Income from House Property- - MunshiGiri from House Property- Notes by Munshigiri Education – One Step Solution for CA/CS/CMA Students 203, IInd Floor, Aggarwal Tower, Ashirwad Chowk,

Income from House Property-

Notes by Munshigiri Education – One Step Solution for CA/CS/CMA Students

203, IInd Floor, Aggarwal Tower, Ashirwad Chowk, Sector 5, Dwarka, Delhi, 110075

Prepared by CA. S. Shekhar

Email ID- [email protected]

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CONCEPT 1: Charging Section of ‘Income from House Property’ (Section 22)

What is taxable under Income from House Property?

The Net annual value (NAV) of a property consisting of any buildings or lands

appurtenant thereto of which assessee is the owner shall be chargeable to tax under

the head Income from house property.

Such Net Annual Value shall be reduced by standard deduction and interest paid or

payable on any loan for acquisition or construction or renovation or repair of such

property, in order to calculate Income from House Property.

We must keep in mind the following points:-

1) What is taxed is not the annual rent but the annual value. The annual value of a

House Property is the Rent earning capacity of that house property in a year. The

annual value of the property may or may not be equal to the annual rent. The

concept of Annual Value is explained in Concept 2.

2) Following are some examples of lands appurtenant thereto:-

i. Garden given as rent along with the house.

ii. Parking area in the vicinity of the house given in rent along with house.

iii. Backyard of a House

Note: - Any income from a plot (i.e.) a piece of land shall not be taxable under the

head of Income from house property. Such an income shall be taxable under the

head ‘Income from Business or Profession’ or ‘Income from Other Sources’.

3) The annual value of a house property shall be taxable in the hands of owner or

deemed owner of such house property only. Therefore, rent received by tenant

from sub- letting of the house property shall be taxable under the head ‘Income

from Other Sources’. The Concept of deemed owner is explained later in this

chapter.






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4) The Annual Value of a property shall not be chargeable to tax under the head

Income from House property if that house property is used by the owner for the

purpose of carrying out his business or profession, the income from which is

chargeable under the head ‘Income from Business and profession’.

CONCEPT 2:- How to calculate ‘Net Annual Value’ and Income under the head

‘Income from House Property’?

Situation1:- When the house property is let out for whole or any part of the year.

Step (a) Calculate Gross Annual Value (GAV)

=

Municipal

Value of the

House

Property

Fair Rent of

the House

Property

Higher of the

two

Standard

Rent of the

House

Property

Lower of the two

(Will be called as

Expected Rent or

Reasonable Rent)

Actual rent (After

deducting Unrealised

rent but before

deducting loss due to

vacancy)

Higher of the two

less loss due to

vacancy

GROSS

ANNUAL

VALUE (GAV)






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Step (b) Calculate Net Annual Value (NAV)

Particulars Amount

Gross Annual Value (from (a)) ***

Less:- Municipal Taxes ***

NET ANNUAL VALUE

Step (c) Calculate Income from house property

Particulars Amount

Net Annual Value (NAV) (from (b)) ***

Less:- Standard deduction @ 30% of NAV ***

Less:- Interest on Capital Borrowed for acquisition or construction or renovation or repair of House Property

***

Income from House Property (IHP) ***

Concepts explained in brief:-

i. Municipal Value of the House Property: - It is the value determined by municipal

authorities for the purpose of charging municipal taxes on house properties. Such

value is calculated by municipal corporations after taking into consideration the

annual letting value of such property, its location and other considerations which

it considers necessary.

ii. Fair Rent of the House Property: - It is rent which a similar property can fetch

from the same or similar locality, if let out for whole year.

iii. Standard Rent of the House Property:- Standard rent for a property is fixed for a

property under the Rent Control Act. An owner of a house property is not

supposed to charge a rent more than the standard rent fixed for such property.

Note 1:- Higher among the Municipal Value and the Fair Rent shall be the

Expected Rent (reasonable rent) of the property, however subject to a maximum of

Standard Rent.






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iv. Actual rent received or receivable: - It is the actual rent which the owner of the

House Property has received from the tenant for letting out his property to him.

Note 2:- Higher between the ‘Expected Rent’ and ‘Actual Rent’ shall be reduced by

loss due to vacancy in order to calculate Gross Annual Value (GAV) of the

Property.

Actual Rent shall be the rent had the property been let out for whole year as

reduced by unrealized rent but before reducing loss due to vacancy.

Note 3- Loss due to Vacancy: - A property might remain vacant for any period of time

during the year. It is obvious that the owner of the house property shall not receive any

rent during such period. Such a loss arising to the owner of the house property is called

‘loss due to vacancy’.

Note 4- Unrealised Rent: - It is the amount of rent which the landlord couldn’t realize

from the tenant due to any reason.

Note 5:- From the analysis of the meaning of Standard rent, it seems that the actual

rent of a property shall always be less than the Standard Rent because an owner of a

house property is not supposed to charge a rent more than the standard rent fixed for

such property. So, it seems that the Expected rent of a property will always be its Gross

Annual Value.

However this is not true. This is because the Rent control Act doesn’t apply on all

properties and thus there can be house properties where actual rent of the property can

be much more than the standard rent. Moreover, even if the owner of the house property

in contravention of Rent control Act charges a higher rent, such rent shall be taken as

Gross Annual Value.

v. Municipal Taxes: - From the Gross Annual Value, the Municipal Taxes levied by

Municipal Authorities shall be deducted to calculate Net Annual Value. For this the

following two conditions must be satisfied:-






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• Municipal Taxes must be borne by the owner of such house property.

