Income from House Property in a Nutshell

SECTION 22 – CHARGING SECTION

♣ Annual Value of Property consisting of any buildings or land appurtenant there to.

• Tax under this head is not levied on the rent of the property but it is on the capacity of a property to earn income, Hence the words used in the charging Section is “Annual Value”. (Notional Income instead of real Income)
• Rent of Vacant Plot is not charged under this Head.
• Building does not include mere wall, fence, monument, hoarding or similar structure. It is a structure used for dwelling, store house, etc which may be permanent or temporary. Incomplete House or under construction House is not a building.
• Land appurtenant to a building is generally a land that is an indivisible part of a building. g., approach roads connecting the building to public streets, Playground, backyard, kitchen garden, motor garage, coach home, parking area, etc.

♣  Property should be owned by the Assessee.

• If the property being rented is building or land appurtenant thereto but the Assessee is not the owner of the property, then the rental income will not be charged to tax under this head. E.g., Subletting of the premises is not chargeable to tax under Income from House Property because tenant is not the owner.
• The person who owns the building need not be the owner of the Land upon which it stands.
• Deemed Owners (Section 27):
  • Individual who transfer the property to his or her spouse without adequate consideration, not being a transfer in connection with an agreement to live apart, or to a minor child not being a married daughter
  • Holder of Impartible Estate (Property which is not legally divisible)
  • Member of Co-operative Housing society.
  • Purchaser of Property under Part Performance of a contract referred to in Sec 53A of Transfer of Property Act.
    • Agreement must be in writing
    • Purchase consideration is paid or the purchaser is willing to pay it.
    • Purchaser has taken the possession of the property in pursuance of the agreement.
  • In case of lease of a property for a period not less than 12 years (whether originally fixed or provision for extension exists), lessee is deemed to be the owner of the property. However, any right by way of lease from month-to-month or for a period not exceeding one year is not covered by this provision.
• If the Property is owned by co-owners and their shares are defined then such persons shall not in respect of such property be assessed as Association of Person, but the share of each such person shall be included in his Total Income. (Section 26)

♣ The Property should not be used by the owner of the property for the purpose of his business or profession.

SECTION 23 – GROSS ANNUAL VALUE

♣ Self Occupied Property –

• Property in the Occupation of the owner for the purpose of his own residence or
• Property that cannot actually be occupied by the owner for the purpose of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place not belonging to him.
• Benefit of One Self Occupied Property is available only to Individual / HUF

♣ Let Out Property – Which is actually Let out

♣ Deemed to be Let Out –

Where the Assessee owns more than one house for his residence or he has not let out the other house, than the Annual Value of any one house will be considered as Nil, at the option of the assessee, and the Annual value of the other house will be computed as under.

COMPUTATION OF ANNUAL VALUE OF HOUSE PROPERTIES:

PARTICULARS	SELF OCCUPIED PROPERTY (Sec 23(2))	LET OUT PROPERTY (Sec 23(3))	DEEMED TO BE LET OUT PROPERTY (Sec 23(4))
Gross Annual Value	NIL	a) Municipal Valuation or Fair Rent whichever is higher subject to Standard Rent OR b) Actual Rent received or receivable, Whichever is higher**	Municipal Valuation or Fair Rent whichever is higher subject to Standard Rent
Less: Municipal Taxes Paid during the Previous Year.	NIL	(xxx)	(xxx)
Net Annual Value	NIL	xxx	Xxx

** if the Property is Vacant during the part of the year and owing to the vacancy the actual Rent is lower, then the actual rent received or receivable will be considered as Gross Annual Value.

***The actual rent received / receivable shall not include the rent which the owner cannot realize. Following conditions to be satisfied for deduction of unrealized rent from the actual rent received / receivable:

1. Tenancy is bona fide.
2. The defaulting tenant has vacated the property, or steps have been taken to compel him to vacate the property.
3. The defaulting tenant is not in occupation of any other property of the taxpayer.
4. The taxpayer has taken all steps to recover such amount, including legal proceedings or he satisfies the Assessing Officer that legal proceedings would be useless.

• Amendment with effect from 01.04.2018 (A Y 2018 – 2019) – Sec 23(5)
  • Where any house property is held as Stock in trade and the same in not let out during the whole or any part of the year, the annual value of such property for the period up to one year from the end of the financial year in which certificate of completion of construction of the property is obtained from the competent authority shall be taken to be nil.
  • Thereafter, the annual value shall be computed as mentioned above and the same shall be chargeable to Income Tax.
  • This amendment is brought in to dilute many judicial pronouncement and widen the tax base by bringing under the Tax net unsold flats of the builder.

