Income from house property

1. INCOME TAX LAW AND PRACTICE
JEENA ANTONY

2. INCOME FROM HOUSE PROPERTY
(SECTION 22 to 27)

3. INCOME FROM HOUSE PROPERTY
• Income in the form of rent from house property is assessed
under the head ‘ Income from house property’.
• It is the annual rental value of a property which is subject to
tax.

4. Section 22: Basis of Charge
The income is taxable under the head income from house
property if the following conditions are satisfied.
Three Conditions
1. The property should consist of building or land
appurtenant thereto.
2. The assessee should be the owner of the property.
3.The property should not be used by the owner for the
business or profession carried on by him, the profits of
which are chargeable to tax.

5. COMPUTATION OF INCOME FROM HOUSE PROPERTY

6. Computation of Gross Annual Value
Fair Rental Value (FRV):
Rent received for a similarly situated property of the same locality.
Municipal Valuation (MRV):
Value of property determined by the local authority.
Standard Rent:
(Maximum rent fixed by the Govt. under the rent control Act)
Actual Rent/De facto rent:
The actual amount of rent collected from the tenant.

7. GROSS ANNUAL VALUE
FRV or MRV
Whichever is Higher
Then compare with Standard Rent
Whichever is Lower
EXPECTED RENT
Compare with Actual Rent which ever is higher

8. Property is let out throughout the financial year
Fair Rent Value (Rs. 80,000 * 12) 9,60,000
Municipal Value (Rs. 70,000 *12) 8,40,000
Standard Rent (Rs. 60,000 * 12) 7,20,000
Actual Rent (Rs. 90,000 * 12) 10,80,000

9. COMPUTATION OF GROSS ANNUAL VALUE
a) Fair Rent 9,60,000
b) Municipal Value 8,40,000
c) Higher of a and b 9,60,000
d) Standard Rent 7,20,000
e) Expected Rent (Lower of c and d) 7,20,000
f) Actual Rent 10,80,000
Gross Annual Value (higher of e and f) 10,80,000

10. Practical Problems
Mr. Rahul owns a house. The municipal value is Rs.60,000
and Fair Rental Value Rs.65,000. Standard Rent is fixed at
Rs.62,000. The house is let out on a monthly rent of
Rs.5,400. What is the gross annual value of the house?

11. Solution
Expected Rent = 62,000
Annual rent = 64,800 (5400*12)
Gross Annual Value = Rs.64,800

12. Calculate GAV
Particulars A B C D E
MRV 1,00,000 63,000 14,000 25,000 60,000
FRV 1,20,000 60,000 16,000 28,000 65,000
Standard
Rent
1,30,000 58,000 20,000 26,000 60,000
Actual Rent/
De facto
1,40,000 56,000 18,000 30,000 64,000

13. Unrealized Rent
Unrealized rent can be deducted from the annual rent if the owner
could not realize the rent even after taking genuine steps to recover the
amount.
Allowed as a deduction subject to the following conditions.
1. The tenancy is genuine.
2. Adequate steps have been taken to compel him to vacate the
property (legal proceed)
3. The defaulting tenant is not occupying any other property of the
assessee.

14. Municipal Taxes
• Municipal taxes pertaining to the past or future periods can
be deducted under section 23, if the assessee has actually paid
the amount.
• There can be negative annual value after deducting municipal
taxes from the gross annual value.

15. Practical Problems
Mr. Sam has a building which is let out for a monthly rent of Rs.10,000.
Municipal valuation of the building is Rs.1,25,000 and the fair rental value is
Rs.12,000 per month. Municipal taxes were in arreas for the past many years.
On 31.03.2019 he paid Rs.1,20,000 and cleared all the arrears of tax. Further
availing a reduction in the tax offered by the local authorities he paid
Rs.30,000 being tax for three future years. Determine the annual value of the
building for the year 2019-20.