• Municipal Taxes must be paid by him during the previous year.

Note 6:- If Municipal Taxes are paid by the tenant and then reimbursed by the

owner, then also such deduction is available.

vi. Standard deduction: - It is a deduction given at a flat rate of 30% of Net Annual

Value. After this deduction, the owner will not separately get any benefit of any

repair or maintenance or administrative cost incurred by him. It is this flat 30%

which is presumed to be the deduction for such costs which may be incurred by

the him. It is to be noted that even if the owner doesn’t incur any such expense,

he shall still be given standard deduction at 30% of Net Annual Value.

vii. Interest on Borrowed Capital: - In case the property is acquired, constructed,

repaired, renewed or reconstructed with borrowed capital then any amount of

interest payable during the year on such loan shall also be deducted from Net

Annual Value (NAV). When the property is let out then Interest on Borrowed

capital is allowed as deduction without any limit.

Other points to be noted:-

1) In case the assessee takes a fresh loan to repay the original loan taken for

acquisition, construction, repair, renovation or reconstruction of property, then

interest payable on such new loan to repay the old loan shall also be allowed as

deduction on account of Interest on borrowed capital.

2) Interest on unpaid interest is not allowed as deduction.

3) Interest on borrowed capital is allowed on Accrual basis. So, such interest will

be allowed as deduction even when it is due but not paid.

4) Interest on capital borrowed is allowed as deduction irrespective of the fact that

such interest or the principal is a charge on the property. In simple words, it is






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immaterial whether the assessee has obtained the loan by mortgaging the

property or not.

5) No deduction shall be allowed for any brokerage or commission charges paid or

payable for arranging the loan.

Example 1:- Calculate Income under the head ‘Income from House property’ of Mr. A

who is owner of the house property, in following different scenarios:-

(Amount in Rs.)

Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4 Scenario# 5

Municipal Value (MV) 120 105 135 120 115

Fair Rent (FR) 110 115 140 120 120

Standard Rent (SR) 130 95 160 110 118

Actual Rent (AR) 125 120 135 110 116

Municipal Taxes paid Nil 10 15 8 18

Maintenance Cost borne by Mr. A

Nil 5 10 12 40

Interest on Loan for purchasing the property

5 8 10 9 11

Solution:-

Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4 Scenario# 5

Expected Rent (ER)- (Higher between MV & FR, subject to maximum of SR)

120 95 140 110 118

Actual Rent (AR) 125 120 135 110 116

Gross Annual Value (GAV) (Higher of ER & AR)

125 120 140 110 118

Less:- Municipal Taxes Nil 10 15 8 18

Net Annual Value (NAV) 125 110 125 102 100

Less:- Standard Deduction @ 30% of NAV

37.50 33 37.50 30.60 30

Less:- Interest on Loan to purchase the House

5 8 10 9 11

Income under the head ‘Income from House property’

82.50 69 77.50 62.40 59






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Note: - Maintenance Cost borne by Mr. A shall be ignored and no deduction for the same shall

be allowed irrespective of the amount. Mr. A has been allowed a standard deduction at 30% of

Net Annual Value. Even in Scenario # 5, there is no option as such in hands of Mr. A to pick

30% of NAV or actual expense incurred by him, whichever is higher.

Example 2:- Calculate Income under the head ‘Income from House property’ of Mr. B


(Amount in Rs.)

Particulars Scenario# 1 Scenario# 2 Scenario# 3 Scenario# 4

Municipal Value (MV) 120 105 135 105

Fair Rent (FR) 110 115 140 115

Standard Rent (SR) 130 95 160 95

Actual Rent (AR) (if let out whole year) 144 120 132 120

No. of Months Vacant Nil 1 2 3

Municipal Taxes paid Nil 7 10 7


8 9 15 9

Solution:-


(a) Expected Rent (ER)- (Higher between MV & FR, subject to maximum of SR)

120 95 140 95

(b) Actual Rent (before loss due to vacancy)

144 120 132 120

Higher of (a) or (b) 144 120 140 120

Less:- Loss due to vacancy Nil 10* 22 30

Gross Annual Value (GAV) 144 110 118 90

Less:- Municipal Taxes Nil 7 10 7

Net Annual Value (NAV) 144 103 108 83


43.20 30.90 32.40 24.90


8 9 15 9


92.80 63.10 60.60 49.10

* Actual Rent, if let out whole year= Rs. 120

Monthly rent= 120/12= Rs.10






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No. of months vacant= 1

Loss due to vacancy= 1*10= Rs. 10/-

Example 3:- Calculate Income under the head ‘Income from House property’ of Mr. C


(Amount in Rs.)


Municipal Value (MV) 120 105 135 105

Fair Rent (FR) 110 115 140 115

Standard Rent (SR) 130 95 160 95

Actual Rent (AR) (if let out whole year) 144 120 132 120

Unrealised Rent Nil 30 12 5

No. of Months Vacant Nil 1 2 3

Municipal Taxes paid Nil 7 10 7


8 9 15 9

Solution:-


(a) Expected Rent (ER)- (Higher between MV & FR, subject to maximum of SR)

120 95 140 95

(b) Actual Rent (after unrealised rent but before loss due to vacancy)

144 90 120 115

Higher of (a) or (b) 144 95 140 115

Less:- Loss due to vacancy Nil 10 22 30

Gross Annual Value (GAV) 144 85 118 85

Less:- Municipal Taxes Nil 7 10 7

Net Annual Value (NAV) 144 78 108 78


43.20 23.40 32.40 23.40


8 9 15 9


92.80 45.60 60.60 45.60






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Situation 2:- When the house property is used by the owner for his residence

throughout the year.

