Income from House Property INTRODUCTION

This is the only head of income, which taxes notional income (except under some circumstances under capital gains, income from other sources). The taxability may not necessarily be of actual rent or income received but the potential income, which the property is capable of yielding. Accordingly, if a person owns a property which is laying vacant, notional income with respect to such property may be liable to tax even though the owner may not have received any income from such property. Further, if the property is let out and the rent received is less than the potential rent which the property is capable of yielding, tax would be payable on the rent which the owner is capable of getting and not on the actual rent (Refer heading !"etermination of annual value!). Though the head of chargeability of the income is #ncome from house property what is charged under this head not only the income from house (dwelling) but all income arising out of letting of building. #n other words $ections %% to %& are wholly silent as to the purpose for which a building or a house property is to be used. This head of income can be aptly described as income from properties.

House property is defined to mean [section 314 (116 !"

'

Any building or land appurtenant to, along with facilities and services (in built or provided separately)( and

'

Any building along with any machinery, plant, furniture or any other facility or services (in built or provided separately)

O#$%CTI&%' (fter )oin) t*rou)* t*is +esson, you -i++ .e a.+e to understand"
) ) ) ) ) The meaning of house property *ho is treated as owner of house property The treatment of rental income from properties under different circumstances "etermination of the annual value of a house property The expenses deductible from rental+notional income from house property
1

Income from House Property

) ) $pecial treatment given to self,occupied house property Treatment of income+loss from house property.

#('I' O/ CH(R0% ('%CTION 11

The annual value of a property, consisting of any buildings or lands appurtenant thereto, of which the assessee is the owner, is chargeable to tax under the head -#ncome from house property.. /owever, if a house property, or any portion thereof, is occupied by the assessee, for the purpose of any business or profession, carried on by him, the profits of which are chargeable to income,tax, the value of such property is not chargeable to tax under this head. Thus, head. 0. %. 1. three conditions are to be satisfied for property income to be taxable under this The property should consist of buildings or lands appurtenant thereto. The assessee should be the owner of the property. The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to income,tax.

(223IC(#I3IT4 O/ '%CTION 11
#ui+din)s or +ands appurtenant
The term -building. includes residential houses, bungalows, office buildings, warehouses, doc2s, factory buildings, music halls, lecture halls, auditorium etc. The appurtenant lands in respect of a residential building may be in the form of approach roads to and from public streets, compounds, courtyards, bac2yards, playgrounds, 2itchen garden, motor garage, stable or coach home, cattle,shed etc, attached to and forming part of the building. #n respect of non,residential buildings, the appurtenant lands may be in the form of car,par2ing spaces, roads connecting one department with another department, playgrounds for the benefit of employees, etc. All other types of properties are excluded from the scope of section %%. Rental income from a vacant plot of land (not appurtenant to a building) is not chargeable to tax under the head -#ncome from house property., but is taxable either under the head -3rofits and gains of business or profession. or under the head -#ncome from other sources., as the case may be. /owever, if there is land appurtenant to a house property, and it is let out along with the house property, the income arising from it is taxable under this head.

O-ners*ip of *ouse property

#t is only the owner (or deemed owner) of house property who is liable to tax on income under this head. 4wner may be an individual, firm, company, co, operative society or association of persons. The property may be let out to a third party either for residential purposes or for business purposes. Annual value of property is assessed to tax
2

Income from House Property

in the hands of the owner even if he is not in receipt of the income. For tax purposes, the assessee is re5uired to be the owner in the previous year only. #f the ownership of the property changes in the relevant assessment year, it is immaterial as the tax is to be paid on the income of the previous year. #ncome from subletting is not taxable under section %%. For example, A owns a house property. /e lets it out to be 6. 6 further lets it (or a portion of it) out to 7. Rental income of A is taxable under the head -#ncome from house property.. /owever, since 6 is not the owner of the house, his income is not taxable as income from house property, but as income from other sources under section 89.

