Income tax law & practice

INCOME TAXTHEORYLAW
ANDPRACTICE– I
Dr. R. M. DURAIARASAN, Assistant Professor of Commerce, Patrician College

Syllabus
• Unit III : Income from House Property : Annual Value - Meaning and
Computation - Deductions from Annual Value - Legal Provisions.
Dr.R.M. DURAIARASAN, Assistant Professor of Commerce,
Patrician College

INCOME FROM HOUSE PROPERTY
• It is a Second Head of Income
• Income derived from house property is house property income
• Conditions: Chargeability (Sec 22)
• The assessee should be the owner of the house.
• There should be a building or land connected with building.
• The building should not be occupied by the assessee for his own business.
Patrician College

• Annual Value
• The sum for which the property might reasonably be expected to be let from year to year.
• Computation of annual value:
1. Municipal value: The value determined by municipal corporation.
2. Fair rental value: Value of the similar type of accommodation in same locality.
3. Standard Rent: Rent fixed under the Rent Control Act.
4. Annual Rental Value: The annual rent received for the house.
• Computation of Income from House Property
• Different categories of house properties could be classified as:
1. Let out house – Rented to others(Income purpose)
2. Self-occupied house – occupied by assesse itself(Own purpose)
Patrician College

Income from House Property
• Self – Occupied House
• For self-occupied house
the annual value is NIL
Let-Out House
Municipal Rental Value (MRV) XXX
Fair Rental Value (FRV) XXX
WEH XXX
Standard Rental Value XXX
Expected Rental Value (WEL) XXX
Actual Rent/Annual Rent XXX
Gross Annual Value (GAV) (WEH) XXX
Less: Municipal Tax paid by owner XXX
Net Annual Value (NAV) XXX
Patrician College
Note: WEH(Which ever is high)
WEL (Which ever is least)

• Computation of Annual value if there is a loss due to vacancy
• Annual value to be computed as stated above and finally the vacancy loss to be deducted. The
remaining balance is the annual value.
• Unrealised rent
• A default made by the tenant in the payment of rent is unrealized rent.
• Condition for unrealized rent
• The tenancy is bonafide.
• Reasonable steps should have been taken by the assessee to make the tenant to vacate the
property.
• The defaulting tenant should not occupy any other house of the assessee.
• The assessee has taken legal steps for its recovery.
Patrician College

If unrealized rent, loss due to vacancy is given
MRV XXX
FRV XXX
WEH XXX
SRV XXX
ERV (WEL) XXX
Actual Rent XXX
Less: Unrealized rent XXX
WEH XXX
Less: Loss due to vacancy XXX
Gross Annual Value XXX
Patrician College
Note: Loss due to vacancy = vacancy period x monthly rent
Loss due to vacancy: if the house remains vacant during a part of the previous year, it is a loss to the assessee
which is called loss due to vacancy.

Computation of house property income for self-occupied
property
Net Annual Value Nil
Less: Deduction u/s 24 :
Interest on borrowed capital XXX
loss from self-occupied house - XXX
Patrician College
Provision for Interest on Loan
a) Self-occupied
1. If the loan borrowed before 01.04.1999 the maximum amount of deductible interest is Rs. 30,000
only.
2. If the loan borrowed on (or) after 01.04.1999 maximum limit of Rs. 2,00,000 is allowed as

Computation of House Property Income for Let-out Property
Patrician College
Less: Municipal taxes XXX
Net Annual Value XXX
Less: Deduction u/s 24:
Standard deduction 30% of NAV XXX
Interest on loan borrowed for the purpose of
house
XXX XXX
Income from house property XXX
a) Let out
In the case of let-out house, there is no limit with regard to deduction of interest
on loan.