When a house property is used by the owner for his residence throughout the year, then

Income from House property shall be calculated as follows:-

Particulars Amount

Gross Annual Value Nil

Less:- Municipal Taxes Nil

Net Annual Value Nil

Less:- Standard Deduction Nil

Less:- Interest on Capital Borrowed for acquisition or construction or renovation or repair of House Property (Interest on Self occupied Property)

Calculated as per below para

Income or (Loss) from House Property (*****)

Since the assessee is using the property for his own residence and is making no direct

monetary benefit out of it, nothing will be taxed under the head Income from House

Property. Since nothing is taxed, the assessee will also not get the tax benefit of

Municipal tax paid or Standard Deduction.

However in order to encourage the citizens of the country to purchase their own house,

and to boost the banking system, the government has given the benefit of ‘Interest on

Self Occupied Property’ even when the property is used by the owner for his residence

throughout the year.

Interest on Self Occupied Property

Interest on Capital Borrowed for acquisition or construction or renovation or repair of

House Property shall be reduced from Net Annual value even when the property is used

by the assessee for his residence throughout the year. Since the property is self

occupied, the net annual value shall be Zero and the owner of the house property in

such a case will have loss under the head Income from House Property. However such a

loss or deduction shall not exceed Rs. 30,000.






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The above limit of Rs. 30,000 shall be increased to Rs. 2,00,000 (w.e.f AY 2015-16)

if all the below three conditions are fulfilled:-

1) Capital is borrowed on or after 1st April, 1999 for acquiring or construction of

house property.

2) The acquisition or construction of house property is completed within 3 years from

the end of the financial year in which such loan was taken. For example, if loan is

taken on 05th April, 2012, acquisition or construction should be over by 31st

March, 2016 (3 years form 31st March 2013).

3) The assessee (i.e. the owner of the house property) should furnish a certificate,

from the person to whom such interest is payable on the capital borrowed,

specifying the amount of such interest payable by the assessee for the purpose of

acquisition or construction of the property or conversion of the whole or part of

the capital borrowed which remains to be repaid as a new loan.

This is a procedural condition and it shall be presumed that the assessee has

furnished such a certificate even if the question is silent.

Example 4 (a):- Mr. A, owns a residential house which has been used by him for his self

occupancy. Following are the details of the house:-

Particulars Amount (Rs.)

Municipal Value 3,50,000

Fair Rent 3,90,000

Standard Rent 3,60,000

Municipal tax paid 5,000

Interest paid during the FY 2015-16 on loan taken on 15th April, 2011 for purchase of property. Property was purchased on 20th Sept, 2011

1,20,000

Calculate the income or loss under the head ‘Income from House Property’ of Mr A, for

the FY 2015-16 (AY 2016-17).

b) What if the interest paid during the FY 2015-16 was 2,10,000?

c) In (a), if the house was purchased on 20th Sept 2015, will it make any difference?






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Solution:-

Income from House Property’ of Mr. A, for the FY 2015-16, shall be calculated as

follows:-

Particulars Amount (Rs.)

Expected Rent Nil

Actual Rent Nil

Gross Annual Value Nil

Less:- Municipal tax paid Nil

Net Annual Value Nil

Less:- Standard Deduction Nil

Less:- Interest on Self occupied property 1,20,000

LOSS UNDER THE HEAD INCOME FROM HOUSE PROPERTY 1,20,000

b) If the interest paid during the FY 2015-16 was 2,10,000:- The deduction of Interest on

Self occupied property is limited to Rs. 2,00,000 and hence loss under the head

Income under House property shall be equal to Rs. 2,00,000/-

The deduction of Interest on Self occupied property is allowed upto Rs. 2,00,000

because all the below three conditions are satisfied:-

1) Loan was taken after 1st April, 1999 (i.e. on 15th April, 2011)

2) House was purchased within 3 years from the end of the FY in which loan was

taken (i.e. within 31st March, 2015) (Purchased on 20th September, 2011).

3) Loan certificate has been furnished by the assessee (presumed)

c) If the house was purchased on 20th Sept 2015:- The assessee has failed to acquire the

house within 3 years from the end of the financial year in which loan was taken. The

assessee has failed to fulfill 2nd condition that would have allowed him the maximum

benefit of Rs. 2,00,000 as interest on borrowed capital. So the maximum deduction that

will be allowed to him is Rs. 30,000/-. So even though the Interest paid by him in FY

2015-16 was Rs. 1,20,000, the Loss under the head ‘Income from house property

will be Rs. 30,000/-

Situation 3:- When the house property could not be occupied by the owner owing to his

business or profession at any other place.






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Income from house property shall be calculated as per ‘Situation-2’, if all the below

conditions are satisfied:-

1) The Assessee is the owner of the house property.

2) The assessee couldn’t occupy the property as his business or profession is at any

other place.

