INCOME UNDER THE HEAD “HOUSE

PROPERTY”(HP)
SECTION 22, 23 AND 27

CA. DIPAYAN DAS

BASIS OF CHARGES
 Three Conditions ; all should be fulfilled to tax income under the head “House Property”
• The property should consist of any building or lands appurtenant thereto
• The assessee should be owner of the property
• The property should not be used by the owner for the purposes of any business or profession carried on by him/her, the
profits of which are chargeable to income-tax
 Example-Albert owns a house and gave on rent. So income from rent is taxable under “House Property”(HP).
 Example-George owns a house but he uses that house for his own business, so it is not coming under HP
 “Lands Appurtenant thereto” meaning rental income from a vacant land ( not appurtenant to building) is not
coming under HP , but under Business and Profession. Land appurtenant to building may be in the form of
approach road, compounds, courtyards, backyards, playground, car parking, roads connecting one department
to another, etc.
 Building also includes music halls, dance halls, lecture halls and other public auditoriums.
 Owner includes legal owner as well as deemed owner. Owners can be individual, HUF, co-operative society,
APOs, Company , Firm, etc.
 Income from subletting is not taxable under HP because the sublet person is not an owner. X lets his house to Y
and Y sublets to Z. Income of X is coming under HP but income of Y will come under Other sources
BASIS OF CHARGES
• Deemed Owner-
 An individual transfers his house to spouse or minor child without adequate consideration, still
the transferor would be considered as owner. However, if the owner of the house transferred
his house to spouse under an agreement to LIVE APART or to his or her minor daughter., in such
case, transferor ceases to be an owner.
 Property given on lease for 12 years or more, the lessee will become a deemed owner.
• Few typical cases-
 An ordinary resident assessee is taxable under section 22 in respect of house property situated
outside India. In case of not ordinary resident, income is taxable in India if such income is
received in India.
 Disputed ownership- If title of ownership of a HP is under dispute in a court of law, the decision
about who is owner rests with the Income Tax Department. Usually Department considers that
person as assessee who is in receipt of income even though that is under dispute.
 Property held as stock-in-trade: Still rental income is taxed under HP and not Business and
Profession.
 HP owned by co-owners- Total rental income is divided in the proportion of ownership.
NOT INCLUDED UNDER H/P AND COMPUTATION OF LET OUT HP
Following property income is not charged to tax
 Income from farm house ( under section 10(1))
 Annual value of any one palace of an ex-ruler
 Property income of a political party
 House property held for charitable purposes
Computation of Income from a LET OUT Property

Details Amount
Gross annual value XXXXXXXXXXX
Less: Municipal Taxes XXXXX
Net Annual Value XXXXXXXX
Less: Deduction under section 24 X
Standard Deduction X
Interest on borrowed capital X
Income from HP XXXXXXXXXXXX
BREAK-UP OF COMPUTATION
Gross Annual Value
1.Find out reasonable expected rent of the property , on the following basis
 a. Municipality Valuation
 b. Fair rent of the property
 Whichever is Higher subject to Standard Rent under Rent Control Act.

2. Rent actually received or receivable (minus unrealized rent)

3. Find out which one is higher- as per step 1 and 2
4. Less loss due to vacancy
5. Gross Annual value
 Deduct municipality taxes paid by owner( on paid basis not payable basis).

 After deducting municipality taxes from Gross Annual value, Net Annual Value arrived.
6.Standard Deduction
 30% of the Net Annual Value is deductible irrespective of any expenditure incurred by the taxpayer
BREAK-UP OF COMPUTATION
• Interest on borrowed capital
1. Interest on borrowed capital for the purpose of land, building, repair and renovation is allowed. For self
occupied property ( 1 or 2), max is Rs 2,00,000 p.a . In case of reconstruction, repairs or renewal, it is Rs.30,000.
2. Preconstruction interest is allowed also. But the same can be allowed for 5 years after the completion of
construction or possession whichever is later. Preconstruction period starts from date of commencement of
loan and ends on a) March 31 immediately prior to the date of completion of construction /date of acquisition
or b) date of repayment of loan, whichever is earlier.
How to compute taxable income from Self- Occupied Property

Details Tax treatment

If only one property is used for own residential It is treated as self-occupied property
purposes

It two properties are used for own residential purposes Two residential properties are treated as self-occupied
properties

If more than two properties are used for own Only two houses ( according to the choice of taxpayer)
residential purposes are treated as self-occupied properties and others will
be treated as deemed to be let out.
COMPUTATION FOR MORE THAN ONE HP

In case of deemed to be let out properties, gross annual value shall be taken as
reasonable expected rent.
In case of two self-occupied properties, taxable income is as follows-
Gross Annual Value--------------------Nil
Less: Municipality tax----------------Nil
Net Annual value---------------------Nil
Standard deduction------------------Nil
Interest on borrowed capital- 2,00,000
Income from HP-------------(-) 2,00,000