Pg.no.6.48(Sum 1) Compute expected rental value from the following
Patrician College
MRV Rs.1,08,000
FRV Rs.1,20,000
Standard rent Rs.1,02,000
Show the solution.
Ans. Computation of Expected Rental Value

Pg.no.6.48(Sum 3) From the particulars below Compute Annual Value
Municipal Rental Value Rs. 72,000
Fair Rental Value Rs. 90,000
Real Rent Rs. 80,000
Standard Rent Rs. 84,000
Ans. Computation of Gross Annual Value
WEH Rs. 90,000
Expected Rental Value (WEL) Rs. 84,000
Real Rent Rs. 80,000
Gross Annual Value (WEH) Rs. 84,000
Patrician College

Pg.no.6.52(Sum 13) From the following information you are to find out the
Gross Annual Value of a let out property.
Fair Rental Value Rs. 1,16,000
Annual Rent Rs. 1,18,000
Standard Rent Rs. 1,15,000
Loss due to Vacancy Rs. 8,000
Fair Rental Value Rs. 1,16,000
WEH Rs. 1,16,000
Standard Rent Rs. 1,15,000
Expected Rental Value (WEL) Rs. 1,15,000
Annual Rent Rs. 1,18,000
WEH Rs. 1,18,000
Less: Loss due to vacancy Rs. 8,000
Gross Annual Value Rs. 1,10,000
Patrician College

Pg.no.6.52(Sum 15) Mr. R has got house A. The particulars for the previous
year 2019-20 are given below:
Fair Rent Rs. 90,000
Standard Rent under rent
control Act
Rs. 70,000
Municipal value Rs. 80,000
Municipal tax paid by the
owner
Rs. 8,000
Annual rent Rs. 96,000
Annual rent received Rs. 80,000
Vacancy period 2 months
WEH Rs. 90,000
Annual Rent Rs. 96,000
WEH Rs. 96,000
Less: Loss due to vacancy
(96,000/12)
Rs. 16,000
Gross Annual Value Rs. 80,000
Less: Municipal tax paid by the
owner
Rs. 8,000
Net Annual Value Rs. 72,000
Patrician College
Determine the annual value for the
previous year 2019-20.

Pg.no.6.54(Sum 20) Compute the annual value from the particulars given
below:
Municipal rental value Rs. 84,000
Fair Rental value Rs. 90,000
Real Rent Rs. 8,000 p.m.
Unrealised rent Rs. 4,000
Date of completion 31.07.2019
Date of letting 1.10.2019
Municipal Rental Value
(84,000/12 = 7000*8)
Rs. 56,000
Fair Rental Value (90,000/12 =
7,500*8)
Rs. 60,000
WEH Rs. 60,000
Standard Rent
(87,000/12=7,250*8)
Rs. 58,000
Actual Rent (64,000-4,000) Rs. 60,000
WEH Rs. 60,000
Less: Loss due to vacancy
(8,000*2)
Rs. 16,000
Gross Annual Value Rs. 44,000
Patrician College
Determine the annual value for the
previous year 2019-20.
Note: Difference between Date of Completion and Date of letting = loss due to vacancy.
Actual Rent = Annual rent – unrealized rent

Page No: 6.55 Sum No: 23. Shri. Narmada has a house property in Tiruchi whose Municipal
value is Rs. 1,50,000 and the fair rental value is Rs. 1,70,000. Standard rent is fixed at Rs.
1,60,000. The house was self occupied from 1.4.2019 to 30.5.2019. w.e.f. 1.6.2019 it was
let out at Rs. 20,000 p.m. Compute the Gross Annual Value for the A.Y. 2020-21.
Patrician College
Particulars Letout occupied Self occupied
01-06-2019-31-03.2020
01.04.2019 – 30.05.2019
(GAV – Nil)
Municipal Rental Value 1,50,000
Fair Rental Value 1,70,000
WEH 1,70,000
Standard Rent 1,60,000
Expected Rental Value (WEL) 1,60,000
Actual Rental Value (20,000*10) 2,00,000
Gross Annual Value (WEH) 2,00,000
Part of the year Self occupied and part of the year letout
Computation of Gross Annual Value for the P.Y 2019-20