3) It is not feasible for the assessee to commute between the place where his house is

and the place where his office is.

4) The house is vacant throughout the year.

5) No other benefit is derived from such property.

In simple words, if the above conditions are satisfied then it is presumed that the house

has been self- occupied and nothing shall be chargeable to tax under the head ‘Income

from House Property’ and the assessee will get only the benefit of ‘Interest on Self

occupied property’ (Rs. 30,000 or Rs. 2,00,000)

Situation 4:- When the assessee owns more than one house property and claims all of

them to be Self- Occupied. (Concept of Deemed to be let out)

Where an assessee has occupied more than one house property for his own residential

purpose, then only one house (according to his own choice) shall be considered as Self-

occupied and all other units will be considered as ‘deemed to be let –out’.

In case of property that is opted as ‘Self- Occupied’, the taxable amount shall be

computed as per Situation-2 (i.e. considering the house property as self occupied for

whole of the year)

In case of the property that is Deemed to be let out, the taxable amount shall be

computed as per Situation-1 (i.e. considering the house property as let out throughout

the year)

While making choice of which house to be considered as ‘self occupied’, the option that

is most beneficial to the assessee shall be taken.






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Example 5:- Mr. A, owns 4 houses, the details of which are given below:-

Particulars House 1 House 2 House 3 House 4

Location Delhi Chennai Mumbai Kolkata

Stay of Mr. A 3 Months 3 Months 3 Months 3 Months

Status when Mr. A doesn’t stay Vacant Vacant Vacant Vacant Municipal Value (MV) 1,20,000 5,90,000 2,30,000 3,25,000 Fair Rent (FR) 1,30,000 5,10,000 2,30,000 3,35,000 Standard Rent (SR) 1,25,000 6,10,000 2,25,000 3,30,000 Actual Rent (AR) Nil Nil Nil Nil Municipal Taxes paid 5,000 15,000 7,500 8,500 Interest on Loan payable for FY 2015-16 for purchasing the property.

15,000 75,000 12,500 32,500

Loan Taken on 10th May 05 15th Nov 08 18th Mar 09 12th Jun 10

Property Purchased on 11th Mar 11 18th Oct 10 15th Mar 10 31st Dec 14

Calculate the Income under the hear ‘Income from House Property’ for the FY 2015-16

(AY 2016-17)

Solution: - Since none of the four houses are let out and all are used by the owner for

his own residence for some part of year, it is clear that this is the case of ‘more than one

house claimed as Self- occupied’.

So, as per option of the assessee one house will be considered as Self-Occupied and rest

as ‘deemed to be let out’. For making this choice, we shall 1st presume that all the

houses are deemed to be let out. If we consider so then following will be the situation:-






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Particulars House 1 House 2 House 3 House 4 Interest on Loan payable for FY 2015-16 for purchasing the property.

15,000 75,000 10,000 12,500


1,25,000 5,90,000 2,25,000 3,30,000

Actual Rent (AR) Nil Nil Nil Nil Gross Annual Value (GAV) (Higher of ER & AR)

1,25,000 5,90,000 2,25,000 3,30,000

Less:- Municipal Taxes 5,000 15,000 7,500 8,500 Net Annual Value (NAV) 1,20,000 5,75,000 2,17,500 3,21,500


36,000 1,72,500 65,250 96,450

Less:- Interest on Loan to purchase the House (no limit will apply)

15,000 75,000 12,500 32,500


69,000 3,27,500 1,39,750 1,92,550

Now Mr. A has four options as follows:-

Option 1- House 1 is self occupied and House 2, 3, 4 Deemed to be let out




Following shall be the Income under ‘Income from House Property’ under different

situations:-

Particulars Option 1 Option 2 Option 3 Option 4 House 1 (15,000) 69,000 69,000 69,000 House 2 3,27,500 (75,000) 3,27,500 3,27,500 House 3 1,39,750 1,39,750 (12,500) 1,39,750

House 4 1,92,550 1,92,550 1,92,550 (30,000)

Total Income from House property 6,44,800 3,26,300 5,76,550 5,06,250






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Since the Income chargeable to tax is least in option # 3, House Number 3 shall be

considered as self occupied and House number 1, 2 & 4 shall be deemed to be let out

and Income chargeable under the head shall be Rs. 3,26,300

Situation 5:- When the property is let out for part of a year and self- occupied for part of

a year.

This situation is same as Situation 1 and income shall be computed as if the property is

let out and no other extra benefit is available. This can be explained with the help of

below example:-

Example 6:- Calculate Income under the head ‘Income from House property’ of Mr. A

who is owner of the house property, which is let out for 6 month and used by Mr. A for

his residence for 6 months.

Particulars Amount

Municipal Value (MV) 2,50,000

Fair Rent (FR) 2,60,000

Standard Rent (SR) 2,40,000

Actual Rent (AR) (For 6 months) 1,50,000

Municipal Taxes paid (For whole year) 10,000

Interest on Loan for purchasing the property (Throughout the year) 42,000

Date of taking the loan 01/04/1998

Solution:-

Since the assessee has let out the property for part of a year (i.e) 6 months and occupied

the same for rest part of the year, the rental income from house property shall be

calculated as follows:-

Particulars Amount


2,40,000

Actual Rent (AR) 1,50,000

Gross Annual Value (GAV) (Higher of ER & AR) 2,40,000

Less:- Municipal Taxes 5,000

Net Annual Value (NAV) 2,35,000

Less:- Standard Deduction @ 30% of NAV 70,500

Less:- Interest on Loan to purchase the House 42,000

Income under the head ‘Income from House property’ 1,22,500






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Note: - Since the property is considered as let out, it is immaterial that loan was taken

on 01/04/1998 and Interest on borrowed capital shall be allowed without any limit.

