COMPUTATION OF INCOME FROM

HOUSE PROPERTY

1
 COMPUTATION OF INCOME FROM HOUSE
PROPERTY
Sections:
• 22 Chargeability
• 23 Annual value
• 24 Deductions available
• 25 deductions not allowed
• 25(AA) unrealized rent of previous year 2001-02
(or subsequent years ) is collected subsequently
• 25(B) Mode of taxation of arrears of rent in the
year of receipt
• 26 Property owned by co-owners
• 27 Deemed owner
2
 Basis of charge [Section 22]
Income is taxable under the head “Income from
house property” if following conditions are
satisfied -
1.The property should consist of any building or
lands appurtenant thereto. (land attached to
building )
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 carried
on by him, the profits of which are chargeable to
tax .
3
 Annual Value u/s 23
• It is the annual value of house property which is
charged to tax after allowing certain deductions.
• Annual value of property consisting of any building
or land appurtenant thereto except such property
which is used by assessee for the purpose of
business and profession.

4
 Determination of Annual Value
This is the inherent capacity of the property to earn income
and it has been defined as the amount for which the property
may reasonably be expected to be let out from year to year.
It is not necessary that the property should actually be let out.
 It is also not necessary that the reasonable return from
property should be equal to the actual rent realized when the
property is, in fact, let out.
Where the actual rent received is more than the reasonable
return, it has been specifically provided that the actual rent
will be the annual value.
Where, however, the actual rent is less than the reasonable
rent, the latter will be the annual value.

5
Contd…
• The municipal value of the property, the cost of
construction, the standard rent, if any, under the
Rent Control Act, the rent of similar properties in the
same locality, are all pointers to the determination of
annual value.

6
Computation of Gross Annual Value
Sec 23 (1)
• Step 1- find out reasonable expected rent of the
property
• Step 2-find out actual rent received or receivable
• Step 3- find out which one is higher – among
computed in step 1 and 2
• Step 4- find out loss because of vacancy
• Step 5- step 3 minus step 4 is gross annual value.

7
 Reasonable expected rent
• In majority cases, reasonable rent can be
determined by taking into consideration the
following factors
• Municipal valuation of property
• Fair rent of the property
The higher of the above is generally taken as
reasonable expected rent.
Note – If property is covered by rent control Act,
then the amount so computed cannot exceed
the standard rent.
8
 Computation of gross annual value (illustration)

Municipal value 120000

Fair rent 115000 120000
(whichever higher of the MR &FR is reasonable expected rent )
Standard rent ( Reasonable rent cannot exceed SR (wherever 125000
rent control Act applicable
Step I Reasonable expected rent 120000
(Municipal value or fair rent , whichever is higher, but subject
to maximum of standard rent )

Step II Rent received / receivable after deducting unrelised 1,30000

rent of current previous year (132000- 2000)
Amount computed in step I and II , whichever is higher 1,30,000
Less, Loss due to vacancy 11000
Gross annual value 119000
9
 COMPUTATION OF INCOME FROM
HOUSE PROPERTY
• Income from house property is determined as under:

• Gross Annual Value xxxxxxx

• Less: Municipal Taxes xxxxxxx
Unrealized Rent xxxxxxx
• Net Annual Value xxxxxxx
• Less: Deductions under Section 24
• - Statutory Deduction (30% of Net Annual Value) xxx
• - Interest on Borrowed Capital xxx
• Income From House Property xxxxxx

10
 COMPUTATION OF INCOME FROM
LET OUT HOUSE PROPERTY (illustration)
Income from house property is determined as under:

Gross Annual Value 2,00,000

Less: Municipal Taxes 25,000

Net Annual Value 1,75,000

Less: Deductions under Section 24

Statutory Deduction (30% of NAV) 52500

Interest on Borrowed Capital 30,000

82,500

Income From House Property 92,500

11
 Municipal Tax
a) Municipal tax is allowed as deduction only on actual
payment basis only.
b) Such taxes may be know by any other name like local taxes
or municipal taxes.
c) Such taxes should not only be paid but as well as borne by
the owner.
d) If owner reimburses such paid amount from the tenant then
such amount will not be allowed as deduction under this
section.