16. Solution
Computation of Annual Value of the building
Gross Annual Value = 1,44,000 (12000 x 12)
Less: Municipal Taxes during the year (1,20,000+30,000) = 1,50,000
Annual Value = -6000

17. Expenses incurred on Tenant’s Amenities and
Additional Facilities
If the landlord incurs additional amounts for providing additional
facilities (lift maintenance, lighting of stairs, gardening, special
water facilities) to the tenant other than capital expenditure can be
deducted from the rent received to determine the actual rent.

18. Question
Mr. Joseph let out a house on an annual rent of Rs.90,000. Its value fixed by
the corporation is Rs.84,000. The tax paid to the corporation is Rs.10,000. The
landlord bears the following expenses on tenant’s amenities under an
agreement.
Water charges: Rs.1,600
Lift maintenance: Rs.1,000
Lighting of stairs: Rs.3,000
Gardener’s salary: Rs.1,400
Compute annual value.

19. Solution
COMPUTATION OF ANNUAL VALUE Amt
Gross Annual Value (Rs.90,000 – Rs.7,000)
(83,000 or 84,000 whichever is high)
Less : Municipal tax
84,000
10,000
Annual Value Rs.74,000

20. QUESTION
Mr. Don has the following let out buildings. Determine the income from
house property. All the buildings were let out and were fully occupied.
Buildings 1 2 3 4 5
Municipal
Valuation
50,000 50,000 50,000 40,000 70,000
Fair Rental
Value
60,000 70,000 40,000 60,000 100,000
Standard
Rent
50,000 60,000 40,000 70,000 80,000
Actual Rent 70,000 80,000 30,000 50,000 90,000
Municipal
taxes paid by
Don
2,000 2,000 2,000 1,000 3,000
Interested on
loan for
construction
5,000 6,000 7,000 2,000 1,00,000

21. SOLUTION
COMPUTATION OF INCOME FROM HOUSE PROPERTY OF MR. DON
Gross Annual Value
Less: Deduction u/s 23
70,000
2,000
80,000
2,000
40,000
2,000
60,000
1,000
90,000
3,000
Annual Value 68,000 78,000 38,000 59,000 87,000
Less: Deduction u/s 24
1) Standard deduction (30%)
2) Interest on Loan
20,400
5,000
23,400
6,000
11,400
7,000
17,700
2,000
26,100
1,00,000
Income from house property 42,600 48,600 19,600 39,300 -39,100
Income from house property = Rs.1,11,000

22. Arrears of Rent Received
• If an assessee receives arrears of rent which had not been charged to
income tax earlier, it is chargeable to tax as the income from house property
of the previous year in which the amount is received.
• The assessee can claim 30% standard deduction from arreas of rent
received

23. Pre- Construction Period Interest
 Pre-construction period starts on the date of beginning of
construction of the property (or date of Loan whichever is
applicable), ends on 31st March immediately prior to the date
of completion of construction.
 For. Eg. If construction started on 31-03-2011 and ended on
31-03-2017.
(Preconstruction period starts on 31-03-2011 and ends on 31-03-2016)

24. Gross Annual Value when the house remaining vacant
during the Previous Year
a) House remains vacant for the whole Year:
(Annual Value will be NIL)
a) House remains vacant for a part of the year:
(Actual rent received or receivable after considering the loss
due to vacancy)

25. Gross Annual Value
when there is vacancy and unrealized rent
Step 1: Compute the Expected Rent
Step 2: Compute rent received (or rent receivable less unrealized rent)
Step 3: Consider the amount computed as per 1 or 2 whichever is higher.
Step 4: Deduct loss due to vacancy.
(Balance will be the gross annual value)

26. Mr. Ram has five buildings in Chennai, the details are given below. You are required
to compute the gross annual value of the houses for the assessment year 2020-21.
Particulars 1 2 3 4 5
Annual Rent 134 134 146 242 220
Municipal Valuation 120 120 120 224 224
Fair Rental Value 136 136 136 234 234
Standard Rent 124 124 140 230 230
Unrealized Rent(2019-20) 4 12 10 100 80
Loss due to vacancy 2 2 2 2 1
Municipal taxes (2019-20)
5%
Due Paid Paid Due Paid