Situation 6:- When part of the property is let out and part of the property is self-

occupied.

A house property may consist of independent parts or units, Example: - A two storeyed

house has three independent parts or units (i.e.) ground floor, 1st Floor and 2nd Floor. In

such a case there might be a situation in which ground floor is occupied by the owner

for his residence and 1st & 2nd Floor are let out to tenants.

In such a scenario, income from these independent parts or units shall be computed

separately. In the above example income from ground floor shall be calculated as per

situation 2 (i.e. Income from self occupied property) and income from 1st & 2nd floor shall

be calculated as per situation 1 (i.e. Income from property let out for any part of the

year)

Example 7:- Mr. X owns a residential house which has two equal sized independent

units: - Unit- I & Unit- II. Unit-I is occupied by Mr. X for his residence and Unit-II is let

out. The following are other details of the said house property:-

Municipal Value (MV) 4,50,000

Fair Rent (FR) 4,60,000

Standard Rent (SR) 4,40,000

Actual Rent (Of Unit-II) 19,000 per month

Loss due to vacancy 1 month

Unrealized rent 10,000

Municipal Taxes paid 12,000

Interest on Loan payable during FY 2015-16 for purchasing the property

70,000

Date of taking the loan 01/07/1998






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Calculate the income under the hear ‘Income from House property of Mr. X for the FY

2015-16 (AY 2016-17)

Solution: - Income of Mr. X from Unit-I shall be calculated considering the same as self-

occupied and income from Unit-II shall calculated considering the same as let out, as

follows:-

Particulars Unit-I Unit-II

Status of the Property Self Occupied Let Out

(a) Expected Rent (ER)- (Higher between MV & FR, subject to maximum of SR) (See Note- 1)

Nil 2,20,000

(b) Actual Rent (after unrealised rent but before loss due to vacancy)

Nil 2,18,000

Higher of (a) or (b) Nil 2,20,000

Less:- Loss due to vacancy Nil 19,000

Gross Annual Value (GAV) Nil 2,01,000

Less:- Municipal Taxes Nil 6,000

Net Annual Value (NAV) Nil 1,95,000

Less:- Standard Deduction @ 30% of NAV Nil 58,500

Less:- Interest on Loan to purchase the House 30,000 35,000

Income/ (Loss) under the head ‘Income from House property’

(30,000) 1,01,500

Total Income under the head income from House property:- 1,01,500- 30,000= Rs.

71,500/-

Note 1:-

Particulars For Whole residential house

For Unit-II (50%)

Municipal Value (MV) 4,50,000 2,25,000

Fair Rent (FR) 4,60,000 2,30,000

Standard Rent (SR) 4,40,000 2,20,000

Municipal Taxes 12,000 6,000

Interest on Loan to purchase the House

70,000 35,000






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Note 2:- In case of Unit-I, the deduction of Interest on Borrowed capital shall not exceed

Rs. 30,000 as the loan was taken before 01st April, 1999. However in case of Unit-II, no

such limit shall apply as Unit II is let out.

CONCEPT 3:- Joint Owners of a House Property

As discussed in Concept 1, the Net annual value (NAV) of a property consisting of any

buildings or lands appurtenant thereto of which assessee is the owner shall be

chargeable to tax under the head Income from house property.

A situation of Joint ownership occurs when the house property is owned by two or more

persons. All the owners will be individually called as Co- owners.

Now the question arises, on which owner’s hands will the Income from House Property

be taxed and how? The answer will lie on the fact that whether the Shares of Joint

owners is definite and ascertainable?

Where the Shares of Joint owners is definite and ascertainable: - The Income from

such property will be assessed in the hands of each co- owners separately and not as an

Association of Persons (AOP). For this purpose the Income from house property shall be

calculated in the proportion of his share in the property.

Example 8: - Mr. A & Mr. B jointly hold a property in Delhi (Equal owners, i.e. 50% to A

and 50% to B). The municipal value of the same is Rs. 2,00,000, Fair rent is Rs.

1,80,000, Standard Rent I Rs. 2,05,000 and actual rent is Rs. 2,10,000, Municipal taxes

paid= Rs. 10,000 & Interest paid on borrowed capital= Rs. 40,000. Calculate the income

from house property of Mr. A and Mr. B

Solution:-

Particulars For he property

A’s Share (50%)

B’s Share (50%)

Municipal Value (MV) 2,00,000 1,00,000 1,00,000

Fair Rent (FR) 1,80,000 90,000 90,000

Standard Rent (SR) 2,05,000 1,02,500 1,02,500

Actual Rent (AR) 2,10,000 1,05,000 1,05,000






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Expected rent (ER) (Higher of MV & FR, Subject to maximum of SR)

2,00,000 1,00,000 1,00,000

GAV (Higher of AR & ER) 2,10,000 1,05,000 1,05,000

Less:- Municipal taxes 10,000 5,000 5,000

NAV 2,00,000 1,00,000 1,00,000

Less:- Standard Deduction @ 30% 60,000 30,000 30,000

Less:- Interest on Capital borrowed 40,000 20,000 20,000

Income from House Property 1,00,000 50,000 50,000

Income from House property of Mr. A= 50,000/-

Income from House property of Mr. B= 50,000/-

Where the Shares of Joint owners is not definite: - The Income from such property

will not be assessed in the hands of each co- owners separately but as an Association of

Persons (AOP).

