INCOME UNDER THE

HEAD HOUSE
PROPERTY
R Sai Shiva Jayanth
Assistant Professor 1
Jindal School of Banking and Finance
Mail: saisr.jayanth@jgu.edu.in

16/05/2024
BASIS OF CHARGE Questions
 Income is taxed under HP if three conditions
 X owns a building. It is given on rent.
are satisfied (Section 22)-
 Income of the property is taxable
under the head "Income from house
 Condition 1: Property should consist of buildings property", as the above-noted three
or land appurtenant thereto conditions are satisfied.
 Y owns a building. It is used by him
 Condition 2: Assessee should be owner of the
property for carrying on a business or he uses
the building as his office/factory/
godown.
 Condition 3: Property should not be used by
 In this case, no income is taxable
owner for the purpose of business/profession under the head "Income from house
property", as Condition 3 is not
satisfied.

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CONDITION -
1 2
Property should consist of buildings
or land appurtenant thereto
 Buildings include
 Factory buildings, music halls,
auditoriums, residential property etc.
 Land appurtenant thereto
 Approach roads, parking spots,
playgrounds etc.
CONDITION -
Assessee should be owner of the property
 Can be any person
 Income from sub letting?
 Includes deemed owner
 If individual transfers to spouse/child without
adequate consideration
 Holder of an impartible estate
 Property allocated under group cooperative
housing
 If person acquires power of attorney
 If property is taken on lease for 12 years or
more
  X Ltd. is a manufacturing company. The factory of the
company is situated in Andhra Pradesh. Within the factory
campus, there is a residential colony having 80 quarters for
CONDITION - 3 workers. These quarters are given to the workers for
residential purposes. A nominal rent of Rs. 100 per month
is recovered from the workers.

Should not be used for his As the purpose of letting out of residential quarters is to
business/profession run the business smoothly, the residential quarters will be
treated as used by the assessee for the purpose of its
 Because of the deduction/differential
business. Accordingly, annual value thereof is not
treatment chargeable under section 22. Recovery of rent of Rs. 100
per month from the workers will be taken as business
receipt.
• X owns a property. He uses the
 Y Ltd. makes available a few rooms in its factory on
property as his office, factory or
nominal rent to the Government for locating a branch of
godown.
nationalised bank, post office and central excise office for
• As the property is used for the
carrying on its business efficiently and smoothly.
purpose of carrying on own
business or profession, nothing is
taxable under section 22.2. Nothing is taxable under section 22. Rent collected, being
incidental to the business of Y Ltd., is assessable as
business income under section 28.
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FEW SPECIAL FEW SPECIAL
CASES CASES
 HP in a foreign country  Following are not taxed
 Taxable for resident  Income from farm house

 Composite rent
 Includes services – Divide between income from  Palace of ex ruler
HP & income from PGBP/IFOS
 Includes other assets (when two lettings are not  Property income of local authority/political
separable) – Taxable totally under PGBP/IFOS party/trade union
 Includes other assets (when two lettings are
separable) – Under IFHP & PGBP/IFOS  HP for charitable purposes
respectively
 HP is owned by co-owners
 Only the proportion of income of one person is
taxed under IFHP
INCOME FROM HP –
COMPUTATION
Gross Annual Value (GAV)
(Less) Municipal taxes
Net Annual value
(Less) Std deduction u/s 24 @ 30%
(Less) Interest on borrowed capital
Income from HP
XXX
(XXX) Q. The Gross annual value of a property
held by Ms. X is Rs. 2,50,000 for the FY
20-21. Municipal taxes paid by her in the
XXX same year amount to Rs. 20,000. She had
obtained a loan from ICICI bank ltd of Rs.
2 million (carrying an interest rate of 12%
(XXX) p.a) for construction of the said house.
Calculate the Net annual value and the
(XXX) income from HP.
XXX
GROSS ANNUAL VALUE (GAV)
 Tax under IFHP is not on the rent of the property
but on the inherent rent earning capacity of the
building
 Steps for calculating GAV
 Step 1: Find out reasonable expected rent (RER) of
the property
 Step 2: Find out rent actually received or receivable
(after deducting URR)
 Step 3: Find out which one is higher-amount
computed in Step I or Step II.
 Step 4: Find out loss because of vacancy
 Step 5: Step III minus Step IV is gross annual value
 Step 1: RER
 A) Municipal valuation of the property
 B) Fair rent of the property
 Higher of (A) and (B)
 If a property is covered under Rent control Act
(RCA), then amount cannot exceed “Standard
Rent”
 Step 2: Rent actually received/receivable
 Rent of PY for which property in Let out
 (Less) Unrealised rent (URR)
 A B C D E
Municipal value 40 40 40 40 40
1. Find out the Reasonable expected Rent in
Fair Rent 46 46 46 48 51
each of the following cases
Standard Rent NA 45 35 45 63
RER ? ? ? ? ?

