Income from House Property

Rental income from a property being building or land appurtenant thereto of which the taxpayer is owner is charged to tax under the head 'Income from house property'. This is taxed in the hands of the owner of the property.

Computation of Annual Value

Gross annual value of a property which is let-out throughout the year is determined in the following manner:
I. Compute reasonable expected rent of the property.
Reasonable expected rent will be higher of the following:
a. Municipal value of the property (For collection of municipal taxes, local authorities make periodic survey of all buildings in their jurisdiction. Such value determined by the municipal authorities in respect of a property, is called as municipal value of the property.)
b. Fair rent of the property (Fair Rent is the reasonable expected rent which the property can fetch. It can be determined on the basis of rent fetched by a similar property in the same or similar locality.)
If a property is covered under Rent Control Act, then the reasonable expected rent cannot exceed standard rent. Standard Rent is the maximum rent which a person can legally recover from his tenant under the Rent Control Act. Standard rent is applicable only in case of properties covered under Rent Control Act.

II. Compute actual rent of the property
Actual rent means the rent for which the property is let out during the year. While computing actual rent, rent pertaining to vacancy period is not to be deducted. However, unrealised rent* is to be deducted from actual rent if conditions specified in this regard are satisfied.
* Unrealised rent is the rent of the property which the owner of the property could not recover from the tenant, i.e., rent not paid by the tenant. If following conditions are satisfied, then unrealised rent is to be deducted from actual rent of the year:
i. The tenancy is bona fide.
ii. The defaulting tenant has vacated the property, or steps have been taken to compel him to vacate the property.
iii. The defaulting tenant is not in occupation of any other property of the taxpayer.
iv. The taxpayer has taken all steps to recover such amount, including legal proceedings or he satisfies the Assessing Officer that legal proceedings would be useless.

I. Compute reasonable expected rent of the property

Reasonable expected rent will be higher of the following:

a. Municipal value of the property (For collection of municipal taxes, local authorities make periodic survey of all buildings in their jurisdiction. Such value determined by the municipal authorities in respect of a property, is called as municipal value of the property.)

b. Fair rent of the property (Fair Rent is the reasonable expected rent which the property can fetch. It can be determined on the basis of rent fetched by a similar property in the same or similar locality.)

If a property is covered under Rent Control Act, then the reasonable expected rent cannot exceed standard rent. Standard Rent is the maximum rent which a person can legally recover from his tenant under the Rent Control Act. Standard rent is applicable only in case of properties covered under Rent Control Act.

II. Compute actual rent of the property

Actual rent means the rent for which the property is let out during the year. While computing actual rent, rent pertaining to vacancy period is not to be deducted. However, unrealised rent* is to be deducted from actual rent if conditions specified in this regard are satisfied.

* Unrealised rent is the rent of the property which the owner of the property could not recover from the tenant, i.e., rent not paid by the tenant. If following conditions are satisfied, then unrealised rent is to be deducted from actual rent of the year:

i. The tenancy is bona fide.

ii. The defaulting tenant has vacated the property, or steps have been taken to compel him to vacate the property.

iii. The defaulting tenant is not in occupation of any other property of the taxpayer.

iv. The taxpayer has taken all steps to recover such amount, including legal proceedings or he satisfies the Assessing Officer that legal proceedings would be useless.

III. Compute gross annual value

Out of sum computed above, any loss incurred due to vacancy in the house property shall be deducted and the remaining sum so computed shall be deemed to be the gross annual value.

(If however, the Rent Control Act is applicable, the G.A.V. is the standard rent or rent received, whichever is higher).

Deductions available

i. Deduction under section 24(a) @ 30% of Net Annual Value.
ii. Deduction under section 24(b) on account of interest on capital borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property. The provisions in this regard are as follows :
Post-construction period interest is the interest pertaining to the relevant year (i.e., the year for which income is being computed). Pre-construction period is the period commencing from the date of borrowing of loan and ends on earlier of the following:
- Date of repayment of loan; or
- 31st March immediately prior to the date of completion of the construction/acquisition of the property.
Interest pertaining to pre-construction period is allowed as deduction in five equal annual instalments, commencing from the year in which the house property is acquired or constructed. Thus, total deduction available to the taxpayer under section 24(b) on account of interest will be 1/5th of interest pertaining to pre-construction period (if any) + Interest pertaining to post construction period (if any).

ii. Deduction under section 24(b) on account of interest on capital borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property. The provisions in this regard are as follows :

Post-construction period interest is the interest pertaining to the relevant year (i.e., the year for which income is being computed). Pre-construction period is the period commencing from the date of borrowing of loan and ends on earlier of the following:

- Date of repayment of loan; or

- 31st March immediately prior to the date of completion of the construction/acquisition of the property.