2RO2%RT4 O5N%D #4 CO6O5N%R' ('%CTION 16

*here property consisting of buildings and lands appurtenant thereto is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not be assessed as an A.4.3. (Association of 3ersons) but the share of each person in the income from the property as computed under sections %% to %8 (i.e., income from house property) shall be included in his total income. 4wner includes deemed owner u+s %& as under: ; Transfer to spouse without ade5uate consideration or to a minor child not being a married daughter. /owever, if the transfer is under an agreement to live apart, such transfer to the spouse would not be covered. ; /older of impartial estate shall be deemed to be owner of all the properties comprised in the estate ; A member of a co,operative society, company or other association to whom a building is allotted or leased under a house building scheme of society, company or other association as a case may be. ; A person who is allowed to ta2e or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 81A of the Transfer of 3roperty Act,0<<% (= of 0<<%). ; A person who ac5uires any lease rights of not less than twelve years (excluding any rights by way of a lease from month to month or for a period not exceeding one year) 4fficial assignee can be treated as owner for the purpose of section %% except when the receiver is appointed by court. ; Refer $ection 89(%)(iii). The /on.ble $upreme 7ourt has in the case of Shambhu Investments (P.) Ltd. vs. CIT (%>>1) %91 #TR 0=1 ($7) held that income from letting out would be taxable under the head !#ncome from house property! primarily on the ground that letting of building was a primary ob?ect with additional right to use furniture, etc.

Income from House Property 2roperty used for o-n .usiness or profession
The owner of a house property is not liable to tax under this head if the property is used by him for his own business or profession. 6ut the business or profession should be such whose income is chargeable to tax. 7hargeability to tax does not mean that the income is actually taxed. #t is possible that in a particular year the profits are not sufficient enough to attract tax liability. *hat it means is that the income from such business or profession is not exempt from tax. #f an employer builds 5uarters for residential use by his employees and the letting out of these 5uarters is considered as incidental to his business, the income from such property is not taxable under this head, because the property in this case is considered to be used by the owner for his own business. #t shall, therefore, be taxed as business income. The above position will not change even if the buildings are let out to government authorities for locating their underta2ings li2e 6an2s, 3ost 4ffice, 3olice $tation, 7entral @xcise 4ffice, etc., provided the dominant purpose of letting out the accommodation is to enable the assessee to carry on his business more efficiently and smoothly. Also, income from paying,guest accommodation is taxable as income from business. *here house property owned by a partner is used by the firm (neither it is let out to the firm nor any rent is obtained for it) for its business purposes, the partner is entitled to the exemption. The reason for this exemption is that the notional rent of property is not allowable as a permissible deduction while computing business income, if a person carries on the business or profession in his own house property.

Disputed O-ners*ip
#f the title of ownership of a house property is disputed in a court of law, the decision as to who is the owner rests with the #ncome,tax "epartment. Aere existence of dispute as to title cannot hold up an assessment even if a suit has been filed. Benerally the recipient of rental income or the person who is in possession of the property is treated as owner.

House 2roperty In ( /orei)n Country

A resident assessee is taxable under section %% in respect of annual value of a property in a foreign country. A resident but not ordinarily resident or a non, resident is, however, chargeable under section %% in respect of income of a house property situated aboard, provided income is received in #ndia during the previous year. #f tax incidence is attracted under section %% in respect of a house property situated abroad, its annual value will be computed as if the property is situated in #ndia.

Income from House Property

Composite Rent
#n some cases, the owner obtains rent of other assets (li2e furniture) or he charges for different services provided in the building (for instance, charges for lift, security, air conditioning, etc.), apart from obtaining the rent of the building. The amount so recovered is 2nown as composite rent. #f the owner of a house property gets a composite rent for the property as well as for services rendered to the tenants, composite rent is to be split up and the sum which is attributable to the use of property is to be assessed in the form of annual value under section %%. The amount which relates to rendition of the services (such as electricity supply, provisions of lifts, supply of water, watch and ward facilities, etc.) is charged to tax under the head -3rofits and gains of business or profession. or under the head -#ncome from other sources.. #f there is letting of machinery, plant and furniture and also letting of the building and the two lettings form part and parcel of the same transaction or the two lettings are inseparable, then such income is taxable either as business income or income from other sources. This happens in the case of letting out of hotel rooms, theatres, auditoriums, etc. #t is commonly understood that the charges per day for a room in a hotel are not specifically for the room only. #n fact, a ma?or portion of room tariff is for the amenities and services provided in the hotel. $imilar is the case where a cinema house is let out at composite rent charged for the building, furniture, machines, e5uipment, staff, power consumption, etc. #n all such cases, the composite rent received by the owner of the property is not to be split up and nothing is taxable as income from house property.

Renta+ Income Of ( Dea+er In House 2roperty

#f a person is engaged in the business of purchasing house properties with the purpose of letting them on high rents and disposing off those properties which are not profitable for this purpose, the rental income from such property will not be taxed as business income. Any rent from house property, whether received by a dealer or a landlord, is taxable under the head -#ncome from house property.. #t will remain so even if the property is held by the assessee as stoc2,in,trade of a business or if the assessee is a company which is incorporated for the purpose of building houses and letting them on rent.