Page No: 6.56 Sum No: 26 Nandakumar owns a house in Chennai. During the PY: 2019-20, 3/4th of the
house was Self occupied for the full year and 1/4th portion was let out for residential purposes from
1.4.2019 to 30.11.2019 on a rent of Rs. 1,000 p.m. From 1.12.2019 this portion was also used for own
residence. Find out his Gross annual value for AY: 2020-21 taking the following details into Account.
FRV of the House : Rs. 48,000; M.V. Rs. 44,000; SR: Rs. 52,000
Patrician College
Note: Difference between Date of Completion and Date of letting = loss due to vacancy.
Actual Rent = Annual rent – unrealized rent
Particulars Letout occupied (House II) Self occupied (House I)
1/4 portion
01-04-2019-30-11.2019
¾ portion
From 01.12.2019 (GAV – Nil)
Municipal Rental Value
(44,000*1/4)
11,000
Fair Rental Value (48,000*1/4) 12,000
WEH 12,000
Standard Rent (52,000*1/4) 13,000
Expected Rental Value (WEL) 12,000
Actual Rental Value (1,000*8) 8,000
Gross Annual Value (WEH) 12,000
Part of the house Self occupied and part of the house letout

Page No: 6.56 Sum No: 27 Mr. Visu owns a house property. It is used by him
throughout the previous year 2019-20 as his residence. Municipal valuation of
the property is Rs. 1,80,000, whereas fair rent is Rs. 1,90,000 and standard tent
Rs. 2,00,000. Find out the gross annual value of the house property for the P.Y.
2020-21
Patrician College
Particulars Self occupied house
Gross Annual Value of self occupied property for residential purposes is NIL.
Self Occupied House

Deemed to be letout
Page No: 6.57 Sum No: 28 Mrs. Devi has occupied three houses for her
residential purposes; particulars of which are as follows:
Patrician College
Find the gross annual value of the house property for AY: 2020-21
Particulars House I House II House III
Standard rent under
the rent control act
Rs. 35,000 - Rs. 45,000
Municipal valuation Rs. 40,000 Rs. 50,000 Rs. 28,000
Fair rent value Rs. 45,000 Rs. 60,000 Rs. 35,000

(Working Note)
Patrician College
Particulars House I
Deemed to
be let
House II
Deemed to
be let
House III
Deemed to
be let
Municipal Rental Value 40,000 50,000 28,000
Fair Rental Value 45,000 60,000 35,000
WEH 45,000 60,000 35,000
Standard Rent 35,000 - 45,000
Expected Rental Value (WEL) 35,000 60,000 35,000
Actual Rental Value - - -
Gross Annual Value (WEH) 35,000 60,000 35,000
Note:
1. Comparing all the houses, House II GAV is high, therefore it will be considered
as Self occupied house

Patrician College
Particulars House I
Deemed to
be let
Self
Occupied
house
House III
Deemed to
be let
Municipal Rental Value 40,000 - 28,000
Fair Rental Value 45,000 - 35,000
WEH 45,000 - 35,000
Standard Rent 35,000 - 45,000
Expected Rental Value (WEL) 35,000 - 35,000
Actual Rental Value - - -
Gross Annual Value (WEH) 35,000 NIL 35,000
Note: House II is Self occupied house, therefore Gross Annual Value is NIL

Page No.6.56, Sum No.30 Determine the Net Annual Value in the following cases:
Patrician College
Particulars A B C
Municipal Valuation 1,00,000 80,000 1,20,000
Fair Rent 1,20,000 60,000 1,10,000
Standard Rent 1,25,000 1,00,000 Not fixed
Actual Rental 1,00,000 1,00,000 1,00,000
Municipal Taxes 15,000 12,000 7,500

