Income Tax Law and Practice_ Lecture Notes Compiled by CA Dr.

Gurcharan Sachdeva

Income under the head Income from House Property

Basis of Charge [Section 22]: As per the provisions of Section 22 of the Income Tax Act, 1961,
income is taxable under the head Income from House Property provided the following conditions
are satisfied:
1. The property should consist of any buildings or lands appurtenant thereto. Rental income
of a vacant plot (not appurtenant to building) is not chargeable to tax under the head Income
from House Property. But it will be taxed under PGBP or IOS.
2. The assessee should be owner of the property. It includes deemed owner. However, the
subletting is not taxable under this head. Annual value of the property is taxable in the
hands of owner even if he is not receipt of income.
a. Deemed owner
i. If an individual transfers a HP without adequate consideration to his/her
spouse (except in case of agreement to live apart) or his or her minor child
not being the married daughter.
ii. The holder of impartible estate
iii. Property allotted by Group housing society to its members: members are the
deemed owner.
iv. The person who has taken a property on lease for 12 years or more.
v. If property is acquired under a power of attorney transaction by satisfying
the conditions of section 53A of the transfer of Property Act which are as
hereunder:
• There should be an agreement in writing between the buyer and
seller
• The buyer has paid the consideration or he is ready to pay the
consideration; and
• The buyer has taken the possession 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 income tax
If these conditions are satisfied only then the income is chargeable to tax under the Income from
House property. The situation shall remain the same even if a company has been incorporated with
the object of buying and developing landed projects.
Key Points
1. A resident assessee is taxable in respect of annual value of a property situated in a foreign
country.
2. If the property is owned by the two or more persons and their respective shares are definite
and ascertainable then, the share of each person in the computed income of property shall
be included in his total income. One thing should be kept in mind that the co-owners are
not taxable as an AOP.

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Income Tax Law and Practice_ Lecture Notes Compiled by CA Dr. Gurcharan Sachdeva

3. Composite rent: if the owner gets apart from building rent like rent for providing different
amenities. e.g. furniture, lift, ACs etc. Accounting treatment under different situations is as
under:
a. Where composite rent includes rent of building and charges for different services
b. Where composite rent is rent of letting out of building and letting out of other assets
and the two lettings are not separable
c. Where composite rent is rent of letting out of building and letting out of other assets
and the two lettings are separable
4. The following property incomes shall not be charged to tax
a. Income from farm house
b. Annual value of any one palace of an ex-ruler
c. Property income of a local authority/trade union/political party
d. House property held for charitable purposes etc.,

Computation of Income from House Property

Gross Annual Value XXX
Less: Municipal Taxes paid by the owner XXX
Net Annual Value XXX
Less: Deductions under section 24
Standard Deduction: 30% of Net annual Value XXX
Interest on Borrowed Capital XXX
Income from House Property XXX
How to Determine Gross Annual Value
Step I: Expected Rent: Municipal Valuation or Fair Rental Value whichever is higher but should
not exceed Standard Rent
Key Note: Reasonable expected rent can not exceed the amount of standard rent. Reasonable
expected rent can however, be lower than standard rent
Example
(Rs. In thousands)
Particulars A B C D E
Municipal Valuation (MV) 80 80 80 80 80
Fair Rent (FR) 92 92 92 96 102
Standard Rent (SR) NA 90 70 90 126
What is reasonable expected
rent?

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Income Tax Law and Practice_ Lecture Notes Compiled by CA Dr. Gurcharan Sachdeva

Step II: Find out the rent Actually received or receivable:

Rent of the PY (or that part of the previous year) for which the property is available for letting
out XXX
Less: unrealized rent subject to few conditions XXX
Rent received/Receivable before deducting loss due to vacancy XXX
Key Points:
1. In case the tenant pays the composite rent of property and the landlord provides certain
benefits, then the composite rent must be disintegrated and only the part pertaining to the
let out of the property would form the basis for computing GAV.
2. If the tenant has undertaken the cost of repairs, the amount spent by the tenant shall not be
added to the rent received or receivable.
3. A non-refundable deposit will be included in the rent received or receivable. However,
refundable deposits shall not be considered.
4. Advance rent can not be rent received or receivable of the year of receipt.
5. Commission paid by the owner of a property to a broker is not deductible from the rental
income.
6. Maintenance charges recovered from the tenant shall not be considered to find the actual
rent received/receivable.
7. Conditions pertaining to unrealized rent
a. The tenancy is bona fide
b. The defaulting tenant has vacated or steps have been taken to compel him to vacate
the property
c. The defaulting tenant is not in occupation of any other property of the assessee in
question.
d. The assessee has taken all the necessary steps to institute legal proceedings for the
recovery of unpaid arrears or satisfies the AO that legal proceedings were useless.

