1. Introduction – Under the Income Tax Act what is taxed under the head ‘Income from House Property’ is the inherent capacity of the property to earn income called the Annual Value of the property. The above is taxed in the hands of the owner of the property.
2. Computation of Annual Value
(i) GROSS ANNUAL VALUE (G.A.V.) is the highest of
(a) Rent received or receivable
(b) Fair Market Value.
(c) Municipal valuation.
(If however, the Rent Control Act is applicable, the G.A.V. is the standard rent or rent received, whichever is higher).
It may be noted that if the let out property was vacant for whole or any part of the previous year and owing to such vacancy the actual rent received or receivable is less than the sum referred to in clause(a) above, then the amount actually received/receivable shall be taken into account while computing the G.A.V. If any portion of the rent is unrealisable, (condition of unrealisability of rent are laid down in Rule 4 of I.T. Rules) then the same shall not be included in the actual rent received/receivable while computing the G.A.V.
(ii) NET VALUE (N.A.V.) is the GAV less the municipal taxes paid by the owner.
Provided that the taxes were paid during the year.
(iii) ANNUAL VALUE is the N.A.V. less the deductions available u/s 24.
3 DEDUCTIONS U/S 24:- Are exhaustive and no other deductions are available:-
(i) A sum equal to 30% of the annual value as computed above.
(ii) Interest on money borrowed for acquisition/construction/ repair/renovation of property is deductible on accrual basis. Interest paid during the pre-construction/acquisition period will be allowed in five successive financial years starting with the financial year in which construction/acquisition is completed. This deduction is also available in respect of a self-occupied property and can be claimed up to maximum of Rs.30,000/-. The Finance Act, 2001 had provided that w.e.f. A.Y. 2002-03 the amount of deduction available under this clause would be available up to Rs. 1,50,000/- in case the property is acquired or constructed with capital borrowed on or after 1.4.99 and such acquisition or construction is completed before 1.4.2003. The Finance Act 2002 has further removed the requirement of acquisition/ construction being completed before 1.4.2003 and has simply provided that the acquisition/construction of the property must be completed within three years from the end of the financial year in which the capital was borrowed.
4 SOME NOTABLE POINTS
In case of one self-occupied property, the annual value is taken as nil. Deduction u/s 24 for interest paid may still be claimed therefrom. The resulting loss may be set off against income under other heads but can not be carried forward.
If more than one property is owned and all are used for self-occupation purposes only, then any one can be opted as self-occupied, the others are deemed to be let out.
Annual value of one house away from workplace which is not let out can be taken as NIL provided that it is the only house owned and it is not let out.
If a let out property is partly self-occupied or is self-occupied for a part of the year, then the value in proportion to the portion of self-occupied property or period of self-occupation, as the case may be is to be excluded from the annual value.
From assessment year 1999-2000 onwards, an assessee who apart from his salary income has loss under the head “Income from house property”, may furnish the particulars of the same in the prescribed form to his Drawing and Disbursing Officer who shall then take the above loss also into account for the purpose of TDS from salary.
A new section 25B has been inserted with effect from assessment year 2001-2002 which provides that where the assessee, being the owner of any property consisting of any buildings or lands appurtenant thereto which may have been let to a tenant, receives any arrears of rent not charged to income tax for any previous year, then such arrears shall be taxed as the income of the previous year in which the same is received after deducting therefrom a sum equal to 30% of the amount of arrears in respect of repairs/collection charges. It may be noted that the above provision shall apply whether or not the assessee remains the owner of the property in the year of receipt of such arrears.
5. PROPERTY INCOME EXEMPT FROM TAX
Income from farm house (Sec.2(1A)(c) read with sec. 10(1)). Annual value of any one palace of an ex-ruler (Sec. 10(19A)). Property income of a local authority (Sec. 10(20)), university/ educational institution (Sec. 10(23 C)), approved scientific research association (Sec. 10(21)), political party (sec. 13A). Property used for own business or profession (Sec.22). One self-occupied property (sec.23(2)). House property held for charitable purposes (sec. 11).