INCO7% CH(R0%(#3% R%(3 8 NOTION(3

This is the only head of income, which taxes notional income (except under some circumstances under capital gains, income from other sources). The taxability may not necessarily be of actual rent or income received but the potential income, which the property is capable of yielding. Accordingly, if a person owns a property which is leying vacant, notional income with respect to such property may be liable to tax even though the owner may not have received any income from such property. Further, if the property is let out and the rent received is less than the potential rent which the property is capable of yielding, tax would be payable on the rent which the owner is capable of getting and not on the actual rent (Refer heading !"etermination of annual value!). Though the head of chargeability of the income is #ncome from house property what is charged under this head not only the income from house (dwelling) but all income arising out of letting of building.
5

Income from House Property

#n other words $ections %% to %& are wholly silent as to the purpose for which a building or a house property is to be used. This head of income can be aptly described as income from properties.

UNR%(3I'%D R%NT R%(3I'%D 'U#'%9U%NT34 : '%C; 1<((

The entire amount of unrealised rent received in the 3C shall be chargeable to tax in the year in which such amount is received. (The deduction u+s %1+%= shall not be allowed if the unrealised rent pertaining to period up to AC %>>0,>% D deduction u+s %=(0)(x) in respect thereof was allowed in earlier years.)

Enrealised rent received subse5uently is chargeable to tax even if the house property is not owned by the assessee in the year of such recovery.

(RR%(R' O/ R%NT R%C%I&%D '; 1<#

*here any arrears of rent is received which was not taxed earlier, such rent shall be assessed under the head !#ncome from house property! in the year in which such arrears are received i.e. taxable on receipt basis. The arrears would be taxable under this head irrespective of the fact whether the assessee is the owner of the buildings in the year in which such arrears are received. A deduction of 1>F on account of repairs on the arrears of rent received would be allowed in the year in which such arrears are taxable.

2RO2%RT4 INCO7%' %=%72T /RO7 T(=

$ome incomes from house property are exempt from tax. They are neither taxable nor included in the total income of the assessee for the rate purposes. These are: 0. #ncome from a farm house Gsection %(0A) (c) and section 0>(0)H. %. Annual value of one palace in the occupation of an ex,ruler Gsection 0>(0IA)H.

1. 3roperty income of a local authority Gsection 0>(%>)H. =. 3roperty income of an approved scientific research association Gsection 0>(%0)H. 8. 3roperty income of an educational institution and hospital Gsection 0>(%17)H.

Income from House Property

9. 3roperty income of a registered trade union Gsection 0>(%=)H. &. #ncome from property held for charitable purposes Gsection 00H. <. 3roperty income of a political party Gsection 01AH. I. #ncome from property used for own business or profession Gsection %%H. 0>. Annual value of one self occupied property Gsection %1(%)H.

House property -*ic* is +et t*rou)*out t*e pre>ious year

'tep 1" "etermine the gross annual value which is higher of two

(a the sum for which the property might reasonably be expected to let from year to year which is higher of
o o

Aunicipal Jaluation Fair Rental value. (

6ut the value does not exceeds $tandard Rent or

(. where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable.

Conc+usion" First step is to calculate the Bross Annual Jalue which will be maximum of Aunicipal Jalue or Fair Rental Jalue, but restricted to the standard rent. /owever if the actual rent received or receivable exceeds such amount then the actual rent so received+receivable shall be the Bross Annual Jalue.

CO72UT(TION O/ INCO7% /RO7 3%T OUT HOU'% 2RO2%RT4

#ncome from house property is determined as under: Bross Annual Jalue Kess: Aunicipal Taxes Let Annual Jalue Kess: "eductions under $ection %= , $tatutory "eduction (1>F of LAJ) , #nterest on 6orrowed 7apital #ncome From /ouse 3roperty xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxxx

Income from House Property CO72UT(TION O/ INCO7% /RO7 '%3/ ? OCCU2I%D HOU'% 2RO2%RT4
The annual value of one self,occupied house property, which has not been actually let out at any time during the previous year, is ta2en as -Lil. G$ection %1(%) (a)H. From the annual value, only the interest on borrowed capital is allowed as a deduction under section %=. The amount of deduction will be: ) ) @ither the actual amount accrued or Rs.1>,>>>+, whichever is less *hen borrowal of money or ac5uisition of the property is after 10.1.0III , deduction is Rs.0, 8>,>>>+, applicable to A.C %>>%,>1 and onwards.