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Income Tax Law and Practice_ Lecture Notes Compiled by CA Dr. Gurcharan Sachdeva

Examples:
1. Find out the gross annual value for the AY 2024-25
H1 H2 H3 H4 H5
Municipal valuation 210 210 210 210 210
(Rs.)
Fair rent 214 214 214 214 214
Standard rent under NA 176 176 270 270
the rent control Act
Actual rent 206 224 172 228 194
Unrealized rent 2 4 2 4 2
(conditions are
fulfilled)
Period of the PY (in 12 12 12 12 12
months)
Period during which Nil Nil Nil Nil Nil
the property remains
vacant
Expected Rent (Rs)
Rent received or
receivable
GAV

2. Find out the gross annual value for the AY 2024-25

H1 H2 H3 H4 H5
Municipal valuation 120 120 120 224 224
(Rs.)
Fair rent 136 136 136 234 234
Standard rent under 124 124 140 230 230
the rent control Act
Actual rent 134 134 146 242 220
Unrealized rent 4 12 10 100 80
(conditions are
fulfilled)
Loss due to vacancy 2 2 2 2 Nil
Expected Rent (Rs)
Rent received or
receivable

GAV

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Income Tax Law and Practice_ Lecture Notes Compiled by CA Dr. Gurcharan Sachdeva

3. Find out the gross annual value for the AY 2024-25

H1 H2 H3 H4 H5
Municipal valuation 280 360 360 280 462
(Rs.)
Fair rent 290 370 370 290 524
Standard rent under 284 350 350 284 482
the rent control Act
Actual rent if property 336 336 336 336 504
is let out throughout
the P year 2023-24
Unrealized rent of the 28 84 2 140 84
PY 2023-24
Unrealized rent of the 6 8 10 12 14
PY 2022-23
Period when the ½ 1 1 3 5
property remains
vacant (in months)
Loss due to vacancy ?
Expected Rent (Rs)
Rent received or
receivable

GAV

Interest on Borrowed Capital: is allowable as deduction if it is borrowed for the purpose of

purchase, construction, repair, renewal or reconstruction of the property. It is deductible on accrual
basis even if it is not paid. However, interest on unpaid interest is not deductible. Moreover, interest
on a fresh loan, taken to repay the original loan raised for the abovementioned purposes is
deductible. Deduction is available even if neither the principal nor the interest is a charge on
property. Although, interest on borrowed capital is fully deductible without any maximum limit
in case of let out property. However, in case of self-occupied property, it is deductible to the tune
of Rs. 200000 or Rs. 30000 as the case may be. In case of self-occupied property, to claim the
higher deduction of Rs. 200000 on account of interest on borrowed capital, the assessee has to
satisfy the few conditions which are as under:
a. Capital is borrowed on or after 1st April, 1999 for Constructing or Acquiring a property
b. The Construction or Acquisition should be completed within 5 years from the end of financial
year in which the capital was borrowed. For example, if the capital was borrowed on 25th August,
2022, then the construction should be completed by 31st March, 2028.
c. The person extending the loan certifies that such interest is payable in respect of the amount
advanced for Construction or Acquisition of the house or as re-finance of the principal amount
outstanding under an earlier loan taken for such Construction or Acquisition.