Interest pertaining to pre-construction period is allowed as deduction in five equal annual instalments, commencing from the year in which the house property is acquired or constructed. Thus, total deduction available to the taxpayer under section 24(b) on account of interest will be 1/5th of interest pertaining to pre-construction period (if any) + Interest pertaining to post construction period (if any).

Deduction in case of let-out property

Deduction under section 24(b) for interest accrued on loan taken for the purpose of purchase, construction, repair, renewal or reconstruction of the property is available without any limit.
Municipal taxes including service-taxes levied by any local authority in respect of house property is allowed as deduction, if:
a. Taxes are borne by the owner; and
b. Taxes are actually paid by him during the year.

Municipal taxes including service-taxes levied by any local authority in respect of house property is allowed as deduction, if:

a. Taxes are borne by the owner; and

b. Taxes are actually paid by him during the year.

Deduction in case of Self occupied property

A self-occupied property means a property owned by the taxpayer which is occupied throughout the year by the owner for the purposes of his own residence and is not actually let out during the whole or any part of the year.

In case of a self occupied property, the limit for deduction is Rs. 2,00,000 (w.e.f. 01.04.2015. Earlier Rs. 150,000/-) or Rs. 30,000, as the case may be.
If all the following conditions are satisfied, then the limit in respect of interest on borrowed capital will be Rs.2,00,000/- :
i. Capital is borrowed on or after 1-4-1999.
ii. Capital is borrowed for the purpose of acquisition or construction (i.e., not for repair, renewal, reconstruction).
iii. Acquisition or construction is completed within 3 years from the end of the financial year in which the capital was borrowed.
iv. The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for acquisition or construction of the property.

If any of the above condition is not satisfied, then the limit will be reduced to Rs. 30,000.
In case of a self occupied property, deduction under Section 24(a) (30% of Net Asset Value) and deduction for municipal taxes is not avilable.

In case of a self occupied property, the limit for deduction is Rs. 2,00,000 (w.e.f. 01.04.2015. Earlier Rs. 150,000/-) or Rs. 30,000, as the case may be.

If all the following conditions are satisfied, then the limit in respect of interest on borrowed capital will be Rs.2,00,000/- :

i. Capital is borrowed on or after 1-4-1999.

ii. Capital is borrowed for the purpose of acquisition or construction (i.e., not for repair, renewal, reconstruction).

iii. Acquisition or construction is completed within 3 years from the end of the financial year in which the capital was borrowed.

iv. The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for acquisition or construction of the property.

If any of the above condition is not satisfied, then the limit will be reduced to Rs. 30,000.

In case of a self occupied property, deduction under Section 24(a) (30% of Net Assett Value) and deduction for municipal taxes is not avilable.

Deduction for interest on housing loan [Section 80EE] :

As per Section 80EE of the Income-tax Act, deduction of up to Rs. 50,000 is allowed to an Individual towards interest on loan taken for acquisition of a residential house property.
However, the deduction is allowed subject to following conditions:
- the loan should be sanctioned by the financial institution during the during the FY 2016-17;
- the amount of loan should not exceed Rs. 35 Lakh;
- the value of residential house property should not exceed Rs. 50 lakh;
- the assessee should not own any residential house property on the date of sanction of loan.
The deduction is available from AY 2017-18 and subsequent assessment years.

However, the deduction is allowed subject to following conditions:

- the loan should be sanctioned by the financial institution during the during the FY 2016-17;

- the amount of loan should not exceed Rs. 35 Lakh;

- the value of residential house property should not exceed Rs. 50 lakh;

- the assessee should not own any residential house property on the date of sanction of loan.

The deduction is available from AY 2017-18 and subsequent assessment years.