Subu Income From House Property

INCOME FROM HOUSE PROPERTY

1. CHARGEABILITY [Section 22]

1. The basis of chargeability under the head income from house property is Annual Value.2. The property must consist of Building or Lands Appurtenant thereto.3. The assessee must be the owner of such property.4. The property may be used for any purpose other than the assessee’s business or profession.

2. DEEMED OWNER [Section 27]

1. Owner: An Individual shall be considered as owner of a property when the document of title to the property is registered in his name.

2. Deemed Owner: Under the following circumstances, Income from House Property is taxable in the hands of the Individual, even if the property is not registered in his name —

(a) Where the Property has been transferred to spouse for inadequate consideration other than in pursuance of an agreement to live apart.

(b) Where the Property is transferred to a minor child for inadequate consideration (except a transfer to minor married daughter)

(c) Where the Individual holds an impartible estate.(d) Where the Individual is a member of Co-operative Society, Company, or other Association and has

been allotted a house property by virtue of his being a member, even though the property is registered in the name of the Society / Company / Association.

(e) Where the property has been transferred to the individual’s name as partperformance of a contract u/s 53A of the Transfer of Property Act, 1882. (i.e. Possession of the Property has been transferred to Individual, but the Title Deeds have not yet been transferred).

(f) Where the Individual is a holder of a Power of Attorney enabling the right of possession or enjoyment of the property.

(g) Where the property has been constructed on a leasehold land.(h) Where the ownership of the Property is under dispute.(i) Where the property is taken on a lease for a period of not less than 12 years, then the lessee shall be

deemed as the owner of the property.

3. PROPERTY INCOME IS EXEMPT FROM TAX TO CERTAIN PERSONS

10(19A): An Ex-Ruler for his occupation (palace)10(20): Local Authority.10(21): Approved Scientific Research Association.10(23B): Institution for the development of Khadi and Village Industries.10(23BB): Khadi and Village Industries Boards.10(23BBA) A body or authority for administering religious or charitable Trust or endowments.10(23C): Certain Funds, educational institutions, hospitals etc.10(24): Registered Trade Union.10 (26B): Statutory Corporation or an institution or association financed by the Government for

promoting in the interests of members of SC or ST.10(27) : Co-operative Society for promoting the interest of the members of SC or ST.11 : Charitable Trust.13A : Political Party.

Annual Value:

Income from house property is computed based upon the annual value According to sec 23 (1) the annual value of any property shall be the sum for which the property might reasonably be expected to be let out from year to year In determining the Annual Value the following factors are to be considered

1. Municipal Rental Value: - Municipal Rental Value means the rental value of the house according to a authority 2. Actual Rental Value: -

Actual Rental Value means rent received and receivable from the tenant for one-year period 3. Fair Rental Value: - Fair Rental Value means rent of similar accommodation in the same street or similar street4. Standard Rent: -

Standard rent means rent fixed according to the provisions of Rent Control Act.

HOUSE PROPERTY

LET OUT HOUSE SELF OCCUPIED H OUSE

Not Comes under Comes under Not Comes under comes under

Rent Control Act Rent Control Act Rent Control Act Rent Control Act

Let out through out the Self occupied for residential purpose

Previous year throughout the previous year

Remains vacant for Self occupied for part of the previous year

Whole year and part of the year let out

Remains vacant for More than one house self-occupied for

Part of the previous year residential purpose

Not remains vacant but there

Is unrealized rent

Remains vacant and there

is unrealized rent

LET OUT HOUSE

How to determine Gross Annual Value in different situations

Situations Gross annual Value

1 House Property which is not vacant throughout

the year and not covered Under Rent Control Act

MRV

FRV W.E.HIGHER

ARV

2 House Property which is not vacant throughout

the year and covered Under Rent Control Act

MRV

FRV W.E.H.

ARV W.E.LESS

SR

ARV W.E.H.

3 House Property which is vacant for some period

and rent received / receivable is less than due to

this vacancy

Actual Rent Received

4 House Property which is vacant throughout

the year NIL

5 House Property cannot be let out on rentNIL

6 House Property is Occupied by owner for his

self residence through out the yearNIL

7 Not remains vacant but there is unrealized rent

Calculate G.A.V as calculated in

situation (1) and thereafter deduct unrealized rent if

rule 4 is satisfied

from G.A.V.

8 Remains vacant and there is unrealized rent

Calculate G.A.V.as in situation (3) and

deduct vacancy period and there after

unrealized rent

COMPUTATION OF INCOME FROM HOUSE PROPERTY (LET OUT)

GROSS ANNUAL VALUE xxx

Less: Municipal Taxes paid during the year xxx

NET ANNUAL VALUE xxx

Less: Standard Deduction @ 30% of NAV u/s 24(a) xxx  

Less: Interest on Loan u/s 24(b) xxx  

i. C.Y interest

ii. Prior period interest

Add: Recovery of Unrealized Rent u/s 25 AA xxx xxx

Income from House Property before considering Arrears of Rent xxx

Add: Arrears of Rent Received xxx  

Less: Deduction u/s 25B: 30% of Arrears Received xxx xxx

NET INCOME FROM HOUSE PROPERTY xxx

Municipal taxes:

Actual amount paid by the assessee is to be deducted from gross annual Value.

1. Municipal Tax includes services tax like Water Tax and Sewerage Tax levied by any local authority. It can be claimed as a deduction from the Gross Annual Value of the Property.