/owever, if the borrowal is for repairs, renewals or reconstruction, the deduction is restricted to Rs.1>, >>>. #f the borrowal is for construction+ac5uisition, higher deduction as noted above is available. #f a person owns more than one house property, using all of them for self, occupation, he is entitled to exercise an option in terms of which, the annual value of one house property as specified by him will be ta2en at Lil. The other self occupied house property+is will be deemed to be let out and their annual value will be determined on notional basis as if they had been let out.

%=(723%61
M ta2es a loan of Rs. 0>, >>,>>> N 0%F p.a. on Ouly0, %>>0 for the construction of a house property. The construction of the property is completed on Oanuary08, %>>=. 7alculate the amount of interest deductible in the different previous years. 'O3UTION 0%F of Rs. 0>, >>,>>> P Rs. 0%,>>> will be deductible from the annual value of the house property every year till the loan is repaid. #nterest for the pre,construction period i.e. from Ouly 0, %>>0 to Aarch 10, %>>1 (immediately preceeding the previous year during which the construction of the house property is completed) will be Rs. 0%,>>> Q%0+0% P Rs. %0,>>>. #t will be deductible in 8 e5ual installments of Rs. =,%>> each starting from the previous year in which the construction is completed i.e. %>>1,>=. Therefore, the total amount deductible as interest on borrowed capital for the first 8 previous years %>>1,>=, %>>=,>8, %>>8,>9, %>>9,>& and %>>&,>< will be Rs. 0%,>>> R =,%>> P Rs. 09,%>>.

Income from House Property

(nnua+ &a+ue of one *ouse a-ay from -or@ p+ace ['ection 13(1 (. !
A person may own a house property, for example, in 6angalore, which he normally uses for his residence. /e is transferred to 7hennai, where he does not own any house property and stays in a rental accommodation. #n such a case, the house property in 6angalore cannot be used for self,occupation and notional income, therefore, would normally have been chargeable although he derives no benefit from the property. To save the tax payer from hardship in such situations, it has been specifically provided that the annual value of such a property would be ta2en to be nil sub?ect to the following conditions:
) )

The assessee must be the owner of only one house property. /e is not able to occupy the house property because of his employment, business etc., away from the place where the property is situated. ) The property should not have been actually let or any benefit is derived therefrom. ) /e has to reside at the place of employment in a building not belonging to him.

(nnua+ &a+ue of a *ouse property -*ic* is part+y se+f ? occupied and part+y +et out
#f a house property consists of two or more independent residential units, one of which is self occupied and the other unit(s) are let out, the income from the different units is to be calculated separately. The income from the unit which is self occupied for residential purposes is to be calculated as per the provisions of $ection %1(%)(a) i.e. the annual value will be ta2en as nil and only interest on borrowed capital will be deductible upto the maximum limit of Rs. 0,8>,>>> or Rs. 1>,>>>, as the case may be. The income from the let out unit(s) will be calculated in the same manner as the income from any let out house property. #f a house property is self occupied for a part of the year and let out for the remaining part of the year, the benefit of $ection %1(%) (a) is not available and the income from the property will be calculated as if it is let out.

In case of se+f occupied House 2roperty interest a++o-a.+e is su.Aect to fo++o-in) conditions"

'r; 2articu+ars No; 0.

3imit of deduction (in Rs;

3roperty ac5uired+constructed after 0,8>,>>>.>> 0st April, 0III with borrowed capital (deduction is allowed only where such ac5uisition or construction is completed within 1 years from the end of the financial
9

Income from House Property

year in which borrowed) %. Lote: a. #nterest on new loan ta2en to repay original loan is considered as loan ta2en for such ac5uisition, construction etc. (Refer 76"T 7ircular Lo. %< dt. %>.><.0I9I). b. *here interest is claimed as a deduction, a certificate from the lender certifying the amount of interest payable should be furnished by the assessee. c. The list of deduction specified u+s %= are exhaustive, no other deduction can be claimed other than specified therein. d. #nterest on borrowed money which is payable outside #ndia shall not be allowed as deduction u+s %=(b) unless the tax on the same has been paid or deducted at source and in respect of which, there is a person in #ndia, who may for house construction will not be allowed. e. be treated as agent of the recipient for such purpose. #n all other cases. capital was 1>,>>>.>>