A B C D E
2. Find out the Gross Annual Value in each
of the following cases Municipal value 105 105 105 105 105
Fair Rent 107 107 107 107 107
Step 1: Find out RER
Standard Rent NA 88 88 135 135
Step 2: Rent received/receivable (after
deducting URR) Actual Rent 103 112 86 114 97
Unrealised Rent 1 2 1 2 1
Step 3: Higher of 1 and 2
Period of PY 12 12 12 12 12
Step 4: Loss due to Vacancy
Period of vacancy NIL NIL NIL NIL NIL
GAV = Step 3 – Step 4 GAV ? ? ? ? ?
  Interest of preconstruction period

DEDUCTION  What is preconstruction period

 Date of completion of construction/purchase (31 st

S
March preceding) or date of loan repayment
(whichever is earlier)
 Deducted in 5 annual instalments
 Municipal taxes  First instalment deduction starts in the year when
 Levied by local authority property is constructed/acquired
 Needs to be borne by the owner
 Paid by him during PY Question

 Deduction u/s 24 X takes a loan of Rs. 40,000 @ 15 per cent per

annum for constructing a house on June 10,
 Standard deduction
2015.
 30% of NAV
 Interest on borrowed capital
Construction of the house is completed on
January 20, 2021. Date of repayment of loan is
 Borrowed capital – for purchase, construction,
repair, renewal or reconstruction (a) January 16, 2026, or
 Interest on accrual basis
(b) June 30, 2022, or
 No deduction for any brokerage/commission of
loan (c) October 31, 2018.
INCOME FROM SELF
OCCUPIED PROPERTY
Cases Treatment

If only one property is used Treated as self occupied

for own residential purposes property

If two properties are used for Treated as self occupied

own residential purposes property (SOP)

If more than two properties Only 2 are treated as SOP.

are used for own residential Others will be treated as
purposes “DEEMED TO BE LET
OUT”
Question - X owns a property at Delhi (municipal value: Rs. 1,64,000, fair rent: Rs. 2,16,000,
standard rent: Rs.1,80,000). The house is let out up to January 31, 2021 (monthly rent being Rs.
19,000). From February 1, 2021, the property is self-occupied for own residential purposes.
Expenses incurred by X are: municipal tax: Rs. 6,000 (actually paid), repairs: Rs. 2,100,
insurance Rs. 1,100, interest on capital borrowed (date of borrowing being June 10, 1991) for
acquiring the property: Rs. 1,23,000.
Assuming that the income of X from other sources is Rs. 1,86,000, find out the net income of X
for the assessment year 2021-22.
There is no unrealised rent.
Question - Ms. X (age: 22 years) has occupied
two houses for her residential purposes, particulars
of which area follows: Business income of Ms. X is Rs.
25,60,000. Besides Ms. X is employed by
House I House II a private limited company on annual
Municipal value 8,00,000 11,00,000 salary of Rs. 5,60,000. She contributes
Fair Rent 9,00,000 10,00,000 Rs. 1,20,000 towards public provident
Standard Rent 6,00,000 10,50,000 fund during the previous year 2020 21.
Determine the taxable income and tax
Municipal taxes paid 75,000 73,000
liability of Ms. X for the assessment year
Interest on borrowed capital 6,00,000 80,000 2021-22. Ignore section 115BAC
Repairs NIL 600 pertaining to alternative tax regime.