In the above example if the share of A & B is no ascertainable, then the total income

from house property of Rs. 1,00,000 will be charged to tax considering A & B together

and forming a new AOP.

Concept 4:- Composite Rent

When the owner of the building, along with the rent of the building gets rent of other

assets which have been provided to the tenant along with the building (like furniture,

etc), or charges for some services provided to the tenant (like Security charges,

maintenance, air- condition charges, etc), then the total amount so received is called as

composite rent. The tax treatment of composite rent is as follows:-

a) When composite rent consist of rent of building and rent of other assets like

furniture, etc, and the two rents are inseparable, then the amount so received

shall be taxable under the head ‘Income from business or profession’ or ‘Income

from other source’.

b) When composite rent consist of rent of building and rent of other assets like

furniture, etc, and the two rents are separable, then the amount received towards

rent of building shall be taxable under the head ‘Income from house property’, and






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the amount received towards rent of other assets shall be taxable under the head

‘Income from other source’.

c) When composite rent consist of rent of building and service charges like security,

maintenance, etc, then the composite rent shall be split up and the amount which

relates to rent of building shall be taxable under the head ‘Income from house

property’, and the amount that relates to service charges shall be taxable under

the head ‘Income from business or profession’ or ‘Income from other source’.

Note 1:- Renting of building and renting of other assets like furniture, etc, shall be

considered as inseparable, when the landlord is not willing to give one thing in rent

without the other and he charges from the tenant one all inclusive amount for renting of

both the building and other assets.

Note 2:- The decision of taxability under the head ‘Income from business or profession’

or ‘Income from other source’ depends upon the repetitiveness of the transaction. For

example, if renting of building and renting of other assets like furniture, etc, is the main

business of the landlord and the two rents are inseparable, then the amount so received

shall be taxable under the head ‘Income from business or profession’.

Concept 5:- Some special cases

1) Interest on borrowed capital payable outside India:- When the assessee pays

interest on borrowed capital to any person outside India on which TDS was

deductible and the assessee doesn’t deduct such TDS or after deducting doesn’t

deposit the same, then such Interest shall not be deducted while computing

Income from House Property.

2) Rental Income received by any person from house property situated in India:-

Where any person, whether resident or not, receives rent from a property situated

in India, then such income shall be deemed to accrue in India and shall be taxable

in the hands of such person, irrespective of the location of that person.

3) Rental Income received by a person assessable in India, from a house property

located outside India:- Where an assessee who is assessable in India for the rent






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received in foreign currency, the rate of exchange for such foreign currency into

Indian Rupees shall be the Telegraphic Transfer Buying rate (TT buying rate) of

such currency as on the specified date. The specified date shall be last day of the

previous year (31st March).

Concept 6:- Recovery of Unrealised Rent

Where the assessee cannot realize rent from a property let to a tenant and, subsequently

the assessee has realised any amount in respect of such rent, the amount so realised

shall deemed to be income chargeable under the head ‘Income from House Property’ in

the previous year in which such amount has realised, whether or not the assessee is the

owner of that house property in that year.

Example 9:- Mr. X owns a residential house in Delhi the details of which for the financial

year 2015-16 are as follows:-

Particulars FY 2015-16 FY 2016-17

Municipal Value (MV) 3,60,000 3,60,000

Fair Rent (FR) 3,75,000 3,75,000

Standard Rent (SR) 3,50,000 3,50,000

Actual Rent (Of Unit-II) 30,000 p.m 30,000 p.m

Loss due to vacancy 2 months 1 month

Unrealized rent 12,000 5,000

Municipal Taxes paid 8,000 8,000

Interest on Loan capital borrowed 72,000 67,000

Date of taking the loan 01/10/2008 01/10/2008

Out of the rent which couldn’t be realised in FY 2015-16, Rs. 8,000 was realised in

December 2016. Calculate the Income under the head Income from other House

Property for FY 2015-16 & 2016-17.

Solution:-

Particulars FY 2015-16 FY 2016-17

Expected Rent (ER) (Higher of MV and FR, subject to max of SR)

3,50,000 3,50,000

Actual Rent (AR) (After unrealised rent, before loss due to vacancy)

3,48,000 3,55,000

Higher of ER & AR 3,50,000 3,55,000






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Less:- Loss due to vacancy 60,000 30,000

GAV 2,90,000 3,25,000

Less:- Municipal Taxes paid 8,000 8,000

NAV 2,82,000 3,17,000

Less:- Standard Deduction @ 30% 84,600 95,100

Less:- Interest on Loan capital borrowed 72,000 67,000

Add:- Recovery of Unrealised rent Nil 8,000

INCOME FROM HOUSE PROPERTY 1,25,400 1,62,900

Concept 7:- Arrear Rent of Earlier years

Rent of a house property might increase retrospectively from a past date due to which

the owner of the house property receives the arrears of rent of past period.