%=(723%61
Ar. Amrit owns two houses. The relevant details are as follows: /ouse # $elf occupied April 0, %>>8 to Oune 1>, %>>8 Ouly 0, %>>8 to Aarch 10, %>>9 Rs. <,>>> Rs. I>,>>> Rs. 0, >>,>>> Rs. 0, >>,>>> Rs. &%,>>> Rs. 0%,>>> Rs. %>,>>> /ouse ## Ouly 0, %>>8 to Aarch 10, %>>9 April 0, %>>8 to Oune 1>, %>>8 Rs. 8,>>> Rs. 9>,>>> Rs. 98,>>> Rs. 8>,>>> Rs. 08,>>> Rs. <,>>> Rs. =,>>>

Ket out Rent per month Aunicipal valuation Fair rent $tandard rent Rent of let out period Aunicipal taxes paid #nterest on borrowed capital

Ca+cu+ate income from *ouse property for t*e assessment year 1BB66BC;

10

Income from House Property

'O3UTION /ouse # Bross Annual Jalue Kess: Aunicipal taxes Let Annual Jalue Kess: "eductions under $ection %= $tatutory deduction (1>F of LAJ) #nterest on borrowed capital #ncome from house property %9,=>> %>,>>> =0,9>> 0%,9>> =,>>> %8,=>> 0, >>,>>> 0%,>>> <<,>>> /ouse ## 8>,>>> <,>>> =%,>>>

D%T%R7IN(TION O/ (NNU(3 &(3U%

The basis of calculating #ncome from /ouse property is the -annual value.. This is the inherent capacity of the property to earn income and it has been defined as the amount for which the property may reasonably be expected to be let out from year to year. #t is not necessary that the property should actually be let out. #t is also not necessary that the reasonable return from property should be e5ual to the actual rent realiSed when the property is, in fact, let out. *here the actual rent received is more than the reasonable return, it has been specifically provided that the actual rent will be the annual value. *here, however, the actual rent is less than the reasonable rent (e.g., in case where the tenancy is affected by fraud, emergency, close relationship or such other consideration), the latter will be the annual value. The municipal value of the property, the cost of construction, the standard rent, if any, under the Rent 7ontrol Act, the rent of similar properties in the same locality, are all pointers to the determination of annual value. 0ross (nnua+ &a+ue ['ection 13(1 ! The following four factors have to be ta2en into consideration while determining the Bross Annual Jalue of the property: 0. Rent payable by the tenant (actual rent) %. Aunicipal valuation of the property. 1. Fair rental value (mar2et value of a similar property in the same area). =. $tandard rent payable under the Rent 7ontrol Act.

(ctua+ Rent" #t is the most important factor in determining the annual value of a let out house property. #t does not include rent for the period during which the property remains vacant. Aoreover, it does not include the rent that the tax payer is unable to realiSe, if certain conditions are satisfied. $ometimes a tenant pays a composite rent for
11

Income from House Property

the property as well as certain benefits provided by the landlord. $uch composite rent is to be disintegrated and only that part of it which is attributable to the letting out of the house property is to be considered in the determination of the annual value. 7unicipa+ &a+uation" Aunicipal or local authorities charge house tax on properties situated in the urban areas. For this purpose, they have to determine the income earning capacity of the property so as to calculate the amount of house tax to be paid by the owner of the property. 6ut this valuation cannot be treated as a conclusive evidence of the rental value of the property, although such valuation is given due consideration by the Assessing 4fficer. /air Renta+ &a+ue" #t is the rent normally charged for similar house properties in the same locality. Although two properties cannot be ali2e in every respect, the evidence provided by transactions of other parties in the matter of other properties in the neighborhood, more or less comparable to the property in 5uestion, is relevant in arriving at reasonable expected rent. 'tandard Rent" $tandard Rent is the maximum rent which a person can legally recover from his tenant under a Rent 7ontrol Act. This rule is applicable even if a tenant has lost his right to apply for fixation of the standard rent. This means that if a property is covered under the Rent 7ontrol Act, its reasonable expected rent cannot exceed the standard rent. The Bross Annual Jalue is the municipal value, the actual rent (whether received or receivable) or the fair rental value, whichever is highest. #f, however, the Rent 7ontrol Act applies to the property, the gross annual value cannot exceed the standard rent under the Rent 7ontrol Act, or the actual rent, whichever is higher. #f the property is let out but remains vacant during any part or whole of the year and due to such vacancy, the rent received is less than the reasonable expected rent, such lesser amount shall be the Annual value. For the purpose of determining the Annual value, the actual rent shall not include the rent which cannot be realiSed by the owner. /owever, the following conditions need to be satisfied for this: (a) The tenancy is bona fide( (b) The defaulting tenant has vacated, or steps have been ta2en to compel him to vacate the property. (c) The defaulting tenant is not in occupation of any other property of the assessee( (d) The assessee has ta2en all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfied the Assessing 4fficer that legal proceedings
would be useless.