2. Conditions:i. Paid by Owner. The tax shall be borne by the owner and tie same was paid by him during the

previous year.ii. Property let out: Municipal Tax can be claimed as a deduction only in respect of let out or

deemed to be let out properties (i.e. more than one property self occupied).iii. Year of payment: Municipal Tax relating to earlier previous years, but paid during the current

previous year can be claimed as deduction only in the year of payment.iv. Advance Taxes: Advance Municipal Tax paid shall not be allowed as deduction in the year of

payment, but can be claimed in the year in which it falls due.v. Borne by Tenant: Municipal taxes met by tenant are not allowed as deduction.

vi. If Municipal taxes are due but not paid is not to be deducted from gross annual value.

vii. An arrears of Municipal taxes paid in the relevant previous year to the current assessment year is to be deducted from gross annual value.

viii. Municipal taxes paid in advance is not allowed as deduction in the year of payment but it is allowed as deduction in the year for which the payment is made

3. Foreign Property: For a property situated outside India, Municipal Tax levied by foreign Local Authority can be claimed as a deduction.

If Net Municipal Rental Value is given:

In some cities the municipal corporation will calculate the rental value of the property after

allowing a percentage of amount for repairs and service taxes like sewerage and water taxes etc., in such a case Gross

Municipal Rental value is to be calculated as under.

Gross Municipal Value (-) Allowance for repairs (-) service tax =Net Municipal Value OR

Gross Municipal Value = Net Municipal Value + service taxes + allowance for repairs

UNREALIZED RENT (Rule 4)

Unrealized Rent means the rent not paid by the tenant to the owner and the same shall be deducted from the Actual Rent Receivable from the property before computing income from that property, provided the following conditions are satisfied :

1. The tenancy is bonafide2. The defaulting tenant should have vacated the property3. The assessee has taken steps to compel the defaulting tenant to vacate the property4. The defaulting tenant is not in occupation of any other property owned by the assessee5. The assessee has taken all reasonable steps for recovery of unrealised rent or satisfies the Assessing

Officer that such steps would be useless.

8. DEDUCTION FROM NET ANNUAL VALUE

A. Standard Deduction u/s 24(a)Standard deduction of 30% of NAV (Net Annual Value) shall be allowed to the assessee.

B. Interest on Loan u/s 24(b)1. Purpose of loan: The loan shall be borrowed for the purpose of acquisition, construction, repairs,

renewal or reconstruction of the house property.2. Accrual basis: The interest will be allowed as a deduction on accrual basis, even though it is not paid

during the financial year.3. Interest on interest: Interest on unpaid interest shall not be allowed as a deduction.4. Brokerage: Any brokerage or commission paid for acquiring the loan will not be allowed as a

deduction.5. Prior period interest: Prior Period Interest shall be allowed in five equal installments commencing

from the financial year in which the property was acquired or construction was completed.Note : Prior period interest means the interest from the date of borrowal of the loan upto the end of the

financial year immediately preceding the financial year in which acquisition was made or construction was completed.

6. Interest on fresh loan to repay existing loan: Interest on any fresh loan taken to repay the existing loan shall be allowed as a deduction. [Circular 28 / 20.9.1969]

7. Inadmissible interest: Interest payable outside India without deduction of tax at source and in respect of which no person in India is treated as an agent u/s 163 shall NOT be an allowable expenditure. [Section25]

8. Certificate: The assessee should furnish a certificate from the person from whom the amount is borrowed.

4. RECOVERY OF UNREALISED RENT [SECTION 25AA]

1. Chargeability: Recovery of Unrealized Rent is chargeable to tax as “Income from House Property”.2. Year of Taxability: Unrealized Rent recovered is taxable in the financial year in which it is recovered.3. Non-Subsistence of Ownership: It will be taxable in the hands of Individual even if he does not own the

property to which such rent pertains.4. Deduction: No deduction will be allowed against such receipt.

COMPUTATION OF PRIOR PERIOD INTEREST

Let us illustrate the steps with an example :Loan taken on 1.7.07 ` 8,0,000 @ 9% p.a. Date of completion of construction 31.5.10. Loan amount remains outstanding till date. Determine Prior Preiod and Interest u/s 24(b)

5. RECEIPT OF ARREARS OF RENT [SECTION 25B]

1. Meaning: Arrears of Rent means the incremental rent relating to earlier financial years which has not been offered to tax in those financial years itself, but received during the current financial year,

2. Chargeability: Receipt of Arrears of Rent will be chargeable to tax under the head Income from House Property only.

3. Year of receipt: It is taxable as income of the financial year in which he receives the arrears of rent.4. Non-subsistence of ownership: It is taxable in the hands of the Individual even if he does not own the

prop” at the time of receipt of arrears of rent.5. Deduction: A standard deduction of 30% of the amount of arrears received will be allowed as

deduction.SELF OCCUPIED

COMPUTATION OF INCOME FROM HOUSE PROPERTY (SELF OCCUPIED)

ANNUAL VALUE NilLess: Interest on Loan u/s 24(b)  

C.Y interest + Prior period interest (Should not exceed 30000 / 150000)LOSS FROM HOUSE PROPERTY xxx

CONDITIONS FOR ADMISSIBILITY OF INTEREST ON LOAN TAKEN FOR SELF-OCCUPIED PROPERTY

1. Loan taken for acquisition or construction of house property on or after 01.04.99 and the same was completed within 3 years from the end of the financial year in which capital was borrowed, interest paid or payable, subject to a maximum of ` 1,50,000 (= Current year + 1/5th of prior-period interest)

2. Loan taken prior to 1.4.99 for acquisition or construction or loan taken for repair,renovation or reconstruction at any point of time, interest paid or payable subject to a maximum of ` 30,000 (= Current year + 1/5th of prior-period interest)

3. Loan taken on or after 1.4.99 for acquisition or construction of house property,and the same was not completed within 3 years from the end of the financial year in which capital was borrowed, interest paid or payable, subject to a maximum of ` 30,000 (= Current year + 1/5th of prior-period interest)