12
 Unrealized Rent
This is deducted from Actual Rent received only if,
a) execution of legal agreement.
b) defaulting tenant has vacated the property or step have
been taken to compel him to vacate the property.
c) defaulting tenant is not in occupation of any other property
of the assessee.
d) The assessee has either taken all reasonable steps to
institute legal proceedings for the recovery of unpaid rent
or has satisfied the assessing officer that legal proceedings
would be worthless.
a)Even if the assessee is no longer the owner of the house
property then also recovery of unrealized rent is brought to tax
under IFHP u/s 25AA.
13
 Deduction under head IFHP (Let out
and deemed to be let out ) Sec 24
1. Sum equal to 30 percent of net annual value.
2. Interest on housing loan – if property is acquired,
constructed, repaired with borrowed funds, the
amount of interest payable on such borrowings will
be allowed as deduction. (Deduction is allowed on
accrual basis)
3. Pre construction interest – will also be deductible in
five equal installments commencing from the
previous year in which such property is constructed
or acquired.
14
 Amount not deductible (u/s 25)
• Deductions in respect of interest on borrowed funds
will not be allowed as deductions, if such amount are
payable outside India, and no tax has been paid or
deducted at source or no person is taxable as agent
in India in respect of such amount of interest.

15
 Pre-construction Interest
• Pre-construction period is from the date on which
loan has been taken to the end of the year, before
the year in which such construction has been
completed.
• The interest during such pre-construction period is to
be allowed in 5 equal installment commencing from
the year in which such construction has been
completed.

16
Income from Self-occupied House
Where property consist of only one house or a part of house
which is occupied by the owner for his own residence, the
annual value of such house (or a part of house) shall be taken as
nil. However, the following two conditions must be satisfied -
•The property or part thereof is not let out during any part of the
previous year, and
•No benefit is derived from such property.

17
 Deductions available for self-occupied
house
Interest on borrowed capital -
The deduction of Rs. 2,00,000 is allowed if the following conditions are satisfied
-
•The house property is acquired or constructed with capital borrowed on or
after 1st April 1999.
•The construction of the house must be completed within five years from end of
the financial year in which capital was borrowed.
•Loan should be taken for acquisition or construction and not for repairs,
renewals, reconstruction etc. (for repairs, renewals and reconstruction, the
deduction is restricted to Rs. 30,000 only)

With effect from A.Y 2020-21, deduction for interest paid or payable on
borrowed capital shall be allowed in respect of two (2) self-occupied house
properties. However, the aggregate amount under this provision shall remain
same.

18
Deemed to be let out house property

If person has occupied two or more houses for his residential

purpose, in that case only one house according to his choice is
treated as self–occupied and all other houses will be treaded as
deemed to be let out house and all provisions as are applicable
to let out property would be allowed.

19
 Recovery of Unrealized Rent
• The amount realized shall be charged to tax as the
income of the previous year in which such rent is
realized, whether or not the assessee is the owner of
that property in the previous year.
• No deductions shall be allowed for such unrealized
rent received.

20
Arrears of Rent Received (u/s 25 B)
• Any amount received by way of arrears of rent from property,
which is not being charged to income tax in any previous
year, then the amount so received as arrears of rent, will be
charged to income tax as income of the previous year in
which such rent is received under head income from house
property, whether the assessee is the owner of that property
in that year or not.
• However a deduction is allowed in respect of 30 percent of
such amount received as arrears of rent.

21
 Deemed Owners
Section 27 provides that following will be the deemed owner of
the house property for the purpose of charging tax –

i.Transfer to spouse or minor child

ii.Holder of impartible estate
iii.Property held by a member of Co-operative Society
iv.Person who has acquired a property under Power of attorney
transaction
v.Property held on lease exceeding 12 years.