(NNU(3 &(3U% TO #% T(D%N (' ENI3F IN C%RT(IN C('%'

12

Income from House Property

a. The annual value of a property which is in occupation of the owner for the purposes of his residence would be considered to be nil if he does not derive any other benefit from the said residential house. #f the owner has more than one house for the purposes of his residence, the annual value of any one of such houses, at his option, would be considered to be nil. Lotional income of other residential houses would be liable to tax. #n such case owner may choose to consider the annual value nil (for computation purposes) in respect of the one property at his option.

b. $imilarly, if the assessee is owner of only one residential house which he is unable to occupy on account of his employment, business or profession carried on at any other place and on account of which he has to reside at that other place in a building not owned by him, the annual value of such house shall be nil.

D%T%R7IN(TION O/ N%T (NNU(3 &(3U% (N(&

The following amounts are re5uired to be reduced while determining the net annual value : a. Any taxes levied by any local authority, which are liable to be paid by the owner, only on actual payment thereof during the previous year( and b. The unrealisable rent sub?ect to satisfaction of conditions prescribed under Rule =. Amount of unrealised rent shall be e5ual to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where,;

the tenancy is bona fide the defaulting tenant has vacated, or steps have been ta2en to compel him to vacate the property the defaulting tenant is not in occupation of any other property of the assessee the assessee has ta2en all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing 4fficer that legal proceedings would be useless.

CO72UT(TION O/ INCO7% /RO7 HOU'% 2RO2%RT4 IN NUT'H%33

2articu+ars Type of 2roperty
13

Income from House Property

3et6Out 2roperty uGs; 13(1 (mt; Rs; (i) Reasonably @xpected Rent (ii) Actual rent received or receivable 0ross (nnua+ &a+ue (0(& 1; (i or, 1; (ii H(i , t*en (ii or, 3; (ii I(i due to >acancy t*en (ii Kess Aunicipal Taxes paid to local authority by the owner 1; Net (nnua+ &a+ue(N(& Kess: "eduction u+s. %= (a) 1>F of LAJ MMM (MMM) MMM (mt; Rs; MMM MMM MMM

'e+f6Occupied House 2roperty uGs; 13(1 (mt; Rs; (mt; Rs; L#K L#K

Deemed to .e 3et6 Out 2roperty uGs; 13(4 (mt; Rs;

(mt; Rs; MMM L#K

L#K

MMM

L#K L#K

(MMM) MMM

L#K MMM (MMM) === (MMM) (===

MMM MMM (MMM) ===

(b) #nterest on loans as allowed MMM 1; Tota+ Deductions (a J(. A. #ncome from /ouse 3roperty (0,%) #. Add Enrealised Rent Received sub?ect to conditions of deduction u+s. %1+%= C. Add Arrears of Rent MMM

===

NI3

NI3

L#K

L#K

14

Income from House Property

Received (MMM) Kess: 1>F of arrears of Rent ;;; ;; === L#K NI3 L#K NI3

Tota+ Income from House 2roperty ((J#JC

===

===

===

Note" The rent received may be charged under the head business income or income from other sources where the assessee carries out an organised activity of letting out of the properties and+or the predominant ob?ect of receiving such rent is the commercial exploitation of such property.

3oss /rom House 2roperty

#f the aggregate amount of permissible deductions exceeds the annual value of the house property, there will be a loss from that property. $o far as income from a self, occupied property is concerned, and in respect of a property away from the wor2place, the annual value is ta2en at nil and no other deductions are allowed except for interest on borrowed capital upto a maximum of Rs.1>,>>> or Rs.0,8>,>>>. #n such cases, there may be a loss upto a maximum of Rs.1>, >>> or Rs.0, 8>,>>>, as the case may be. /owever, in respect of a let out house property, there are no restrictions on deductions and therefore, there can be loss of any amount under this head. The loss from one house property can be set off against the income from another house property. The remaining loss, if any, can be set off against incomes under any other head li2e salary. #n case the loss does not get wiped out completely, the balance will be carried forward to the next assessment year to be set off against the income from house property of that year. /owever, such carry forward is restricted to eight assessment years only. %=(723% 6 3 /ind t*e 0ross (nnua+ &a+ue in t*e case of t*e fo++o-in) properties" (0) Aunicipal value Fair rent $tandard rent Actual rent receivable 8%,>>> 9>,>>> LA 88,>>> (%) 0, >>,>>> 0, >%,>>> I>,>>> I8,>>> (1) 9>,>>> 9<,>>> &>,>>> &%,>>> (=) &8,>>> &>,>>> 9>,>>> &%,>>> (8) 0, <>,>>> 0, <8,>>> 0, &8,>>> 0, 9<,>>>