27. Computation of Annual Value
1 2 3 4 5
Higher of M/V or FRV Subject to SR
Reasonable Rent 124 124 136 23 230
Annual rent Less unrealized 130 122 136 142 140
Higher of the two
Less : Loss due to vacancy
130
2
124
2
136
2
230
2
230
1
Gross Annual Value
Less: Municipal taxes paid (5% of MV)
Annual Value
128
-
128
122
6
116
134
6
128
228
-
228
229
11.2
217.8
Note: Municipal taxes cannot be deducted ,
if not paid.

28. QUESTION
The following details relating to a house property are
given to you. Actual rent of the house Rs.7000 per
month, FRV Rs.66,000 per annum. Municipal valuation
Rs.60,000 per annum and Standard Rent Rs.69,000 per
annum.Municipal tax (5% of municipal valuation) was
paid during the year. The assessee could not realize rent
for two months and the house remained vacant for two
months during the previous year. Calculate the income
from house property?

29. Solution
Reasonable Rent
Annual Rent Less unrealized rent
Higher of two
Less : Loss due to vacancy
Gross Annual Value
Less: Municipal taxes
Annual Value
Less : Standard deduction (30%)
Income from house property
66,000
70,000
70,000
14,000
56,000
3,000
53,000
15,900
37,100

30. PRECONSTRUCTION PERIOD
• Mr. Ganesh has a house property let out for a monthly rent of
Rs.9,000. The municipal valuation of the house Rs.8,500 per
month, which is the rent payable under the rent control Act.
The fair rental value of the house is Rs.10,000 per month. The
assessee has paid 5% of the municipal valuation as local taxes
and 5% as education and health cess. The construction of the
property started on 1st October 2014 and completed in
February,2018. He had borrowed Rs.500,000 @ 10% for the
construction of the house on which he had paid interest up to
31.03.2017 and Rs. 50,000 as interest during the previous year.
Fire insurance premium paid for the house is Rs.2000. He
could not realize one month rent.(Conditions of rule 4
satisfied).Compute the income from the house property.

31. Income from house property of Mr. Ganesh for the year 2019-20
Gross Annual Value
Less: Municipal taxes paid including cess
Unrealized Rent
Annual Value
Less: Standard Deduction 30%
Interest on Loan
a) Current year interest
b) 1/5th of preconstruction period
Loss from the house property
10,200
9,000
26,640
50,000
25,000
1,08,000
19,200
88,800
1,01,640
12,840
Note: Pre construction period 1-10-2014 to 31-
03-2017
Interest = 500,000*10/100*30/12

32. SELF OCCUPIED HOUSE
(Used for own residential purposes)
Gross Annual Value Nil (For any two
houses)
Deduction u/s 23 (Municipal Taxes) Not allowable
Annual Value Nil
Deduction u/s 24 (Standard Deduction) Not allowable
Interest on borrowed capital Maximum Rs.30,000 for loan
taken before 1.4.1999 and
also taken for the repairing of
the house.
Maximum Rs.200,000 for the
loans taken on or after
1.4.1999 to purchase or
construct.

33. Question
• Mr. Ghosh owns two houses. The following are the details. Compute
income from house property.
FIRST HOUSE SECOND HOUSE
Municipal Value 37,500 70,000
Nature Self occupied Let out
Monthly rent - 6,000
Municipal tax 6,000 10,000
Interest on loan for
construction
30,000 4,000

34. Solution
Computation of Income from house property
SELF OCCUPIED
Annual Value
Less interest on loan
Loss from house property
Nil
30,000
-30,000
LET OUT
Gross Annual Value
Less Municipal Tax
Annual Value
Less 30% Standard deduction 18,600
Interest on Loan 4,000
72,000
10,000
62,000
22,600 39,400
Hence the total income from house property Rs.39,400-30,000 = Rs.9,400