructed within stipulated time, i.e., 5
years from the date of money borrowed for acquisition/construction.
➢ Let say, an assessee borrowed money for the construction of a house in year 2014, and
construction is completed in 2020. it is well known fact that construction of house takes
time, which is certainly more than five years. it took more than five years so benefit of
IoBC will not be available though he made payment of interest.
➢ Any interest amount paid during pre-construction period can be claimed in five
consecutive years starting from the year in which construction is completed in five equal
instalments.
➢ Firstly, amount of interest for pre-construction period is calculated then after divided
into five equal instalments.
➢ The pre-construction interest amount is calculated considering the date on which loan is
taken till the date of either date of loan repayment or immediately preceding 31st March
to the date of construction, which ever falls earlier.
➢ For the said period, interest will be computed at given rate of interest, and then divided
in five equal instalments spread over five years starting from the year in which
construction is completed.
➢ The five years must be consecutive years.

Dr. Sunil Kumar, DDUC, DU

 Time Duration for the calculation of Interest during Pre-Construction Period

Last Date of Repayment of Loan

Start Date i.e., Date Whichever

on which loan is End Date mature earlier
taken

This will be the duration for 31st March immediately preceding to

which IoBC will be computed the date of construction
for pre-construction period

Dr. Sunil Kumar, DDUC, DU

 Important Points
1. Municipal taxes are to be deducted only if it is paid by owner of the property. If it is paid by
tenant then it would not be deducted. Besides, if it is payable even then it wouldn’t be
deducted from GAV.
2. Municipal taxes paid during the relevant previous year though pertaining to any other previous
year(s) [e.g., advance municipal taxes or pending municipal taxes] is deductible from GAV.
3. In case of self occupied property, there is no deduction on account of municipal taxes as the
resultant figure i.e., NAV is taken NIL u/s 23(1)(a).
4. Deductions u/s 24 are exhaustive. In other words, no other deduction is available from NAV of a
property except (a) standard deduction, (b) interest on borrowed capital.
5. No standard deduction in case of one self occupied property, but interest on borrowed capital is
available as the case may be.
6. Deduction u/s 24(b) is available on payable basis (not on paid basis).
7. If construction/ acquisition is not done within five years of loan taken then the maximum limit of
benefit available u/s 24(b) would be restricted to Rs.30000 only.
8. If assessee owns more than two houses then only any two houses (as per assessee’s option) would
be treated as self occupied and remaining house(s) will be treated as deemed to be let out.
9. If a house is divided on the basis of geographical area, and part of the said area is let out and
another part is self occupied then GAV of the full property will be divided in proportion of usage
(i.e., self occupied and let out) for the purpose assessment of respective area.
10. If a house is let out of a part of the year and self occupied remaining part of the year then no
benefit will be granted to the part of year on account of self occupancy, rather it will be treated as
let out for full year. Dr. Sunil Kumar, DDUC, DU
 Few Questions

Mr. X owns two houses. One house is used for

self occupied and another is let out. On the
basis of following details, compute his income
under the head house property.

Particulars House 1 House 2

Purpose Self Let Out
Occupied
M.V 500000 480000
FRV 600000 650000
SR 480000 520000
Actual Rent Nil 580000
(paid)
interest on 250000 250000
borrowed capital
M.Taxes paid by 5% 5%
Mr. X

Dr. Sunil Kumar, DDUC, DU

Mr. Rohit owns a house in New Delhi area
of which MV is Rs. 450000, FRV = Rs.
560000, SR=Rs. 580000, and AR= 270000 of
second floor. The property consist three
floors. The ground floor is being used for a
shop in which Mr. Rohit runs his business.
First floor of the property is used for self
occupancy and Second floor is let out. Find
out taxable income under the head income
from house property if Mr. Rohit paid
municipal taxes of Rs. 30000 during the
previous year, in addition to Mr. Rohit, the
tenant at second floor paid Rs. 10000 as
municipal taxes also. He has taken a loan of
Rs. 2000000 to construct the house on
23/5/2015 and house was completed on
15/5/2018 @ 12% p.a. last date of
repayment of loan is 31/3/2027.

Dr. Sunil Kumar, DDUC, DU

 Treatment of Subsequent Receipt of Unrealised Rent and Arrears of Rent

What is unrealised rent (URR)? What is Arrears of Rent?

URR is a rent which couldn’t realised by owner
from tenant on the fulfilment of following
conditions u/s 25A:
1. Tenancy is bonafide;
2. Defaulting tenant has vacated the property;
3. Assessee has initiated legal proceedings for
recovery of rent;
4. Defaulting tenant is not in occupation of
any other property of the assessee.
As discussed above if rent is held as URR then it
will be deducted from annual rental value of
the property while making computation of GAV.
If any condition given in the case of URR is
not fulfilled then such amount of rent which
could not realised is called arrears of rent.
Remember, arrear of rent has no treatment
while computing GAV. In other words, no
deduction is made on account of arrears of
rent from annual rental value while
computing GAV.

Tax treatment
If URR or arrears of rent is received subsequently, then such receipt is taxable in the previous year in
which it is actually received. It is taxable under the head house property even assessee doesn’t own
particular house property in the subsequent previous year.
A deduction of 30% (i.e., standard deduction) will be available against such receipt. No other
deduction like municipal taxes, interest on borrowed capital will be allowed.

Dr. Sunil Kumar, DDUC, DU