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House property consists of any building or land appurtenant thereto of which the assessee is the
owner. The appurtenant lands may be in the form of a courtyard or compound forming part of the
building. But such land is to be distinguished from an open plot of land, which is not charged under
this head but under the head Income from Other sources or Business Income , as the case may be.
Besides, house property includes flats, shops, office space, factory sheds, agricultural land and farm
houses. Further, house property includes all type of house properties, i.e., residential houses,
godowns, cinema building, workshop building, hotel building, etc.
Example:- Mr. X has one big house. It includes vast open area within its boundaries. The house has
been let out at a rent of Rs. 1,00,000 p.m., out of which rent of Rs. 25,000 p.m. is attributable to the
open land. In this case, entire rental income is taxable under the head house property. Essential
conditions for taxing income under this head Income from house property is taxable in the hands of its
legal owner in whose name the property stands. Owner for this purpose means a person who can
exercise the rights of the owner not on behalf of the owner but in his own right. A person entitled to
receive income from a property in his own right is to be treated as its owner, even if no registered
document is executed in his name. The following three conditions must be satisfied before the income
of the property can be taxed under the head Income from House Property:
The property must consist of buildings and lands appurtenant thereto;
The assessee must be the owner of such house property;
The property may be used for any purpose, but it should not be used by the owner for the purpose of
any business or profession carried on by him, the profit of which is chargeable to tax. If the property
is used for own business or profession, it shall not be chargeable to tax. Ownership includes both freehold and lease-hold rights and also includes deemed ownership Tax Chargeability [Sec. 22] The
annual value of property consisting of any building or lands appurtenant thereto of which the assessee
is the owner shall be subject to Income-tax under the head Income from House Property after
claiming deduction under Sec. 24, provided such property or any portion of such property is not used
by the assessee for the purpose of any business or profession, carried on by him, the profits of which
are chargeable to Income-tax.
Conditions for claiming Interest on home loan deduction You need to meet all the below 3 conditions to claim
this deduction
Loan has been take after 1st April 1999 for purchase or construction
The acquisition or construction is completed within 3 years from the end of the financial year in which the loan
was taken
There is interest certificate available for the interest payable on the loan
Note that your interest deduction may be limited to Rs 30,000 if any one of these conditions is met
Loan is borrowed before 1st April 1999 for purchase, construction, repairs or reconstruction of house property
Loan is borrowed on or after 1st April 1999 for repairs, renovation or reconstruction of house property.
If you have any questions regarding deductions allowed to you from your House Property Income.
Two or More Self Occupied House Property
You own more than one Self Occupied House Property
In case you own more than 1 House Property and both or all are self-occupied and not let out which means
either youve made one of them your residence and use the other one for some of your own purpose(not
business or profession, since that is covered under the head Profits & Gains of Business & Profession). Your
family, children stay there or you use the other one as a holiday home. In this case you will be allowed to treat
only one of the properties as Self Occupied and all others are considered to be deemed to be Let Out. Or simply,
you income for this house property will be calculated as if it has been let out.
Any one property can be chosen as Self Occupied Property The Tax Department wants you to assume only
one of the properties to be self occupied and therefore the Gross Annual Value of such a house will be nil. And
Interest on Borrowed Money (for purchase or construction) up to Rs 1,50,000 or Rs 30,000 (if taken for repairs
or reconstruction) shall be allowed to be deducted.
For the remaining properties (one or more) there will be an assumption of being let out The Tax Department
does not impose upon you which of the properties should be considered as let out. That choice is completely
yours. Also, in case of a let out property, there is no limit on the amount that you can claim towards interest on
borrowed money which means there is no cap of Rs 1,50,000. Now here is the opportunity for you to save tax
choose the house you would want to declare as let out where you have higher interest cost and lower Annual
Value and this will in turn reduce your overall tax liability. ( Note that Loss under the head House Property is
allowed to be deducted from other heads of income in the current year and can be carried forward for 8 years
and set off against income from house property in those 8 years).
You are not questioned about 2 loans for both these houses except of course by the banks they will make
sure you have sufficient capacity to pay off the loans. You are not asked by the tax department regarding your
choice of deemed to be let out property.
Nil
Nil
Nil
-1,50,000
-1,50,000 (A)
Gurgaon House
Gross Annual Value
3,60,000
-10,000
3,50,000
1,05,000
3,40,000
-95,000 (B)
OPTION 2 Treat Gurgaon house as SELF OCCUPIED and Delhi House AS LET OUT.
Gurgaon House
Gross Annual Value
Nil
Nil
Nil
-1,50,000
-1,50,000 (C)
Delhi House
Gross Annual Value
3,00,000
-10,000
2,90,000
87,000
2,75,000
-72,000 (D)
important to understand the taxes applicable on house property and work out an arrangement that is both
beneficial and convenient for a taxpayer.
In easier way the following deductions are to be made from the annual value while computing income from
house property that is,
(a) 30% of the annual value, in respect of repairs and collection charges; (b) interest payable on loan taken for
acquisition, construction, repair, renewal or re-construction of the property; In respect of a self-occupied
property whose annual value is taken as Nil, no deduction is admissible except deduction for interest payable on
loan as mentioned at (b) above, subject to a ceiling of Rs 30,000/- ( if the property is acquired or constructed
with capital borrowed on or after 1.4.1999 and if the acquisition or construction is completed before 1.4.2003,
the interest allowable as deduction will be Rs.1,50,000/- instead of Rs.30,000/-).
Why Annual Value important for income from House Property?
