Computation of income from house property

Computation of income from house property
For
Taxation students
based on
Goa University B Com syllabus
For Assessment year 2015-16
By
Dr. Sanjay P Sawant Dessai
Associate professor VVM Shree Damodar College
of Commerce and Economics Margao Goa
23-12-2015 1sanjaydessai@gmail.com

• Sections:
• Definition of Annual Value u/s. 2(2).
• 22 Chargeability
• 23 Computation of annual value
• 24 Deductions available
• 25 deductions not allowed
• 25(AA) unrealised rent of previous year 2001-02
(or subsequent years ) is collected subsequently
• 25(B) Mode of taxation of arrears of rent in the
year of receipt
• 26 Property owned by co-owners
• 27 Deemed owner

 Annual value determined under section 23
 Annual value of house property (U/s 23) – It
is the annual value of house property which is
charged to tax after allowing certain
deductions therefore
 (Details are covered under section 23)
23-12-2015sanjaydessai@gmail.com 3

 Income is taxable under head “Income from
house property ” if following conditions are
satisfied
1. The property should consist of any building or
lands appurtenant thereto. (land attached to
building )
2. The assessee should be owner of the property.
3. 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 tax .

 It is inherent capacity of the property to earn
income
 The amount for which the property may
reasonably be expected to be let out.
 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 all pointers
to the determination of annual value.

 Not necessary that the property should actually be
let out.
 Not necessary that the reasonable return from
property should be equal to the actual rent realized
when the property is 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.
 If actual rent is less than the reasonable rent, then
reasonable rent will be the annual value.

• Step 1- find out reasonable expected rent of
the property
• Step 2-find out actual rent received or
receivable after deducting unrealised rent but
before deducting loss due to vacancy
• Step 3- find out which one is higher – among
computed in step 1 and 2
• Step 4- find out loss because of vacancy
• Step 5-step 3 minus step 4 is gross annual
value

• Reasonable expected rent is deemed to be the
sum for which the property might reasonably be
expected to be let out for year to year.
• In determining reasonable rent, several factors
have to be taken into consideration, such as
• Location
• Annual ratable value fixed by the municipalities
• Rent of similar properties in neighborhood,
• Rent which property likely to fetch having regard
to-
a) Demand and supply
b) Cost of construction of the property and
c) Nature and history of the property
Back 23-12-2015 8sanjaydessai@gmail.com

• In majority cases, reasonable rent can be
determined by taking into consideration the
following factors
• Municipal valuation of property
• Fair rent of the property
The higher of the above is generally taken as
reasonable expected rent
Note – If property is covered by rent control
Act, then the amount so computed cannot
exceed the standard rent.
Back

Case I Case II Case III Case IV
Municipal value 48000 60000 50000 40000
Fair Rent 40000 70000 40000 45000
Higher of the two above
, but cannot exceed
standard rent
Standard rent 50000 80000 45000 38000
Reasonable expected
rent
48000 70000 45000 38000

 Municipal value –Rs 12000
 Fair rent –Rs 14000
 Standard rent Rs 13000
 Unrealised rent Rs 2000
 Vacancy allowance Rs 1000
 Rent receivable Rs. 16,000

Municipal value 12,000
Fair rent
(whichever higher of the MR &FR is reasonable expected rent )
14,000 14,000
Standard rent ( Reasonable rent cannot exceed SR wherever rent
control Act applicable )
13,000
Step I Reasonable expected rent
(Municipal value or fair rent , whichever is higher, but subject to
maximum of standard rent )
13,000
Step II Rent received / receivable after deducting unrelised rent of
current previous year (16,000-2,000)
14,000
Amount computed in step I and II , whichever is higher 14,000
Less, Loss due to vacancy 1,000
Gross annual value 13,000

 Income from house property is determined as under:
 Gross Annual Value xxxxxxx
 Less: Municipal Taxes xxxxxxx
 Net Annual Value xxxxxxx
 Less: Deductions under Section 24
 - Statutory Deduction (30% of Net Annual Value) xxx
 - Interest on Borrowed Capital xxx
 Income From House Property xxxxxx

 Gross annual value Rs 2,00000
 Municipal tax Rs 25,000
 Interest on borrowed capital –Rs. 30,000

Income from house property is determined as under:
Gross Annual Value 2,00,000
Less: Municipal Taxes 25,000
Net Annual Value 1,75,000
Less: Deductions under Section 24
Statutory Deduction (30% of NAV) 52500
Interest on Borrowed Capital 30,000
82,500
Income From House Property 92,500

1. Sum equal to 30 percent of net annual value
2. Interest on borrowed capital – if capital is
borrowed for purchase, construction, repair,
renewal or reconstruction of property.
(Deduction is allowed on accrual basis)
3. Pre construction interest – will also be
deductible in five equal installments
commencing from the previous year in which
such property is constructed or acquired

 Interest on borrowed funds will not be
allowed as deductions, if such amount are
payable outside India, and no tax has been
paid or deducted at source or no person is
taxable as agent in India in respect of such
amount of interest.

 The amount realized shall be charged to tax
as the income of the previous year in which
such rent is realized,
 whether or not the assessee is the owner of
that property in the previous year.
 No deductions shall be allowed for such
unrealized rent received.

• Arrears of rent will be charged to income tax
as income of the previous year in which such
rent is received, whether the assessee is the
owner of that property in that year or not .
• Deduction is allowed in respect of 30 percent
of such amount received as arrears of rent.

 Where house property is owned by two or
more persons and their respective share are
defined and ascertainable, share of each co-
owner, in the income of house property, will
be included in his total income

• Section 27 provides that following will be
deemed owner of the house property for the
purpose of charging tax on Annual Value.
• i) Transfer to spouse or minor child
• ii) Holder of impartible estate
• iii) Property held by a member of Co-
operative Society
• iv) Person who has acquired a property under
Power of attorney transaction
• v) Person who has acquired the Right in
Property u/s 269 UA (Property held on lease
exceeding 12 years)

 Loss from house property shall be set off
against income under the same head or any
other heads of income in the same year,
Thereafter, if there is a loss remaining
unadjusted, such unadjusted loss can be
carried forward and set off in subsequent
years subject to a limit of 8 assessment years
against income from house property.

 Where property is occupied be the owner for
his own residence, the annual value of such a
house shall be taken as nil.
 However, the following two conditions must
be satisfied ;
 The property or part thereof is not let out
actually during any part of the previous year,
and
 No benefit is derived from such property

 Interest on borrowed capital for self occupied
property –
 The deduction in respect of interest on borrowed
fund is Rs 2,00,000
 Conditions
 The house property is acquired or constructed with
capital borrowed on or after 1st April 1999
 Loan should be taken for acquisition or
construction and not for repairs , renewals,
reconstruction etc. ( for repairs, renewals and
reconstruction purpose Rs. 30,000 only )

 If person has occupied two or more houses
for his residential purpose, in that case only
one house according to his choice is treated
as self – occupied and all other houses will be
treaded as deemed to be let out house and all
deductions as are applicable to let out
property would be allowed.

 Loss can be set off against the income of the
assessee under the same head of income or
any other income of the assessee for the
same assessment year

Computation of income from house property

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