22
Set off and carry forward of loss

Loss from house property shall be set off against income

under the same head or any other heads of income in the
same year, thereafter, if there is any loss remaining
unadjusted, such unadjusted loss can be carried forward and
set off in the subsequent years subject to a limit of 8
assessment years against income from house property.

23
Practicals
 1. Self-occupied property :-
Gross Annual Value NIL
Less : Municipal Tax Paid (NIL)

Net Annual Value (NAV) NIL

Less : Deduction u/s24
a) Standard deduction u/s 24(a) NIL
b) Interest on Loan u/s 24(b) XX (XX)
Income From House Property (XX)

Note :
a)Deduction of interest of loan in case of SOP,
Purchase/ Construction

Before 1-4-1999 On or after 1-4-1999

Max- Rs. 30,000 Max- Rs. 2,00,000
b)Deduction of interest of loan in case of Repairs/ Renewals/ Reconstruction - Max Rs. 30,000

* Total Deduction (a+b) - Max Rs.2,00,000/-

 2. Let-Out Property: -

Gross Annual Value (GAV) higher of,

a)Reasonable Letting Value XX XX
higher of,
i) Fair Rental Value ii)Municipal
Rateable Value
XX
Subject to Standard Rent XX XX
b) Actual Rent Received NIL
Gross Annual Value XX
Less : Municipal Tax Paid (XX)
Net Annual Value (NAV) XX
Less : Deduction u/s24
a) Standard deduction u/s XX
24(a)
b) Interest on Loan u/s 24(b) XX (XX)
Income From House Property XX
Mr. X owns one residential house in Mumbai. The house is having two units. First unit of the
house itself occupied by Mr. X and another unit is rented for Rs.8,000 p.m. The rented unit was
vacant for 2 months during the year.
The particulars of the house for the previous year 2018-19 are as under:

● Standard Rent - Rs.1,62,000 p.a.

● Municipal Valuation - Rs. 1,90,000 p.a.
● Fair Rent - Rs.1,85,000 p.a.
● Municipal Tax - 15% of municipal valuation
● Light and water charges paid by the tenant - Rs.500
p.m.
● Interest on Borrowed Capital - Rs.1,500 p.m.
● Insurance Charges paid by Mr. X - Rs.3,000 p.a.
● Repairs - 12,000 p.a.

Compute income from house property of Mr.X for the A.Y 2019-20.
Solution:

Name of the : Mr. X

Assessee
Assessment Year : 2019-20
Previous Year : 2018-19
Status : Individual
Residential Status : R & O.R.
Pan No. :
 Particulars Rs. Rs.

A. Vacant Let out Property

(50%)
Gross Annual Value (GAV)
higher of,
a)Reasonable Letting Value
higher of,
i) Fair Rental Value (1,85,000 x 50%) 92,500
ii)Municipal Rateable Value (1,90,000 x 95,000
50%) 95,000
Subject to Standard Rent (1,62,000 x 81,000 81,000
b) Actual
50%)Rent Received (8,000 x 80,000
10) 80,000
Gross Annual Value
Less : Municipal Tax (95,000 x 15%) 14,250
Paid Net Annual Value 65,750
(NAV) Less : Deduction
u/s 24:a) Standard deduction u/s 24(a) (65,750 x 30%) 19,725
b) Interest on Loan u/s 24(b) (1,500 x 50% x 9,000 28,725
12) A 37,025
 Particulars Rs. Rs.

B. Self Occupied Property (50%)

Gross Annual Value (GAV)

Gross Annual Value NIL
Less : Municipal Tax Paid Net Annual Value (NAV)
Less : Deduction u/s24 NIL
a) Standard deduction u/s 24(a)
b) Interest on Loan u/s 24(b) (1,500 x 50% x NIL NIL
12) 9,000 (9,000)
B (9,000)

Income from House Property (37,025 - 28,025

9,000)

Note:
1.It is assumed that both the units are of identical size. Therefore, the rented unit would represent 50% of
total area and the self-occupied unit would represent 50% of total area.
2.No deduction will be allowed separately for light and water charges, insurance charges and repairs.