The determination of Annual Value is important in the context of taxation of income from House Property
because though the tax under the head Income from house property is tax on income, yet it is not in that sense
a tax on income but upon inherent capacity of such property to yield income and for this annual value is the
yardstick.
The inherent capacity has been defined as the sum for which the property might reasonably be expected to be let
from year to-year. It is not necessary, that the property should be actually let. It is also not necessary that the
reasonable return from property should be equal to the actual rent realized when the property is, in fact, let out.
Where the actual rent received is more than the reasonable return, it has been specifically provided that the
actual rent will be the annual value. Where, however, the actual rent is less than the reasonable rent (e.g. in case
where the tenancy is affected by manipulation, emergency, close relationship or such other consideration), the
latter will be annual value.
The municipal value of the property, the cost of construction, the standard rent if any under the Rent Control
Act, the rent of similar properties in the same locality are relevant factors for the determination of the annual
value. However, if a property is let and was vacant during any part or whole of the year and due to such
vacancy, the rent received is less than the notional rent, such lesser amount shall be the Annual Value.
How to determine annual value of self-occupied property?
In case of one self-occupied house property which has not been actually let out at any time, the annual value is
taken as nil. If, one is having more than one house property using all of them for self-occupation, he is entitled
to exercise an option in terms of which, the value of one house property as specified by him will be taken at nil.
The annual value of the other self occupied house properties will be determined on notional basis as if these had
been let out.
from the property. To save the taxpayer from hardship in such situations, it has been specifically provided that
the annual value of such a property would be taken to be nil subject to the following conditions:
He is not able to occupy the house property because of his employment, business etc. being away from
place where the property is situated.
He does not derive any other benefit from the property not occupied
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, (conditions 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.
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.
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 cannot 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.
Annual Value of a home is the capacity of the property to earn income i.e sum for which the property might
reasonably be expected to be let out from year to year.
Computing income from house property is shown in table below:
Gross Annual Value
****
****
****
****
****
The maximum amount of interest permissible in cases of self-occupied property is Rs. 2, 00,000 (from FY 201516 limit of 1.5 lakh was raised to 2 lakh) in respect of funds borrowed on or after 01.04.1999 and 30,000 before
01.04.1999).
1,66,000
Rs
Fair Rent
1,76,000
Rs
Standard Rent
1,50,000
Repairs
Rs 20,000
Municipal Tax
Rs 16,000
Insurance
Rs 2,000
Expense
s
Loans
Rs
Interest on capital borrowed to construct the property
1,36,000
Rs 20,000
Rs 7,10,00
If Loan is
If Loan is taken
before 1-Apr-
after 1-Apr-
Num
Description
1999
1999
Nil
Nil
Nil
Nil
Nil
Nil
-30,000
-1,36,000
-30,000
-1,36,000
Business Income
7,10,000
7,10,000
6,80,000
5,74,000
Mr. Sharma purchased a house property in April 2012 by taking a housing loan from Bank which is
self occupied. Compute the income from house property for the year given following details
Interest paid on loan upto 31st Mar 2015 1,70,000
Principal paid towards the loan 80,000
Municipal Taxes paid 8,000
Insured Premium 3,000
Income from his salary is 6,00,000 and other sources Rs 50,000
Num
Description
Amount(Rs)
Nil
is Nil)
Nil
Nil
-1,70,000
-1,70,000
6,00,000
50,000
4,80,000
Num
Description
Amount(Rs)
Nil
is Nil)
Nil
Nil
-1,74,000
-30,000
-2,00,000
M As per income-tax Interest up to the end of Financial year ,immediate proceeding to the year in
which house is completed is considered as Income tax pre construction period . As construction was
completed in Nov 2012 he can claim interest upto Mar 2015 in five installments in income tax from
FY 2012-13 to FY 2017-18. Hence Kapoor can claim 1/5th of interest paid in pre-construction stage
every year for 5 Years.
Example of Unoccupied property and HRA allowance
Mr Paul has HRA as Rs 30,000 per month or Rs 3.6. lakh per year, and he pays a rent of Rs 22,000
per month. For his basic salary of Rs 60,000 per month, HRA computation would be
The actual HRA he gets is Rs 30,000 per month.
The actual rent paid less 10% of his salary works out to Rs 16,000 (Rs 22,000 6000 ) 6000 is 10%
of Rs 60,000.
And 50% of his basic salary works out to Rs 30,000.
The minimum amount works out to Rs 16,000 per month or Rs 1.92 lakh per year. And that is the
amount that you can claim as a deduction from your taxable income. The remaining portion of your
HRA i.e. Rs 1.68 lakh (Rs 3.6 lakh Rs 1.92 lakh) will be added to his income for the year.
For his Unoccupied house (even when he is not staying but his parents are) his interest for loan is Rs
1,60,000
Num
1
Description
Amount(Rs)
Nil
is Nil)
Nil
Nil
-1,60,000
-1,60,000
Example of Carry Over the Loss From Income From House Property
Mr Khan has one property which is self occupied with Municipal valuation Rs 50,000 Fair rent Rs
60,000 Municipal tax paid by the owner (including Rs. 1000 of last year)10,000 Interest on loan
borrowed for construction (started after 01.04.99 and completed before 1.4.2003) 1,80,000. His salary
is Rs 90,000.
Num
Description
Amount(Rs)
Nil
is Nil)
Nil
Nil
-1,50,000
-1,80,000
90,000
7
Net Income or rather Loss which will be carried forward to next year
-90,000
Net Loss will be carried forward to next year for being set off as per the provisions of Section 71.