In the income tax there are five heads to calculate and report income to department. One of those heads is Income from house property. Owning a house is everyone’s dream but with this dream there comes a responsibility to calculate tax on it. Let’s discuss about it.
Question:1 What falls under the House property?
Answer: Property should consist any building (not only residential buildings, but also factory building, offices, shops, godowns, and other commercial premises.
And any land which is connected with the building for example garden, garage etc.
Question:2 What are the conditions need to be fulfilled to calculate income?
Answer: There are three main conditions:
1. There must be a property.
2. The person should be owner of that property.
3. The property is not used by the owner for his any business or profession carried on by him.
Question:3 How many types of House Property?
Answer: There may be two types of property one is Self-occupied and other is let out property.
If the property is Self-Occupied Property (means property is used by owner for his own residence), Then the annual value of the property should be Nil.
Types of House property
1. LOP (Always Taxable)
2. SOP
(i) SOP (Residence)
(ii) SOP (Business) – ignore because it doesn’t come under house property.
3. SOP (Residence) has two types.
(i) One SOP – it is exempt means o tax calculation.
(ii) More than one SOP- Assume any one SOP is for Residence and other SOPs will be treated as DLOP and it will be Taxable.
LOP: Let Out Property
SOP: Self Occupied Property
DLOP: Deemed to be Let out Property (Assumed to be let out)
Question:4 How to determine the Annual Value of property?
Answer: In the case of Let out property, Gross Annual Value will be higher of:
1. Expected Rent and
2. Actual rent received or receivable during the year.
Question:5 What is Expected Rent?
Answer: Expected rent (ER) is the higher of:
1. Fair Rent(FR)
2. Municipal Value(MV)
But where Standard Rent (it is fixed under the rental control Act) is given and its value greater than MV or FR then Expected Rent will be
Lower of:
1. The value determined above i.e. higher of FR or MV
2. And Standard rent (SR)
Fair Rent: Fair rent means rent which similar property in the same locality would fetch.
Municipal Value: This value is determined by the municipal authorities for levying municipal taxes on house property.
Standard Rent: It means rent as per Rent Control Act. It is the maximum amount of rent that can be legally recovered by Owner from tenant.
Actual Rent: Rent received + Rent receivable- unrealized rent.
In Simple words, Gross Annual Value (GAV) is
- Calculate Expected Rent
- Choose the higher value from the
- Fair Rent Or
- Municipal Value
- but restricted to standard rent
- Now, Gross Annual Value
- Choose the higher value from the
- Expected Rent Or
- Annual rent received or receivable during the year
To understand it more let’s do an example.
Illustration: Jayashree owns five houses in Chennai, all of which are let out. Compute the GAV(Gross Annual Value) of each house from the information given below-
| Particulars | House I (Rs) | House II(Rs) | House III (Rs) | House IV (Rs) | House V (Rs) |
| Municipal Value | 80,000 | 55,000 | 65,000 | 24,000 | 80,000 |
| Fair Rent | 90,000 | 60,000 | 65,000 | 25,000 | 75,000 |
| Standard Rent | N.A | 75,000 | 58,000 | N.A | 78,000 |
| Actual Rent | 72,000 | 72,000 | 60,000 | 30,000 | 72,000 |
Solution:
| Particulars | House I (Rs) | House II(Rs) | House III (Rs) | House IV (Rs) | House V (Rs) |
| (i) Municipal Value | 80,000 | 55,000 | 65,000 | 24,000 | 80,000 |
| (ii) Fair Rent | 90,000 | 60,000 | 65,000 | 25,000 | 75,000 |
| (iii) Higher of (i) & (ii) | 90,000 | 60,000 | 65,000 | 25,000 | 80,000
|
| (iv) Standard Rent | N.A* | 75,000 | 58,000 | N.A | 78,000 |
| (v) Expected Rent [lower of (iii) and (iv)] | 90,000 | 75,000 | 58,000 | 25,000 | 78,000 |
| (vi) Actual rent received or receivable | 72,000 | 72,000 | 60,000 | 30,000 | 72,000 |
| (vii) GAV Higher of (v) & (vi) | 90,000 | 75,000 | 60,000 | 30,000 | 78,000 |
Question:6 Is there any format to compute income from house property?
Answer: Format of Computation of Income from House Property.
| Particulars | SOP ( R ) | LOP | DLOP | |
| (i) | Municipal Value | – | xxx | xxx |
| (II) | Fair Rent | – | xxx | xxx |
| (iii) | Higher of MV and FR | – | xxx | xxx |
| (iv) | Standard Rent | – | xxx | xxx |
| (v) | Expected Rent [Lower of (iii) and (iv)] | – | xxx | xxx |
| (vi) | Actual Rent | – | xxx | xxx |
| (vii) | GAV [ higher of (v) & (vi) | – | xxx | xxx |
| (viii) Less: | Municipal Taxes Paid | – | (xxx) | (xxx) |
| (ix) | Net Annual Value(vii – viii) | – | xxx | xxx |
| (x) Less: | Deduction u/s 24 | |||
| – Standard deduction @ .30 of NAV | – | (xxx) | (xxx) | |
| – Interest on loan | (xxx) | (xxx) | (xxx) | |
| Income from House Property (ix-x) | -/(xxx) | xxx | xxx |
According to computation format as mentioned above the items till Gross annual Value. Now we will discuss all items below the GAV.
Question:7 What do you mean by municipal taxes?
Answer: Following taxes come under the municipal taxes.
- It means tax which is recovered by municipality, local authority, gram panchyat.
- It is also known as house tax, property tax, local tax etc.
- It is allowed on payment basis. If actually paid, then allowed otherwise not.
- It is allowed only if it is paid by owner.
Question:8 What is Interest on loan and what is its treatment?
Answer: The interest we paid on loan, deduction of this is provided in the income tax. If the interest is not paid in actual means interest is due to pay even then we can claim deduction of interest. But the penal interest (Interest on interest) is not allowed.
Let’s understand it’s treatment through the chart.
Interest on loans
- In case of LOP/DLOP there is no limit.( Total interest will be allowed)
- In case of SOP there are two case- (a) Special case and (b) Normal case∗
- In Special case – if loan is taken on or after 01.04.1999
- (+) Loan is taken for purchase or construction of house property
- (+) If loan is taken for construction , then it should be completed within 5 years from the end of FY in which capital was borrowed
- And certificate from lender specifying interest payable then maximum interest allowed Rs. 2,00,000.
- But if these conditions are not fulfilled then maximum interest allowed will be Rs. 30,000.
- In Normal Case maximum interest allowed Rs. 30,000.
*Normal Case: Loan for repair, renewal or reconstruction of house property.
Standard Deduction: Standard deduction always allowed when you compute the income from property. It is 30% of NAV.
Question: 9 What is unrealized rent and it’s treatment?
Answer: It means the rent which is not recovered by owner from tenant. It is like bad debt and deductible from actual rent if following conditions are satisfied:
1. Tenancy should be undertaken in good faith.
2. Tenant should have vacated that house property.
3. Such tenant should not occupy any other house property of the same owner.
4. Reasonable step taken for recovery of rent.
But if it is recovered in any year then it will be taxable in that year in which it is recovered.
I hope my article will help you to understand how to compute income and report.
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