15

Income from House Property 'O3UTION

(0) $ince Rent 7ontrol Act is not applicable, BAJ will be the highest of municipal value, fair rent and actual rent. /ence, the BAJ will be Rs. 9>,>>>. (%) BAJ cannot exceed the standard rent or actual rent, whichever is higher. Therefore, BAJ will be Rs. I8,>>>. (1) Actual rent receivable will be reduced by the amount of unrealiSed rent i.e. Rs. &%,>>> Rs. 8,>>> P Rs. 9&,>>>. Low, BAJ will be the highest of municipal value, fair rent and actual rent, sub?ect to the maximum of standard rent. /ence, BAJ will be Rs. 9<,>>>. (=) BAJ will be the actual rent receivable ad?usted by the loss due to vacancy i.e. Rs. &%,>>> Rs. =<,>>> P Rs. %=,>>>. (8) Actual rent receivable will be reduced by the amount of unrealiSed rent and loss due to vacancy i.e. Rs. 0, 9<,>>> Rs. =%,>>> Rs. 0=,>>> P Rs. 0, 0%,>>>. Low, we will ta2e the highest of municipal value, fair rent and actual rent, sub?ect to the maximum of standard rent. $o, BAJ will be Rs. 0, &8,>>> reduced by the loss due to vacancy i.e. Rs. 0, &8,>>> Rs. 0=,>>> P Rs.0, 90,>>>.

Deduction of 7unicipa+ TaKes

From the annual value as determined above municipal taxes are to be deducted if the following conditions are fulfilled: ) ) ) The property is let out during the whole or any part of the previous year The Aunicipal taxes must be borne by the landlord (#f the Aunicipal taxes or any part thereof are borne by the tenant, it will not be allowed). The Aunicipal taxes must be paid during the year (*here the municipal taxes become due but have not been actually paid, it will not be allowed. $imilarly, the year to which the taxes relate to, is also immaterial).

D%DUCTION' UND%R '%CTION 14

Two deductions will be allowed from the net annual value (which is gross annual value less municipal taxes) to arrive at the taxable income under the head -income from house property.. #t has to be borne in mind that the deductions mentioned here (section %=) are exhaustive and no other deductions are allowed. The deductions admissible are as under: $tatutory deduction: 1> per cent of the net annual value will be allowed as a deduction towards repairs and collection of rent for the property, irrespective of the actual expenditure incurred. #nterest on borrowed capital:
16

Income from House Property

The interest on borrowed capital will be allowable as a deduction on an accrual basis if the money has been borrowed to buy or construct the house. Amount of interest payable for the relevant year should be calculated and claimed as deduction. #t is immaterial whether the interest has actually been paid during the year or not. /owever, there should be a clear lin2 between the borrowal and the construction+purchase etc., of the property. #f money is borrowed for some other purpose, interest payable thereon cannot be claimed as deduction. The following points are to be 2ept in mind while claiming deduction on account of interest on borrowed capital: 0. #n case the property is let out, the entire amount of interest accrued during the year is deductible. The borrowals may be for construction+ac5uisition or repairs+renewals. %. A fresh loan may be raised exclusively to repay the original loan ta2en for purchase+ construction etc., of the property. #n such a case also, the interest on the fresh loan will be allowable.