Example: - In a disputed case the court on 1st April 2015 fixes the rent of a property at

Rs. 1,000 per month with effect from April 2005. The actual rent charged from April

2005 till March 2015 was Rs. 800 per month. So, on 1st April, 2015, the owner of the

property is entitled to receive arrear rent of Rs. 24,000/- (200*12*10)

Taxability of Arrear Rent: - Any arrear rent received on or after 1st April, 2000 shall be

chargeable to tax under the hear ‘Income from House Property’ in the year of receipt if

the same is not charged to tax in earlier years, whether or not the assessee is the owner

of that house property in that year.

However deduction from annual value to the extent of 30% w.e.f. AY 2002-03 shall be

available from such rent.

Concept 8:- Deemed Owner

As per Income tax Act, the owner of house property means not just the person who is

legal owner of the house but the person who is entitled to receive the Income from House

property in his own right.

Example: - Mr. A is the legal owner of House property in Delhi. Mr. A enters into an

agreement with Mr. B that all the income from the property shall belong to Mr. B. Now

the effective owner of the property is not Mr. A but Mr. B. Mr. B is deemed owner.

Similarly, the following persons shall be deemed to be owners of the house property

(Deemed owners):-






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1) The person who has transferred the property without adequate consideration to

his or her spouse or to his or her minor child.

Exception:-

a) When house property is transferred by a person to his or her spouse in

connection to agreement to live apart.

b) When house property is transferred by a person to his or her married minor

daughter.

2) A member of a co- operative society, company or AOP to whom a building or part

of a building is allotted or leased under a house building scheme.

3) A person in possession of property in part performance of a contract. Example: - A

person who has paid the consideration and taken possession of the property as

per agreement for sale will become owner even though the transfer is not yet

registered in his favour.

4) A person having lease right in the property under a lease for period exceeding 12

years in aggregate including the term for which the lease may be extended.

5) The holder of impartible estate shall be deemed to be individual owner of all the

properties comprised in that estate.

Concept 9:- Interest of Pre Construction period

As we know the income from house property shall be chargeable to Income tax in the

hands of an assessee, under the head ‘Income from House Property’, only when the

assessee is the owner of such property.

However there may be an instance in which the assessee has started paying interest on

capital borrowed for purchase or construction of house property but such acquisition or

construction is not complete. In such an instance the assessee is not owner however he

is paying interest which is entitled to be deducted under the head ‘Income from House

Property’. Now the question arises on how will such interest be treated which computing

‘Income from House Property’.






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Example: - Assessee took a loan of Rs. 1,00,000/- on 1st April, 2014 and started paying

interest on loan from the same date. The rate of Interest is 10% p.a. The construction of

house is complete on 1st April, 2015. Now the interest paid from 1st April, 2014 to 31st

March, 2015 (i.e. 1,00,000 @ 10%= Rs. 10,000/-) shall be considered as interest of pre

construction period.

In other words, pre- construction period is the period commencing from the date of

taking loan and ending on:-

(a) 31st March immediately preceding the date of completion of construction or date of

purchase.

Or

(b) Date of repayment of Loan, whichever is earlier.

Tax treatment of Interest of Pre Construction period

Interest of Pre Construction period will be allowed as deduction in 5 equal annual

installments, commencing from the previous year in which construction or acquisition of

house property is complete.

Note: - In case of Self occupied property (Situation-2, Concept-2) or property which

couldn’t be self occupied owing to employment in any other place (Situation-3, Concept-

2), the limit of Rs. 30,000 or Rs. 2,00,000, as the case may be, shall be considered after

taking into account the 1/5th amount of Interest of Pre Construction period.

Example 10:- Mr. A takes a loan of Rs. 1,00,000 for construction of house. The loan was

taken on 1st April, 2008. Construction was complete on 1st September 2015. Calculate

interest of Pre Construction period and explain how it will be treated in calculating

taxable income under the head ‘Income from House Property’, when the loan is repaid

on:-

a) 31st March, 2012

b) 31st May, 2015

c) 30th September, 2016

d) 30th September, 2008

(Note: - The house was let out as soon as construction was complete)






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Solution (a):-

Step-1:- Find out Pre- Construction Period: - It Shall be from: - 1st April 2008 to 31st

March 2015 or 31st March 2012, whichever is earlier (i.e.) from 1st April 2008 to 31st

March 2012= 4 years

Step 2:- Find out the Interest paid in Pre- Construction Period:-

= Rs. 1,00,000* 10%* 4 years= Rs. 40,000/-

Step 3:- Determine taxability of Interest paid in Pre- Construction Period:-

Total interest on pre construction period of Rs. 40,000/- shall be allowed in 5 equal

annual installments beginning from financial year 2015-2016 (i.e.) 40,000/5= Rs. 8,000

shall be deducted in FY 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20.

Step 4:- Determine the amount of Deduction in current FY

In FY 2015-16, interest paid is Rs. Nil (Loan has been already repaid on 31st March,

2012). So the interest deduction in FY 2015-16 is Rs. 8,000 (8,000+Nil).

Pre- Const

Period

1st Apr 2008 31st Mar 2012 31st March 2015 1st Sept, 2015 31st Mar 2016

(Date of Loan) (Date of repay) (Preceding 31st March) (Construction End of Current FY

Complete)

Solution (b):-


March 2015 or 31st May 2015, whichever is earlier (i.e.) from 1st April 2008 to 31st March

2015= 7 years


= Rs. 1,00,000* 10%* 7 years= Rs. 70,000/-






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annual installments beginning from financial year 2015-2016 (i.e.) 70,000/5= Rs.

