Income from house property

(Section 22 to 27)
Chargeability(Sec.22):- Annual value
of a property, consisting of any
buildings or land appurtenant thereto,
of which the assessee is owner, is
chargeable to tax under the head of
“Income from house property.
 Conditions
• 1.The property should consist of any
building or lands appurtenant thereto.
• 2.The assessee should be owner of the
property.
• 3.The property should not be used by the
owner for the purpose of any business or
profession.
• Building:- The word Building is neither defined in
the Act or nor in the Rules.
• As per Random House Dictionary “Building”
means a relatively permanent, essentially box-
like construction having a roof and used for any
of a wide variety of activities, as living,
entertaining or manufacture having a roof and
used for a wide variety of activities, as living,
entertaining or manufacturing.
• Land appurtenant:-The appurtenant lands
in respect of residential building may be in
the form of approaches roads to and from
public streets, compounds, courtyards,
backyards, playgrounds, kitchen garden,
motor garage, stable or coach home,
cattle-shed, etc.
• Rental income of vacant plot (not
appurtenant to building) is not chargeable
to tax under the head Income from house
property, but is taxable under profits gains
of business or Income from other sources.
 Assessee should be owner of the
property
• Income is taxable under the head Income
from house property only if the assessee
is the owner of a house property. Income
from subletting is taxable U/S 56
• Example:-B owns a house property . He
let out to C (rent being Rs20000/ per
month). C sublets it to Don monthly rent of
Rs30000. Rental income of B is taxable
U/S 22. Since C is not owner, his income
is taxable U/S 28 or 56.
 Meaning of the owner
• Owner means a legal owner. If a person
makes gift of rental income to a friend or a
relative, without transferring ownership of
the property, annual value of property is
taxable in the hands of the donor, even if
rental income is received by the donee.
 Deemed owner
• Besides the legal owner, Sec 27, provides
deemed owner of the house property-
• 1.An individual, who transfers house property
otherwise than for adequate consideration to his
or her spouse not being transfer in connection
with an agreement to live part ) or to his minor
child (not being married daughter ), is treated as
deemed owner of the house property.
• Example- D, is individual, owns a house
property. On April 2005, he transfers the
property without any consideration to his
wife. Rental income is received by Mrs D
after April 2005. However for the purpose
of charging tax on rental income , D will be
deemed owner.
• 2.The holder of impartible estate is treated as
deemed owner of the house property.
• Example:- B is one of the ex-Rulers of a former
princely State. He has divided all his properties
amongst his three sons. However, he could not
transfer a building which is given to his eldest
son (all the three brothers have the right to enjoy
the property. The eldest brother holds the
property as trustee on behalf of his younger
brothers).
• For the purpose Sec 22, the eldest son ,
as holder of “impartible estate”, is deemed
as owner of the property.
• 3.A member of a Co-operative society,
company or other association of person, to
whom a building or a part thereof is
allotted or lease under a house building
scheme of the society or AOPs is treated
as deemed owner of such property.
• 4.If a person has acquired a property
under a power of attorney transaction by
satisfying the condition of Sec 53A of the
Transfer of property Act, then he is
deemed owner of the property.
• Examples:- Y enters into a written
agreement to purchase a property from Z
for Rs100000/. He has paid the
consideration and taken possession of the
property. The sale deed is yet to be
registered, He becomes deemed owner of
the property.
Property income is exempt from tax
in the following cases
• 1. Income from farm houses (Sec2(1A)(c)
r.w.s. 10(1)
• 2. annual value of any one palace of an
ex-ruler(sec10(19A)
• 3.property income of local
authority(sec10(20)
• 4.property income of an approved
scientific research association
• 5.property income of university or other
educational instituations
• 6.property income of a hospital or other
medical educational instituation
• 7. property income of trade union
• 8.house property held for charitable
purposes
• 9.Property income of a political party
• 10.property used for own business
• 11one self-occupied property.
 Computation of income from a let
out house property
• Gross Annual Value xxxxxxxxxxx
• Less municipal taxes xxxxxxxxxxx
• Less standard deduction xxxxxxxxxxx
• Less Interest on borrowed xxxxxxxxxxx
– capital
 Gross annual value (Sec 23):-

• Reasonable expected rent of the property

or rent actually received or receivable
whichever is higher is taken as gross
annual value of the property.
 Reasonable expected rent
• Reasonable expected rent is deemed to be the
sum for which the property might reasonable be
expected to be let out year to year.
• Municipal value of property or fair market rent of
property, which ever is higher is taken as
Reasonable expected rent.
• If the property is covered by a Rent Control Act,
then the amount so computed cannot exceed
the standard rent.
• Municipal value:- Municipal value is calculated
on the basis of periodical survey conducted by
local authority for collecting municipal taxes.
• Fair Rent of the property:- Fair rent of the
property can be determined on the basis of a
rent fetched by a similar locality.
• Standard rent under the Rent Control Act:-
Standard rent is the maximum rent which a
person can legally recover from his tenant under
a Rent Control Act.
 Municipal Taxes
• Municipal Taxes levied by any local
authority in respect of house property.
• It is deductible only:-
• 1.If these taxes are borne by the assessee
• 2.actually paid by the assessee during the
P.Y.
 Standard Deduction
• 30% of net annual value is deductible
irrespective of any expenditure incurred by
the taxpayer
 Interest on borrowed capital
• Interest on borrowed capital is allowable
as deduction if capital is borrowed for the
purpose of purchase, construction, repair,
renewal or reconstruction.
• Interest is deductible on accrual basis. It
can be claimed even if the interest is not
paid during the year.
• Interest of pre-construction period is
deducted in five equal annual installment
commencing from the P.Y. in which the
house is acquired or constructed.
• Unrealized rent was allowed as deduction.
• Subsequently unrealized rent has been
received by the assessee in different P.Y.
which is taxable without any deduction.