Treatment of Income from House Property

Vishal Punchhi 21 Dec 2020 8,901 Views 1 comment Print Income Tax | Articles

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:

A portion of the property occupied by the assesses for the purpose of any business or profession carried on by him.
Properties of an assessee engaged in the business of letting out of properties.

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:-

Loan borrowed before 1.4.99: Actual interest payable in aggregate for one or two self-occupied properties, subject to a maximum of 30,000.
Loan borrowed on or after 1.4.99: Actual interest payable in aggregate for one or two self-occupied properties, subject to a maximum of 2,00,000, if certificate mentioned in (2) below is obtained.
Where the property is repaired, renewed or reconstructed with capital borrowed on or after 1.4.99. : – Actual interest payable in aggregate for one or two self-occupied properties, subject to a maximum of 30,000.

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

Property let-out throughout the year

Particulars	Amount
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	F
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 –

the tax has not been paid or deducted from such interest and,
in respect of which there is no person in India who may be treated as an agent.

PROVISION FOR ARREARS OF RENT AND UNREALIZED RENT RECEIVED SUBSEQUENTLY [U/S 25A]

As per section 25A(1), the amount of rent received in arrears from a tenant or the amount of unrealized rent realized subsequently from a tenant by an assessee shall be deemed to be income from house property in the financial year in which such rent is received or realized, and shall be included in the total income of the assesses under the head “Income from house property”, whether the assessee is the owner of the property or not in that financial year.
Section 25A(2) provides a deduction of 30% of arrears of rent or unrealized rent realized subsequently by the assessee.
Summary :
Taxable in the year of receipt/realization
Deduction@30% of rent received/realized
Taxable even if the assessee is not the owner of the property in the financial year of receipt/realization.

TREATMENT OF INCOME FROM CO- OWNED PROPERTY [U/S 26]

Where property is owned by two or more persons, whose shares are definite and ascertainable, then the income from such property cannot be taxed as income of an
The shared income of each such co-owner should be determined in accordance with sections 22 to 25 and included in his individual
Where the house property owned by co-owners is self-occupied by each of the co-owners, the annual value of the property of each co-owner will be Nil and each co-owner shall be entitled to a deduction of Rs. 30,000 / Rs. 2,00,000, as the case may be, under section 24(b) on account of interest on borrowed

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.

Where the house property owned by co-owners is let out, the income from such property shall be computed as if the property is owned by one owner and thereafter the income so computed shall be apportioned amongst each co-owner as per their specific

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.

Transfer to a spouse [Section 27(i)] – In case of transfer of house property by an individual to his or her spouse otherwise than for adequate consideration, the transferor is deemed to be the owner of the transferred

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.

Transfer to a minor child [Section 27(i)] – In case of transfer of house property by an individual to his or her minor child otherwise than for adequate consideration, the transferor would be deemed to 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.

Holder of an impartible estate [Section 27(ii)] – The impartible estate is a property which is not legally The holder of an impartible estate shall be deemed to be the individual owner of all properties comprised in the estate.

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.

Member of a co-operative society [Section 27(iii)] – A member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a House Building Scheme of a society/ company/ association, shall be deemed to be the owner of that building or part thereof allotted to him although the co-operative society/ company/ association is the legal owner of that building.
The person in possession of property [Section 27(iiia)] – A person who is allowed to take or retain the possession of any building or part thereof in part performance of a contract of nature referred to in section 53A of the Transfer of Property Act shall be the deemed owner of that house This would include cases where the –
- possession of the property has been handed over to the buyer
- sale consideration has been paid or promised to be paid to the seller by the buyer
- sale deed has not been executed in favor of the buyer, although certain other documents like power of attorney/ agreement to sell/ will etc. have been

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.

A person having right in a property for a period not less than 12 years [Section 27(iiib)] – A person who acquires any rights in or with respect to any building or part thereof, by virtue of any transaction as is referred to in section 269UA(f) e. transfer by way of lease for not less than 12 years, shall be deemed to be the owner of that building or part thereof.

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.