1. #nterest payable on interest will not be allowed. =. 6ro2erage or commission paid to arrange a loan for house construction will not be allowed. 8. *hen interest is payable outside #ndia, no deduction will be allowed unless tax is deducted at source or someone in #ndia is treated as agent of the non, resident. Interest attri.uta.+e to period prior to constructionGacLuisition Aoney may be borrowed prior to the ac5uisition or construction of the property. #n such a case, the period commencing from the date of borrowing and ending on the date of repayment of loan or on Aarch 10 immediately preceeding the date of ac5uisition or completion of construction, whichever is earlier, is termed as the pre,construction period. The interest paid+payable for the pre,construction period is to be aggregated and claimed as deduction in five e5ual instalments during five successive financial years starting with the year in which the ac5uisition or construction is completed. This deduction is not allowed if the loan is utiliSed for repairs, renewal or reconstruction. %=(723%64 M owns a big house which has three independent units. Enit # (8>F of the floor area) is let out for residential purpose on a monthly rent of Rs. <,>>>. This unit remains vacant for one month when it is not put to any use. A sum of Rs. 0,8>> could not be collected from the tenant. Enit ## (%8F of the floor area) is used by M for the purpose of his profession, while Enit ### (the remaining %8F) is utiliSed by him for the purpose of his residence. 4ther particulars of the house are as follows: 7unicipa+ >a+uation" Rs. 9>,>>>, fair rent: Rs. &>,>>>, standard rent: Rs. I>,>>>, municipal taxes: Rs. 01,>>>, repairs: Rs. =,>>>, interest on capital borrowed for renewal
17

Income from House Property

of the property: Rs. 19,>>> and fire insurance premium: Rs. 08,>>>. 3rofessional income of M is Rs. I>,>>> (without debiting house rent and other incidental expenditure including admissible depreciation on the portion of the house used for profession: Rs. <,>>>). "etermine the Bross Total #ncome of M for the assessment year %>>9,>&.

'O3UTION
Unit I (+et out Aunicipal valuation (8>F of Rs. 9>,>>>) Fair rent (8>F of Rs. &>,>>>) $tandard rent (8>F of Rs. I>,>>>) Actual rent (Rs. <,>>> x 00 0,8>>) BAJ will be the actual rent, since it is the highest) Bross Annual Jalue Kess: Aunicipal Taxes (8>F of Rs. 01,>>>) Let Annual Jalue Kess: "eductions under $ection %= $tatutory "eduction (1>F of Rs. <>,>>>) #nterest on borrowed capital (8>F of Rs. 19,>>>) Income from Unit I Unit III (se+f ? occupied Annual Jalue Kess: #nterest on borrowed capital (%8F of Rs. 19,>>>) Income from Unit III 1>,>>> 18,>>> =8,>>> <9,8>> <9,8>> 9,8>> <>,>>> %=,>>> 0<,>>>

=%,>>> 1<,>>>

L#K I,>>> , I,>>>

Unit II (used for o-n profession $ince Enit ## is used by M for the purpose of his profession, its annual value will not be charged to tax as income from house property, nor will the notional rent be deductible from professional income. 4ther expenses relating to the portion of his house used for the purpose of his profession will be deducted from his professional income. Therefore, taxable professional income of M will be calculated as follows: 2rofessiona+ income Kess: Aunicipal taxes (%8F of Rs. 01,>>>) Repairs (%8F of Rs. =,>>>) #nterest (%8F of Rs. 19,>>>) #nsurance premium (%8F of Rs. 08,>>>) "epreciation I>,>>> 1,%8> 0,>>> I,>>> 1,&8> <,>>> %8,>>>

18

Income from House Property

Taxable professional income 7omputation of Bross Total #ncome #ncome from house property Enit # Enit ## #ncome from profession Bross Total #ncome 1<,>>> , I,>>> %I,>>> 98,>>> I=,>>> 98,>>>

3%T U' 'U7 U2

Ender section %% of the #ncome Tax Act, the annual value of house property, consisting of buildings and lands appurtenant thereto, is taxable under the head -#ncome from house property., in the hands of the owner (or deemed owner) of the property, provided that the property is not used by the assessee for the purpose of his own business or profession. For determining the annual value of the house property, the actual rent received or receivable from the property, the municipal valuation, the fair rental value and the standard rent under the Rent 7ontrol Act are ta2en into account. From the Bross Annual Jalue of the property, the Aunicipal Taxes are deducted to arrive at the Let Annual Jalue. $ection %= of the #ncome Tax Act provides that 1>F of the LAJ and the interest on borrowed capital shall be deducted from the LAJ to obtain the taxable income from house property. As per $ection %1(%) of the #ncome Tax Act, the annual value of one self, occupied house property is ta2en to be nil. Lo deductions are permissible from the annual value of such property, except the interest on borrowed capital, sub?ect to the maximum limit of Rs.0, 8>,>>> or Rs.1>, >>> as the case may be. The above provisions may result in loss from house property, which may be set off against income from another house property or against incomes under the other heads. The balance loss may be carried forward, to be set off against the income from house property, upto a maximum of eight assessment years.

19