Computation of the Net Annual Value for the A.Y. 2020-2021
Patrician College
Particulars A B C
Municipal Valuation 1,00,000 80,000 1,20,000
Fair Rent 1,20,000 60,000 1,10,000
WEH 1,20,000 80,000 1,20,000
Standard Rent 1,25,000 1,00,000 Not fixed
Expected Rental Value (WEL) 1,20,000 80,000 1,20,000
Actual Rental 1,00,000 1,00,000 1,00,000
Gross Annual Value (WEH) 1,20,000 1,00,000 1,20,000
(-)Municipal Taxes 15,000 12,000 7,500
Net Annual Value 1,05,000 88,000 1,12,500

Standard Deduction
Page No.6.58, Sum No.37 The Net Annual Value of a house property is Rs.12,000. The
deductions claimed are as follows.
Patrician College
Find Income from house property.
Repairs Rs.2,000
Ground Rent Rs.600
Insurance premium due Rs.1,000

Computation of Income from house property for the A.Y: 2020-2021
Patrician College
Particulars Rs.
Net Annual Value 12,000
Less: Deduction u/s 24
Standard deduction (30% of 12,000)
3600
Income from House property 8,400

Interest on Capital Borrowed
Page No.6.59, Sum No. 39: Determine the amount of interest of Mr. Muthiah for Pre
Construction period.
Patrician College
• Amount borrowed Rs.10,00,000 at 12% per annum
• Date of borrowing 01.04.2013
• Date of repayment 31.07.2017
• Date of completion of construction of house 18.01.2019
• WN
• Pre Construction and Post construction period
• DOB
• DOR 31.07.2017
• DOC 18.01.2019

Computation of Pre construction interest of Mr. Muthiah
Patrician College
Pre construction period interest is allowed in 5 installments from year of completion
of construction (2019-20,2020-21,2021-22,2022-23,2023-24)
Pre construction interest = 5,20,000/5=Rs. 1,04,000
Particulars Rs.
Interest for 2013-2014 1,20,000
Interest for 2014-2015 1,20,000
Interest for 2015-2016 1,20,000
Interest for 2016-2017 1,20,000
Interest for 2017-2018
(1,20,000*4/12)
40,000
Pre Construction Interest 5,20,000

Page No.6.60, Sum No. 41: How will you treat the interest on borrowed capital
for income tax proposes for the following houses separately?
Patrician College
Particulars House I
(Self occupied)
House II
Let out for
residence
Date of Loan 15.03.2017 10.04.2016
Payment of Interest on borrowed capital for
construction of house (Previous year 2019-
20)
Rs. 168,000 Rs.1,78,000

Computation of Interest on Borrowed Capital
Patrician College
Particulars House I
Self occupied
House II
Let out
Interest on borrowed capital
Max = 2,00,000
Actual = 1,68,000 (WEL) 1,68,000 1,78,000
Post construction interest
1,68,000 1,78,000

Page No. 6.62, Sum No. 1
Patrician College

Computation of Income from House property for
the A.Y. 2020-2021
Particulars Rs. Rs.
Gross Annual Vale Nil
Less: Municipal Tax -
1. Standard deduction -
2. Interest on Capital borrowed
Max:Rs,2,00,000 and Actual :Rs.35,000 (WEL)
35,000
Loss from the house property 35,000
Patrician College

Page No.6.64, Sum No. 5
Patrician College

Computation of Income from house property for the A.Y. 2020-2021
Particulars House I House II
GAV Nil Nil
Less: Municipal Tax - -
NAV Nil Nil
1. Standard deduction - -
2. Interest on capital
borrowed
Max:Rs.2,00,000 and Actual I
Rs: 62,000/ house II Rs.18,000
(WEL)
62,000 18,000
Loss from House property 62,000 18,000
House I Rs.62,000
House II Rs. 18,000 = Rs.80,000 (Total Loss from House property)

III (C) House Let out and Self Occupied:
Page No.6.67, Sum No.10
Patrician College