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Note: The higher deduction of Rs. 200000 can be claimed only when capital is borrowed for
Construction or Acquistion only. In other words, for purposes like Repairs, Renewals and
Reconstruction, the higher deduction of Rs. 200000 can not be claimed even if the capital is
borrowed on or after 1st April, 1999.
To remember: C A R3
(Construction) (Acquisition) (repairs, Renewals, Reconstruction)
Example 4: Mr. Y takes a loan of Rs. 500000 @12% p.a. for construction of the property on 10th
June 2018. Construction of the house is completed on 25th January, 2024. Date of repayment of
the loan is (a) January 26, 2029 or (b) 30th September 2025, or 31st October, 2021
Example 5: Mr. Shabd owns two residential house properties. One is located in the heart of Delhi
and another is in the Mohali. These properties are used for the purpose of residence by Shabd and
his family members throughout the PY and no other benefit was derived therefrom. These
properties were acquired by taking home loan from Indian Overseas Bank and HDFC Bank Ltd.
As an Income Tax practitioner, you are requested to find the maximum deductibility on account of
interest on borrowed capital under the following given circumstances while computing income
under the head income from House property.
Different Property Situated at Delhi Property situated at Mohali, Punjab Total
cases Date of Total Interest Date of Total Interest deductibility
borrowing interest Deductible borrowing interest Deductible
obligation (Delhi) obligation (Mohali)
including including
interest interest
pertaining pertaining to
to pre- pre-
construction construction
period period
Case I 2013-14 250000 2011-12 275000
Case II 2015-16 195000 2013-14 165000
Case III 2013-14 275000 2012-13 85000
Case IV 2016-17 205000 1995-96 50000
Case V 1996-97 265000 2015-16 55000
Case VI 2017-18 275000 1999-2000 20000
Case VII 2016-17 100000 2002-03 75000
Case 1997-98 27000 1997-98 22000
VIII

Key points
1. In case of a property occupied for own business or profession, no income shall be
chargeable to tax under the head income from house property. Hence, assessee is not
entitled to claim any deduction on account of rent in respect of such property in computing
income under the head PGBP.

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Income Tax Law and Practice_ Lecture Notes Compiled by CA Dr. Gurcharan Sachdeva

2. Tax Treatment under Different Situations

S.N. Different Situations Tax Treatment Remarks
1. If property is let out Compute the GAV and Standard Deduction is at the flat
deduct municipal taxes to rate 30% of NAV.
find out NAV. Deduct the In case of let out property, there
standard deduction and is no limit regarding the
interest on borrowed deductibility of interest on
capital from NAV to borrowed capital.
reach finally at income
from house property.
2. If two or more than two GAV is taken as NIL and Only two houses as per the option
properties are used no deduction is available of the owner are treated as self-
throughout the PY for own except interest on occupied properties and rest of
residential purposes and it is borrowed capital to the them are considered as deemed to
not let out or put to any use. tune of Rs. 30000/Rs. be let out. In case of deemed to be
200000 as the case may let out property, income is to be
be. computed as per the methodology
given in situation 1.
3. If such property could not be GAV is taken as NIL and Conditions:
occupied throughout the PY no deduction is available i. Assessee owns one or two
because employment, except interest on house properties, which cannot
business or profession of the borrowed capital to the actually be occupied by him
owner is situated at some tune of Rs. 30000/Rs. because of employment, business
other place 200000 as the case may or profession carried on at any
be. other place.
ii. has to reside at that other place
in a building not owned by him
iii. the property in question is
neither actually let out during
whole or part of the year nor other
benefit is derived therefrom.
4. When a part of the property Income is computed on
(being independent the basis of above
residential unit) is self- principles as per the
occupied and the other part situation prevailing in a
is let out particular case.

Full questions on income from HP

Q.1(a) Shikha owns a house property. It is used by her throughout the PY 2023-24 for her and her
family members residence. FRV is Rs. 190000; standard rent is Rs. 170000 and MV of the property
is Rs. 180000. Expenses incurred by Shikha includes, repairs & maintenance Rs. 25000, municipal
taxes Rs. 20000, Property Insurance Rs. 5000; interest on borrowed capital for construction of the
property Rs. 175000; interest on borrowed capital by mortgaging property for sister’s marriage is
Rs. 25000 (in either case capital is borrowed before 1st April, 1999. Shikha has also reported her
income from business Rs. 900000. Find out her net income for the AY 2024-25.
(b) what will be your answer if the loan is borrowed for repairs only?