14,000 shall be deducted in FY 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20


In FY 2015-16, interest paid is Rs. 1667 (Rs. 1,00,000* 10%*2/12) (For the month of

April & May 2015). So the interest deduction in FY 2015-16 is Rs. 15,667

(14,000+1,667).

Pre- Const Current year

Period Interest

1st Apr 2008 31st March 2015 31st May 2015 30th Sep 2015 31st Mar 16

(Date of Loan) (Preceding 31st March) (Loan Repay) (Const Complete) (End of Current

FY)

Solution (c):-


March 2015 or 30th September 2016, whichever is earlier (i.e.) from 1st April 2008 to 31st

March 2015= 7 years.


= Rs. 1,00,000* 10%* 7 years= Rs. 70,000/-



annual installments beginning from financial year 2015-2016 (i.e.) 70,000/5= Rs.

14,000 shall be deducted in FY 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20


In FY 2015-16, interest paid is Rs. 10,000 (Rs. 1,00,000* 10%). So the interest

deduction in FY 2015-16 is Rs. 24,000 (14,000+10,000).






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Pre- Const Current year

Period Interest

1st Apr 2008 31st March 2015 30th Sep 2015 31st Mar 16 30th Sep 16

(Date of Loan) (Preceding 31st March) (Const Complete) (End of Current (Loan repay)

FY)

Solution (d):-


March 2015 or 30th September 2008, whichever is earlier (i.e.) from 1st April 2008 to 30th

September 2008= 6 months


= Rs. 1,00,000* 10%* 6/12 years= Rs. 5,000/-



annual installments beginning from financial year 2015-2016 (i.e.) 5,000/5= Rs. 1,000

shall be deducted in FY 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20.


In FY 2015-16, interest paid is Rs. Nil (Loan has been already repaid on 30th September,

2008). So the interest deduction in FY 2015-16 is Rs. 1,000 (1,000+Nil).

Pre- Const

Period

1st Apr 2008 30th Sep 2008 31st March 2015 1st Sept, 2015 31st Mar 2016

(Date of Loan) (Date of repay) (Preceding 31st March) (Construction End of Current FY

Complete)






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Example 11: Calculate the deduction of ‘Interest on Capital Borrowed’ in following

cases:-

Case Loan Amount

Interest Rate

Date on which loan taken

Date on which construction is over

Date on which loan is repaid

Status of home after construction

1 10,00,000 10% 01st Mar 12 01st Jan 15 31st Jan 16 Self- Occupied

2 10,00,000 10% 01st Mar 12 05th Jul 15 31st Jan 16 Self- Occupied

3 12,00,000 8% 01st June 13 01st Oct 13 31st Oct 16 Self- Occupied

4 19,00,000 10% 01st June 12 01st Oct 13 31st Oct 16 Self- Occupied

5 15,00,000 10% 01st Aug 05 10th Oct 09 31st Mar 16 Self- Occupied

6 15,00,000 10% 01st Aug 05 10th Oct 09 31st Mar 16 Let- out

7 20,00,000 10% 01st Apr 14 30th Sep 15 31st Mar 16 Let- out

8 10,00,000 10% 01st Apr 12 31st Jan 16 31st Mar 14 Self- Occupied

9 10,00,000 10% 01st Jan 12 31st Jan 16 31st Mar 14 Self- Occupied

10 10,00,000 10% 01st Jan 12 31st Jan 16 31st Mar 14 Let- out

11 14,00,000 10% 01st Sep 12 01st Sep 15 31st Mar 16 Self- Occupied

Solution: -

Case Pre-

construction period From

Pre-construction period To

Pre- Const Period (Months)

Interest on Pre Const. Period

1/5th of Pre- Const period allowed in FY 2015-16

Actual interest paid in FY 15-16

Total Deduction actually allowed in respect of Interest on Capital borrowed

1 1-Mar-12 31-Mar-14 25 2,08,333 41,667 83,333 1,25,000 1,25,000

2 1-Mar-12 31-Mar-15 37 3,08,333 61,667 83,333 1,45,000 30,000

3 1-Jun-13 31-Mar-13 - - - 1,52,000 1,52,000 1,52,000

4 1-Jun-12 31-Mar-13 10 1,58,333 31,667 3,00,833 3,32,500 2,00,000

5 1-Aug-05 31-Mar-09 44 5,50,000 - 1,50,000 1,50,000 30,000

6 1-Aug-05 31-Mar-09 44 5,50,000 - 1,50,000 1,50,000 1,50,000

7 1-Apr-14 31-Mar-15 12 2,00,000 40,000 2,00,000 2,40,000 2,40,000

8 1-Apr-12 31-Mar-14 24 2,00,000 40,000 - 40,000 40,000

9 1-Jan-12 31-Mar-14 27 2,25,000 45,000 - 45,000 30,000

10 1-Jan-12 31-Mar-14 27 2,25,000 45,000 - 45,000 45,000

11 1-Sep-12 31-Mar-15 31 3,61,667 72,333 1,40,000 2,12,333 2,00,000

Documents

Income from House Property- - MunshiGiri from House Property- Notes by Munshigiri Education – One Step Solution for CA/CS/CMA Students 203, IInd Floor, Aggarwal Tower, Ashirwad Chowk,