Computation of Income from House Property for the A.Y. 2020-2021
Particulars House I
Self Occupied
House II
Let Out
Municipal Rental Value - 10,000
Fair Rental Value - -
WEH - 10,000
Standard Rental Value - -
ERV (WEL) - 10,000
Actual Rental Value - -
Gross Annual Value (WEH) - 10,000
Less: Municipal Tax - 1,000
Net Annual Value Nil 9,000
1. Standard deduction (30% of NAV) (9000*30%)
-
3,200
2,700
2,100
-3,200 4,200
Income from House Property
House I Rs. -3200
House II Rs. 4200 = Rs.1,000 (Income from House Property)

Page No.6.72, Sum No.18
Patrician College

Computation of Income from House Property for the A.Y.
2020-2021
Particulars Let out Self Occupied
MRV 30,000 -
FRV 32,000 -
WEH 32,000
SRV - -
ERV (WEL) 32,000 -
ARV (40000*9/12) 30,000 -
GAV (WEH) 32,000 -
Less: Municipal Tax 6,000 -
NAV 26,000 -
1. Std deduction ( 30% of NAV) (26,000*30%)
7,800
18,000 6,000
Income from House property 200 -6000
Patrician College

DOC : 01.04.2019
45000
Interest
Pre Post
45,0000 15,000
Pre Const: 45000/5= 9000
Total Interest : 9000+15000= 24,000
Let out= 24000*9/12 =18000
Self occi = 24000*3/12 = 6000
Patrician College

Computation of Income From House Property of Mr. Murugan for the A.Y.
2020-2021
Patrician College
Particulars Rs.
Municipal Valuation 1,25,000
Fair Rental Value -
WEH 1,25,000
Standard Rent Value -
Expected Rental Value (WEL) 1,25,000
Actual Rental Value 1,25,000
Gross Annual Value (WEH) 1,25,000
Less: Municipal Tax (4000*25%) 1,000
Net Annual Value 1,24,000
1. Standard deduction (30% of NAV)(1,24,000*30%)
2. Interest on Capital Borrowed
37,200
-
Income From House property 86,800

Computation of Income From House Property of Mr. Xavier for the A.Y.
2020-2021
Patrician College
Particulars Rs.
Municipal Rental Value 40,000
Fair Rental Value 36,000
WEH 40,000
Standard Rent Value 38,000
Actual Rental Value (4000*12) 48,000
48,000
Less: Loss due to vacancy (4000*3) 12,000
Gross Annual Value 36,000
Less: Municipal Tax (40,000*10%) 4000
Less: Deduction U/s 24
1. Standard Deduction (30% of NAV)
2. Interest on Capital Borrowed
9,600
12,000
Income from House Property 10,400

Part – A 4. Find out the GAV
Real Rental Value Rs. 80,000
Standard Rental Value Rs. 84,000
Patrician College
Computation of Gross Annual Value
Particulars Rs.
Fair Rental Value 90,000
WEH 90,000
Standard Rental Value 84,000
Actual Rental Value 80,000

(Part- B) 1. Mr. D took a loan of Rs. 4, 00,000 on 01.04.2015 at 20% p.a to a construct a house.
The construction of the house was completed on 01.11.2019 compute the amount of interest
deductible in computing income from the house property. Assume the house is let out.
Calculation of Pre – Construction Interest
Interest for 2015-16 Rs.80,000
Pre-Construction Interest Rs.3,20,000
Pre-Construction interest is allowed in 5 instalments from the year of completion of
construction.
(2019-20, 2020-21, 2021-22, 2022-2023, 2023-2024)
Pre-Construction Interest =
𝟑,𝟐𝟎,𝟎𝟎𝟎
𝟓
=Rs.64,000
Post- Construction interest=80,000 (4,00,00*20%)
Total Deductible interest(Pre+Post) = 64,000+80,000=Rs.1,44,000