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Income Tax Law and Practice_ Lecture Notes Compiled by CA Dr. Gurcharan Sachdeva

(c) What will be your answer if the loan is borrowed for the purpose of acquisition after 1 st April,
1999
Q.2 Raj Kumar Grover whose age is 59 years, owns four houses and the following detail is
available.
Particulars H1 H2 H3 H4
Nature of occupation Let out for Self- Self- Self-
residence occupied occupied occupied
for for for
residence profession residence
Date of completion of May 30, May 30, March 31, 1st April,
construction/acquisition 2022 2023 2022 2021
(Amount Rs.)
Standard Rent as per the Standard 48000 18000 115000 135000
Rent Control Act applicable (SR)
Fair Rental Value (FRV) 59000 27000 117000 136000
Municipal Valuation 45000 7500 102000 135000
Rent in case the property is let out for 63000 NA NA NA
whole of the year
Unrealized Rent 5250 Nil Nil Nil
Repairs Nil 5000 1000 4500
Collection charges 500 Nil Nil Nil
Ground rent 1000 1500 Nil Nil
Land revenue 1200 1000 450 900
Municipal Taxes paid by Raj Kumar Nil 750 10500 18000
Municipal Taxes paid by tenant 4500 Nil Nil Nil
th th
Property H1 remains vacant for 2 months from 15 March 2024 to 14 May, 2024. Raj K Grover
borrows Rs. 45000; Rs. 60000; and Rs. 97500 for construction of H1, H2 and H4 respectively. The
money was borrowed on 15th June 2017 and loan was repaid on 31st December, 2021 along with
interest chargeable @15% p.a. Determine the net taxable income and tax liability of Mr. Raj Kumar
Grover for the AY 2024-25 on the assumption that he has income from other sources Rs. 500000
and income under the head PGBP to the tune of Rs. 975000. He has contributed Rs. 125000
towards PPF and paid Rs. 50000 for tuition fees of his children. You may ignore section 115BAC.
H1: 15th June 2017 to 31st December 2021: 4 years, 6 months and 17 days= (6750 X4) +
(6750/2) + (6750/365 X 17) = 30689
30689/5 = 6138 in each year from 22-23 to 2026-27
H2: 15th June 2017 to 31st December 2021: 4 years, 6 months and 17 days : 9000 X4) +(9000/2)
+(9000/365 X 17) = 40919
40919/5 = 8184 in each year from 2023-24 to 2027-28
H4: 15th June 2017 to 31st March 2021: 3 years, 9 months, 17 days
(14625 X 3) + (14625/12 X9) +(14625/365 X 17) = 55525

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55525/5 = 11105 will be deductible from 2021-22 to 2025-26

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Income Tax Law and Practice_ Lecture Notes Compiled by CA Dr. Gurcharan Sachdeva

Particulars H1 (Rs.) H2 (Rs.) H4 (Rs.)

Let out Self-occupied for
residence
Municipal Valuation 45000 7500 135000
FRV 59000 27000 136000
Standard Rent 48000 18000 135000
Expected Rent I 48000 N/A N/A
Actual Rent Received or receivable 63000 N/A N/A
Less: Unrealized Rent 5250
Actually received or receivable II 57750 N/A N/A
I or II whichever is higher 57750 N/A N/A
Less: Vacancy Allowance (63000/365X17) 2934 N/A N/A
GAV 54816 Nil Nil
Less: Municipal Taxes paid by the owner Nil Nil Nil
Net Annual Value 54816 Nil Nil
Less: Deductions under section 24 Nil Nil
Standard Deduction: 30% of NAV 16445
Interest on Borrowed Capital 6138 8184 11105
Income 32233 (8184) (11105)
Income under the head Income from HP
H1 32233
H2 (8184)
H4 (11105)
Income under the head Income from HP 12944
Income under the head Income from PGBP 975000
Income under the head Income from other sources 500000
Gross Total Income 1487944
Less: Deductions under section 80C 175000 but subject to the maximum of 150000
Net Taxable Income (rounded off to the multiple of nearest 10) 1337940
Tax on 1337940 = 213882
Add: Surcharge nil
Tax and Surcharge 213882
Add: Health and education cess @4% 8555
Total Tax Liability (rounded off) 222440

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Income Tax Law and Practice_ Lecture Notes Compiled by CA Dr. Gurcharan Sachdeva

Tax as per new tax regime on 1507230 = 152169

Add: Surcharge nil
Tax and surcharge 152169
Add: Health and education cess @4% 6087
Tax liability 158260

