Income from House Property
Hello Friends, as u know the time of filing of income tax return is near and this article will helpful for the assesses who has income from house property, yes, in this article we are going to discuss the taxability of Income from House Property.
First of all, there are some conditions for chargeability of the section, these are
1. Property should consist of any building or land appurtenant thereto.
2. Assesses must be the owner of the property, here ownership includes deemed ownership.
3. There must be a use of the property.
4. The property includes held as stock-in-trade etc.
Now, the process of computation of income from house property starts with the determination of annual value, and the method of determination is laid down in section 23. There are two exceptions of the chargeability, these are:
Determination of Annual Value (U/S 23)
1. Where the property is let out throughout the previous year :
There are steps to determine –
Step I: Compare Municipal Rental Value With Fair Rental Value of the House and Take HIGHER,
Step II: then compare HIGHER from step I with Standard Rent and take LOWER,
Step III: then compare LOWER from step II with Actual Rent Received or Receivable,
This will comes the Gross Annual Value.
Step IV: Deduct Municipal Taxes paid by the owner/assesse.
2. Where let out property is vacant for part of the year :
Where let out property is vacant for part of the year and owing to vacancy, the actual rent is lower than the Expected Rent (ER), then the actual rent received or receivable will be the Gross Annual Value of the property.
3. Where the property is self-occupied:
Where the property is self-occupied for own residence or unoccupied throughout the previous year, its Annual Value will be Nil, provided no other benefit is derived by the owner from such property.
The benefit of Nil Annual Value in respect of Two Self occupied house properties is available only to an individual/HUF.
4. Where a house property is let out for part and self-occupied for part of the year :
If a single unit of a property is self-occupied for part of the year and let out for the remaining part of the year, then the Expected Rent for the whole year shall be taken into account.
The Expected Rent for the whole year shall be compared with the actual rent for the let-out period and whichever is higher shall be adopted as the Gross Annual Value (GAV).
5. Where a property is deemed to be let out :
Where the assessee owns more than two house properties for self-occupied, then the assesee can choose two house properties for self-occupied and the other will be treated as deemed to be let out, in that case, the Expected Rent shall be taken as the Gross Annual Value (GAV).
6. Where a house property held as Stock-in-Trade :
In such cases, the annual value of such property shall be Nil. This benefit would be available for the period up to Two years from the end of the financial year in which a certificate of completion of construction of the property is obtained from the competent authority.
7. Where a portion is let out and a portion is self-occupied of a Property :
Income from any portion or part of a property which is let out shall be computed separately under the “let out property” category, hence there is no need to treat the whole property as a single unit.
Deductions from Annual Value (U/S 24)
There are two deductions from annual value. They are—
1. 30% of Net Annual Value [u/s 24(a)]:
This is a flat deduction and is allowed irrespective of the actual expenditure incurred. This deduction is NOT Available in the following cases:
1. Self-occupied property
2. Property held as stock in trade.
3. Interest on borrowed capital [u/s 24(b)] :
Interest payable on loans borrowed for the purpose of acquisition, Construction, Repairs, renewal, or reconstruction can be claimed as a deduction.
Interest payable on fresh loans taken to repay the original loan raised earlier for the aforesaid purposes is also allowed as a deduction.
1. Interest for pre-construction period:-
The pre-construction period is the period prior to the previous year in which property is acquired or construction is completed.
Interest payable on borrowed capital for the period prior to the previous year in which the property has been acquired or constructed (Pre-construction interest) as reduced by any part thereof allowed as a deduction under any other provision of the Act, can be claimed as deduction over a period of 5 years in equal annual installments commencing from the year of acquisition or completion of construction.
Interest for the year in which construction is completed/ property is acquired:
Interest relating to the year of completion of construction/ acquisition of property can be fully claimed in that year irrespective of the date of completion/ acquisition
1. Deduction in respect of self-occupied or unoccupied property where annual value is nil:-
However, the total interest deduction under (a) and (b) cannot exceed 2,00,000.
COMPUTATION OF “INCOME FROM HOUSE PROPERTY” FOR DIFFERENT CATEGORIES OF PROPERTY
|Computation of GAV
Step 1: Compute ER
ER = Higher of MV and FR, but restricted to SR
|Step 2: Compute Actual rent received/receivable Actual rent received/receivable less unrealized rent as per Rule 4|
|Step 3: Compare ER and Actual rent received/receivable|
|Step 4: GAV is the higher of ER and Actual rent received/receivable|
|Gross Annual Value (GAV)||A|
|Less: Municipal taxes (paid by the owner during the previous year)||B|
|Net Annual Value (NAV) = (A-B)||C|
|Less: Deductions u/s 24
(a) 30% of NAV D
(b) Interest on borrowed capital (actual without any ceiling limit) E
|Income from house property (C-F)||G|
INADMISSIBLE DEDUCTIONS (U/S 25)
Interest chargeable under this Act which is payable outside India shall not be deducted if –
PROVISION FOR ARREARS OF RENT AND UNREALIZED RENT RECEIVED SUBSEQUENTLY [U/S 25A]
TREATMENT OF INCOME FROM CO- OWNED PROPERTY [U/S 26]
However, the aggregate deduction of interest to each co-owner in respect of interest payable on loan taken for co-owned house property and interest, if any, payable on loan taken for another self-occupied property owned by him cannot exceed ` 30,000/ ` 2,00,000, as the case may be.
DEEMED OWNERSHIP [U/S 27]
As per section 27, the following persons, though not legal owners of a property, are deemed to be the owners for the purposes of section 22 to 26.
Exception – In case of transfer to a spouse in connection with an agreement to live apart, the transferor will not be deemed to be the owner. The transferee will be the owner of the house property.
Exception – In case of transfer to a minor married daughter, the transferor is not deemed to be the owner.
Note – Where cash is transferred to spouse/ minor child and the transferee acquires property out of such cash, then the transferor shall not be treated as deemed owner of the house property. However, clubbing provisions will be attracted.
After the enactment of the Hindu Succession Act, 1956, all the properties comprised in an impartible estate by custom is to be assessed in the status of a HUF. However, section 27(ii) will continue to be applicable in relation to impartible estates by grant or covenant.
In all the above cases, the buyer would be deemed to be the owner of the property although it is not registered in his name.
Exception – In case the person acquiring any rights by way of lease from month to month or for a period not exceeding one year, such person will not be deemed to be the owner.