Income From House Property

The document outlines the taxation rules for income generated from house property under the Income Tax Act, 1961, detailing the conditions for property ownership, types of property, and income calculation methods. It explains the concept of Gross Annual Value, allowable deductions such as municipal taxes and home loan interest, and the treatment of losses from house property. Additionally, it provides a computation example comparing self-occupied and let-out properties to illustrate income calculations and loss set-off limits.

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Income From House Property

Uploaded by

Abhinav Rathour

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Income from House

Property
Basis Of Charge
• The property should consist of any building or land appurtenant
thereto.
• The Assessee should be the owner of the property.
• The property should not be used for the purpose of any business &
profession carried on by him, profits of which are chargeable to tax
Building
• Building is wide enough to include residential houses(let out or self
occupied), building used for office use, or for storage, or use as
factory, music halls, dance halls, other public auditoriums etc.
Land appurtenant thereto
• The appurtenant land in respect of a residential building may be in
the form of approach road to & from public streets, compounds,
courtyards, kitchen garden, backyard, motor garage, stable, cattle
shed etc.
Deemed owner
• Transfer to spouse or minor child.
• Person who has acquired property under power of attorney
transaction.
Transfer to spouse or minor
child.
• To The assessee would be taken as a deemed owner if the following
conditions are satisfied.
• The taxpayer is an individual
• He or she transfers a house property
• The property is transferred to his/her spouse or minor child(not being
married daughter).
• The property is transferred without any adequate consideration.
Person who has acquired property
under power of attorney transaction

• There is an agreement in writing between the

purchaser & the seller.
• The purchaser has paid the consideration or is ready
to pay the consideration.
• The purchaser has taken the possession of the
property.
The following income will be taxable
under the head ‘Income from house
property’ of the Income tax act, 1961.
• Rental Income on a let out property
• Annual Value of a property which is ‘deemed’ to be let
out for income tax purposes ( when you own more than
two house property)
• The annual Value of a self-occupied property is Nil.
The annual Value of a self-occupied property is zero or
can even be negative if home loan interest is paid. If the
property is let out, its rent received is your Gross Annual
Value. For a deemed to be let out property, a reasonable
rent of a similar place is your Gross Annual Value.
GROSS ANNUAL VALUE
• Step 1- Calculate Reasonable Expected Rent which is higher of
municipal value and fair rent to a maximum of standard rent.
• Step 2- Calculate Actual Rent(Rent actually received or receivable for
renting period)
• Step 3- Higher of step 1 and 2
• Step 4- Loss due to vacancy
• Step 5- Step 3 – 4 which is Gross Annual Value
Deductions Under House
Property
• Municipal tax – Municipal taxes is the annual amount paid to the municipal corporation of that
area. Municipal taxes are to be deducted from the Gross Annual value to derive the Net annual
value of the house property. Deduction of municipal tax is allowed only if it has been borne by
the owner and paid during that financial year.
• Standard Deduction – Standard Deduction is 30% of the Net Annual Value calculated above.
This 30% deduction is allowed even when your actual expenditure on the property is higher or
lower. Therefore, this deduction is irrespective of the actual expenditure you may have incurred
on insurance, repairs, electricity, water supply etc. For a self-occupied house property, since the
Annual Value is Nil, the standard deduction is also zero on such a property.
• Deduction of Interest on Home Loan for the property –Homeowners can claim a deduction
of up to Rs.2 lakh on their home loan interest if the owner or his family reside in the house
property. The same treatment applies when the house is vacant. If you have rented out the
property, the entire interest on the home loan is allowed as a deduction. Your deduction on
interest is limited to Rs.30,000 if you fail to meet any of the conditions given below for the Rs.2
lakh rebate.-
• The home loan must be for the purchase and construction of a property;
• The loan must be taken on or after 1 April 1999;
• The purchase or construction must be completed within 5 years from the end of the financial year in which
the loan was taken
Pre Construction Interest
• When you have taken a loan for the purchase or construction of a
house property, you can claim a deduction on pre-construction
interest. However, this is not allowed in the case of the loan for
repairs or reconstruction.

The total amount of pre-construction interest and interest on a

housing loan that can be claimed in a year should not exceed Rs 2
lakh in any case. The deduction for this interest is allowed in 5 equal
instalments starting from the year in which the house is purchased or
the construction is completed.

For example, if the construction of your property completed in FY

2018-19, on 25 June 2018, you can claim 1/5th of interest paid up till
31 March 2018 when you file your return for FY 2018-19.
Conditions for Claiming Interest
on Home Loan
• he loan has been taken after 1st April 1999 for purchase or
construction
• The acquisition or construction is completed within 5 years (3
Years till FY 2015-16) from the end of the financial year in
which the loan was taken
• There is an interest certificate available for the interest payable
on the loan. Note that your interest deduction may be
limited to Rs 30,000 if any one of these conditions is met –
• The loan is borrowed before 1st April 1999 for purchase, construction,
repairs or reconstruction of house property
• The loan is borrowed on or after 1st April 1999 for purchase,
construction, repairs or reconstruction of house property.
Computation of Income Under
House Property
• Say, a person repays a housing loan of Rs 4 lakh
annually out of which Rs 2 lakh is the interest
component. He has also incurred a pre-construction
interest of Rs 3 lakh. He is earning Rs 7000 monthly
from a let-out property and also pays municipal taxes of
Rs 3000 for the house. Let’s calculate his Income from
house property in both the scenarios: 1. He has a self-
occupied property, or 2. The property is rented out
Type of House Property Self Occupied Let Out
Gross annual Value (Rent paid- NIL 84,000
7000*12)

Less: Municipal Taxes or Taxes paid NA 3,000

to local authorities

Net Annual Value(NAV) Nil 81,000

Less: Standard Deduction(30% of NA 24,300
NAV)

Less: Interest on Housing Loan 200,000 200,000

Less: Pre-construction interest (1/5th 60,000 60,000
of 3 Lakhs)