Q.3 (a) Sharu owns a house property which has been let out up to 31st January, 2024 at the monthly
rent of Rs. 15000 per month and for remining two months for the PY ending 31 st March, 2024 it
is self-occupied for her own residential purpose. The municipal valuation of the property is Rs.
165000 and fair rental value is Rs. 225000 but the Standard rent is Rs. 185000. She has incurred
the expenses as Municipal taxes of Rs. 9000 (out of which she paid Rs. 7000 only and Rs. 1000 is
paid by her tenant. Remining amount of Rs. 1000 is in arrears), repairs: Rs. 4500; Insurance: Rs.
5000, interest on Borrowed capital Rs. 125000 for acquiring the property. Capital was borrowed
on 15th June 1992. She has received the unrealized rent of Rs. 50000 pertaining to the PY 2020-21
during the current previous year ending 31st March, 2024. As a tax expert, you are requested to
find the net taxable income of Sharu for the AY 2024-25 on the assumption that she has earned an
income in the form of interest on fixed deposits Rs. 195000.
(b) what will be your answer if the property is let out up to 31st January, 2024 @ Rs. 20000 per
month.
Q.4 A big house is owned by Mr. Ramesh. The erection of the same has been completed on 31st
March, 2020. There are three independent units of house. The details of all the three units for the
PY 2023-24 is given as under
Particulars Unit 1 Unit 2 Unit 3
Floor area (%) 50 25 25
Nature of occupation Let out for Used for his Self-
residence business or occupied
profession for his
residence
Monthly rent Rs. 9000
Unrealized rent Rs. 1000
Vacant for (and not put to any use) 1 month

Other particulars are as under:

MV: Rs. 70000; FRV: Rs. Rs. 50000; Standard Rent: Rs. 90000. He has incurred the expenses as
Rs. 5000 on repairs; Rs. 15000 as municipal taxes (which has been duly paid). Interest on borrowed
capital for the purpose of renewal is Rs. 36000. Annual charge created under the will by father in
favor of Mrs. Ramesh: Rs. 10000. Income of Mr. Ramesh from business is Rs. 950000 without

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debiting house rent and other incidental expenses including admissible depreciation on the portion
of house used for his business or profession: Rs. 8000. Determine the net taxable income for the
AY 2024-25 on the assumption that he has deposited Rs. 125000 in the PPF Account.

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Q.5 Parmod Owns 5 houses which all are occupied by him for his residential purposes. These
houses are neither let out nor any benefit is derived therefrom during any part of the PY 2023-24.
He has provided the following information and from that you are required to compute the net
income for the AY 2024-25 on the assumption that he has earned a income from business or
profession to the tune of Rs. 3500000.
H1 H2 H3 H4 H5
Amount (Rs.)
GAV 1200000 1270000 2760000 490000 1590000
Municipal Taxes actually paid 40000 125000 190000 35000 125000
by Parmod
Interest on borrowed capital to Nil 11000 175000 225000 235000
acquire the property (assume
borrowing in all cases after 1st
April, 1999
Interest on capital borrowed 210000 789500 1500000 Nil Nil
for repairs, renewal or
reconstruction of the property

Space for writing

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Income Tax Law and Practice_ Lecture Notes Compiled by CA Dr. Gurcharan Sachdeva

If they are treated as Deemed to be let out

Particulars H1 H2 H3 H4` H5
GAV 1200000 1270000 2760000 490000 1590000
Less: MT paid by the 40000 125000 190000 35000 125000
owner
Net Annual Value 1160000 1145000 2570000 455000 1465000
Less: Deductions u/s 24
Standard Deduction 348000 343500 771000 136500 439500
@30%
Interest on Borrowed Nil 11000 175000 225000 235000
Capital
Income from respective 812000 790500 1624000 93500 790500
houses

If they are treated as Self occupied

Particulars H1 H2 H3 H4` H5
GAV Nil Nil Nil Nil Nil
Less: MT paid by the Nil Nil Nil Nil Nil
owner
Net Annual Value Nil Nil Nil Nil Nil
Less: Deductions u/s 24
Standard Deduction Nil Nil Nil Nil Nil
Interest on Borrowed
Capital Nil 11000 175000 200000 200000
Income from respective Nil (11000) (175000) (200000) (200000)
houses

Old Tax Regime

Self Occupied Deemed to be let out
H1 H2 H3 H4 H5 0 -11000 +1624000 + 93500 + 790500 = 2497000
H1 H3 H2 H4 H5 0 – 175000 +790500 +93500 + 790500 = 1499500
H1 H4 H2 H3 H5
New Tax Regime
H1H2 H3 H4 H5 0+0 + 1624000 +93500 +790500 = 2508000
H1 H3 H2 H4 H5 0 +0 +790500 +93500 + 790500 = 1674500

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