• 2. Determine the residential status of Mr.D for the previous year 2019-2020
who left India for the first time on 15.09.2016 and came on back on
01.09.2018. He again left for US on 15.06.2019 to come back on Feb. 14, 2020
to settle in India forever.
W.N.
Left: 15.09.2016, Return: 01.09.2018, Again Left: 15.06.2019, Again Return: 14.02.2020, P.Y. :2019-2020,
A.Y.: 2020-2021
Year (Month) April May June July Aug Sep Oct Nov Dec Jan Feb Mar Total
P.Y. (2019-
2020)
30 31 15 Not in India 16 31 123 days
Patrician College

Continue.,
Year (Month) April May June July Aug Sep Oct Nov Dec Jan Feb Mar Total
2018-19 Not in India 30 31 30 31 31 28 31
2017-18 Not in India
2016-17 30 31 30 31 31 15 Not in India
2015-16
Second Basic Conditions u/s 6(1) of 60 days or more stays in India in the Previous Year and
365 days or more during the four preceding previous year are also satisfied. Therefore, Mr. X
is ‘Resident’.
Patrician College

Continue., Additional Condition 1
Year (Month) April May June July Aug Sep Oct Nov Dec Jan Feb Mar
2018-19 Not in India 30 31 30 31 31 28 31
2016-17 30 31 30 31 31 15
2015-16
2014-15
2013-14
2012-13
2011-12
2010-11
2009-10
Additional Condition (1) of being in Resident for 2 out of 10 preceding the P.Y. is satisfied.
Patrician College

Continue., Additional Condition 2
Year (Month) April May June July Aug Sep Oct Nov Dec Jan Feb Mar
2018-19 Not in India 30 31 30 31 31 28 31
2016-17 30 31 30 31 31 15 Not in India
2015-16
2014-15
2013-14
2012-13
Additional Condition (2) of stay for 730 days or more out of 7 preceding the P.Y. is also satisfied.
Conclusion:
Mr. D is ‘Resident’ and ‘Ordinarily Resident’ sec. 6(1) for the previous year 2019-2020.
Patrician College

Part-C
1. Following are the Income of III C for the previous year
2019-20.
a) Profit from the business in Bangalore 10,000
b) Income accrued in India but received in Japan 4,000
c) Profit from business in Canada but received in India 5,000
d) Income from house property in Karachi received in Bombay 4,000
e) Profit from business established in England and deposited there,
the business being controlled from India
20,000
f) Income from house property in America and deposited there. 2,000
g) Past untaxed income brought into India during the previous year. 10,000
Compute the total income of III C for the A.Y. 2020-21 if the III C is :
1. Resident
2. Not ordinarily resident
3. Non Resident

Computation of Total Income of III C for the A.Y.
2020-2021
Particulars
Resident
Not
ordinarily
resident
Non
Resident
a) Profit from the business in Bangalore 10,000 10,000 10,000
b) Income accrued in India but received in Japan 4,000 4,000 4,000
c) Profit from business in Canada but received in India 5,000 5,000 5,000
d) Income from house property in Karachi received in Bombay 4,000 4,000 4,000
e) Profit from business established in England and deposited there,
the business being controlled from India
20,000 20,000 Not
Taxable
f) Income from house property in America and deposited there. 2,000 Not
Taxable
Not
Taxable
g) Past untaxed income brought into India during the previous year. Not
Taxable
Not
Taxable
Not
Taxable
Total Income 45,000 43,000 23,000

Page No. 6.81, Sum No. 41
Patrician College

Computation of Income from House Property of Mr.Somu for
the A.Y. 2020-2021
Patrician College
Particulars Rs.
Fair Rental Value -
WEH 80,000
Standard Rental Value -
ERV(WEL) 80,000
Actual Rental Value 90,000
Less: Unrealized Rent 7,500 82,500
WEH 82,500
Less: Loss due to vacancy (90000*1/12) 7,500
Less: Municipal Tax 12,000
Less: Deduction u/24
1.Standard deduction (30% of NAV)
2. Interest on borrowed capital
18,900
15,000
Income from House Property 29,100

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