SECTION 24 – DEDUCTIONS

PARTICULARS	SELF OCCUPIED PROPERTY (Sec 23(2))	LET OUT PROPERTY (Sec 23(3))	DEEMED TO BE LET OUT PROPERTY (Sec 23(4))
Net Annual Value	NIL	xxx	Xxx
Less : Deduction U/s 24
a)    Standard deduction	NIL	30% of the Net Annual Value	30% of the Net Annual Value
b) Interest on borrowed capital –  Acquisition, construction, repairs, renewal, reconstruction	Amount should not exceed ₨. 30000 Provided where capital borrowed on or after 01.04.19999 and such acquisition / construction completed within 5 years from the end of financial year in which capital is borrowed, the amount of deduction under this clause shall not exceed Rs. 2,00,000/-	Amount of Any Interest payable	Amount of Any Interest payable
INCOME FROM HOUSE PROPERTY	(xxx)	xxx	xxx

** Pre-acquisition / Construction Period Interest – Interest payable on the borrowed capital for the period prior to the previous year in which property is acquired / constructed can be claimed as deduction over period of 5 years in equal annual installments commencing from the year of acquisition or completion of construction.

****Deduction of the Principal amount of the housing loan is available under Chapter VI – A up to Rs. 1,50,000/-

***** Also refer to Sec 80EE for additional interest deduction available from AY 2017 – 2018.

SECTION 25A – UNREALISED RENT / ARREARS OF RENT

The Unrealized Rent received subsequently or Arrears of Rent received to the assessee shall be chargeable to tax in the year of receipt, whether the assessee is owner of the property or not in that financial year.

A Sum equal to 30% of the rent received as such shall be allowed as deduction

PARTICULARS	Amount (Rs.)
Amount Received	Xxx
Less :
c)    30% of the Amount received	Xxx
INCOME FROM HOUSE PROPERTY	xxx

COMPOSITE RENT:

Sometimes the owner receives amount for letting out of house property along with compensation for other assets like furniture, Plant and machinery, etc or for different services such as lift, security, etc. The amount so received is known as composite Rent.

If the letting out of the house property and other assets is inseparable, then rent is taxable either as business income or income from other sources, as the case may be. For e.g., Heavy Plant and machinery having fix installation in a premises is rented. Here, the house property is inseparable from the plant and machinery and the rental income is not for the premises but for the plant and machinery. Hence, the rental income is chareable accordingly.

If letting out of the house property and other assets is separable, Composite rent needs to be split-up as sum attributable for the use of the property and sum attributable for other assets / services. Sum attributable for the property is chargeable to tax under Income from House Property and sum attributable to other assets /services may be chargeable to Income from Business / Profession or Income from Other sources as the case may be.

LOSS UNDER INCOME FROM HOUSE PROPERTY:

• Loss from one house property can be set-off against the income from another house property.
• Where the net result of the Computation under the head “Income from House Property: is Loss and the assessee has income assessable under any other head of Income, the amount of such loss exceeding Rs. 2,00,000/- would not be allowed to be set-off against any other head. (Section 71B)
• The unabsorbed loss will be allowed to be carried forward up to 8 assessment years immediately succeeding the assessment year in which loss was computed to be set-off against the Income under the head “Income from House Property” (Section 71B)

SECTION 80EE – ADDITIONAL DEDUCTION OF INTEREST ON HOUSING LOAN:

Section 80EE provides for additional deduction of Rs. 50,000/- in respect of interest on loan taken by individual for acquisition of house property. The benefit of deduction would be available till the repayment of loan. The deduction is over and above the deduction of Rs. 2,00,000/- for interest on loan available under Section 24 for self-occupied property.

Conditions are as follows:

1. The assessee should not own any residential house on the date of sanction of the loan
2. Value of House should be less than equal to Rs. 50 Lakhs
3. Loan sanctioned should be less than equal to Rs. 35 Lakhs
4. Loan should be sanctioned during the Previous year 2016 – 2017

CASES WHERE INCOME FROM HOUSE PROPERTY IS EXEMPT FROM TAX:

1. Sec 10(1) – Income from any farm house forming part of agricultural income.
2. Sec 10(19A) – Annual Value of any one palace in occupation of ex-ruler.
3. Sec 10(20) – Income from house property of a local authority.
4. Sec 10(21) – Income from house property of an approved scientific research association.
5. Sec 10(23C) – Property income of universities, educational institutions, etc
6. Sec 10(24) – Property income of any registered trade union
7. Sec 11 – Income from house property held for charitable or religious purpose
8. Sec 13A – Property income of any political party.