Computation of Income from House property

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Computation of Income from House property
for B Com students
Assessment year 2016-17
Based on B. Com Syllabus of Goa University
Presented by
Dr. Sanjay P Sawant Dessai
Associate Professor
VVMs Shree Damodar College Margao Goa

• 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
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 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)
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 For let out house property
 For deemed to be let out
 Self occupied

 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 .

 The 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

• 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

Case I Case
II
Case
III
Case IV
Municipal value 48000 60000 50000 40000
Fair Rent 40000 70000 40000 45000
Standard rent 50000 80000 45000 38000

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
( cannot exceed
standard rent )
48000 70000 50000 45000
Standard rent 50000 80000 45000 38000
Reasonable expected
rent
48,000 70,000 45,000 38,000

 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
 Calculate gross annual value

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

A B C D e
Municipal value 14,000 18,000 18,000 14,000 23,100
Fair rent 14,500 18,500 18,500 14,500 26,200
Standard Rent 14,200 17,500 17,500 14,200 24,100
Actual rent if property let-
out throughout PY
16,800 16,800 16,800 16,800 25,200
Unrealised rent of PY 1,400 4,200 1,000 7,000 4,200
Number of months
property remained vacant
0.5 1 1 3 5

• 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
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• 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

 Net Annual value =
Gross Annual Value – Municipal tax

 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

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 from property received during the
year, which is not charged to income tax in any
previous year
• Charged to income tax as income of the previous
year in which such rent is received under head
income from house property
• Standard deduction of 30 percent is allowed on
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 consist of only one house or a
part of house which is occupied be the owner for
his own residence, the annual value of such a
house (or a part of 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 )

Income from house property is determined as under:
Net Annual Value NIL
Less: Deductions under Section 24
Interest on Borrowed Capital - Maximum Rs. 2,00,000 for
construction and Rs. 30,000 for repair . On accrual basis)
Income From House Property

 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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