Income from House property- points to be noted.

1. ​Rental income of the owner is chargeable to tax under income from house property. It is clearly understood from the language of the act that rental income at hands of persons other than the owner of the property can not be construed as income from house property and can not be taxed as such. So sub letting income is not income from house property, but it can be charged under the head income from other sources or profits and gains from business or profession.

2. It means in no case a person other than the owner will be taxed for rental income?​​In the following cases a person may not be the registered owner of the property, but he will be treated as the owner (i.e., deemed owner) of the property and rental income from property will be charged to tax in his hands: (1) If an individual transfers his or her house property to his/her spouse (not being a transfer in connection with an agreement to live apart) or to his/her minor child (not being married daughter) without adequate consideration, then the transferor will be deemed as owner of the property. (2) Holder of impartible estate is deemed as the owner of the property comprised in the estate (3) A member of co-operative society, company or other association of persons to whom a building (or part of it) is allotted or leased under house building scheme of the society, company or association, as the case may be, is treated as deemed owner of the property. (4) A person acquiring property by satisfying the conditions of section 53A of the Transfer of Property Act, will be treated as deemed owner (although he may not be the registered owner). Section 53A of said Act prescribes following conditions: (a)  There must be an agreement in writing. (b)  The purchase consideration is paid or the purchaser is willing to pay it. (c)  Purchaser has taken the possession of the property in pursuance of the agreement. (5) In case of lease of a property for a period exceeding 12 years (whether originally fixed or provision for extension exists), lessee is deemed to be the owner of the property. However, any right by way of lease from month-to-month or for a period not exceeding one year is not covered by this provision.​ Rental income from a shop To tax the rental income under the head “Income from house property”, the rented property should be building or land appurtenant thereto. Shop being a building, rental income will be charged to tax under the head “Income from house property”. ​ Computation of gross annual value of a property which is let-out throughout the year. ​Gross annual value of a property which is let-out throughout the year is determined in the following manner :Step 1: Compute reasonable expected rent of the property (for details refer to FAQ on computation of reasonable expected rent). Step 2: Compute actual rent of the property (for details refer to FAQ on computation of actual rent). Step 3: Compute gross annual value (Gross annual value will be higher of amount computed at step 1 or step 2).​ Tax treatment of composite rent when the composite rent pertains to letting of building along with other assets. ​Composite rent includes rent of building and rent towards other assets or facilities. The tax treatment of composite rent is as follows:- (a) In a case where letting out of building and letting out of other assets are inseparable (i.e., both the lettings are composite and not separable, e.g., letting of equipped theatre), entire rent (i.e. composite rent) will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources”, as the case may be. Nothing is charged to tax under the head “Income from house property”.. (b)  In a case where, letting out of building and letting out of other assets are separable (i.e., both the lettings are separable, e.g., letting out of refrigerator along with residential bungalow), rent of building will be charged to tax under the head “Income from house property” and rent of other assets will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources”, as the case may be. This rule is applicable, even if the owner receives composite rent for both the lettings. In other words, in such a case, the composite rent is to be allocated for letting out of building and for letting of other assets. Computation of reasonable expected rent while computing gross annual value of a property which is let-out throughout the year. Reasonable expected rent will be higher of the following:

3. Municipal value of the property (Note 1); or

4. Fair rent of the property (Note 2). If a property is covered under Rent Control Act, then the reasonable expected rent cannot exceed standard rent (Note 3). Note 1: Meaning of Municipal Value For collection of municipal taxes, local authorities make periodic survey of all buildings in their jurisdiction. Such value determined by the municipal authorities in respect of a property, is called as municipal value of the property. Note 2: Meaning of Fair Rent It is the reasonable expected rent which the property can fetch. It can be determined on the basis of rent fetched by a similar property in the same or similar locality. Note 3: Meaning of Standard Rent It is the maximum rent which a person can legally recover from his tenant under the Rent Control Act. Standard rent is applicable only in case of properties covered under Rent Control Act. ​Tax treatment of composite rent when the composite rent pertains to letting out of building along with charges for provision of services ​In such a case, composite rent includes rent of building and charges for different services (like lift, watchman, water supply, etc.): In this situation, the composite rent is to be bifurcated and the sum attributable to the use of property will be charged to tax under the head “Income from house property” and charges for various services will be charged to tax under the head “Profits and gains of business and profession” or “Income from other sources” (as the case may be).​ Computation of  income from a property which is let out throughout the year. ​​​​​Income chargeable to tax under the head “Income from house property” in the case of a let-out property is computed in the following manner: ParticularsAmountGross annual valueXXXXLess:- Municipal taxes paid during the yearXXXXNet Annual Value (NAV)XXXXLess:- Deduction under section 24➣ Deduction under section 24(a) at 30% of NAV ➣ Deduction under section 24(b​)) on account of interest on borrowed capital(XXXX) (XXXX)Income from house propertyXXXX​Computation of actual rent while computing gross annual value of a property which is let-out throughout the year. ​ Actual rent means the rent for which the property is let out during the year. While computing actual rent, rent pertaining to vacancy period is not to be deducted. However, unrealised rent (*) is to be deducted from actual rent if conditions specified in this regard are satisfied. (*) Unrealised rent is the rent of the property which the owner of the property could not recover from the tenant, i.e., rent not paid by the tenant. If following conditions are satisfied, then unrealised rent is to be deducted from actual rent of the year: ➣The tenancy is bona fide. ➣The defaulting tenant has vacated the property, or steps have been taken to compel him to vacate the property. ➣The defaulting tenant is not in occupation of any other property of the taxpayer. ➣The taxpayer has taken all steps to recover such amount, including legal proceedings or he satisfies the Assessing Officer that legal proceedings would be useless. Computation of  gross annual value of a property which is let-out throughout the year. ​The steps involved in computation of gross annual value of a property which is let-out throughout the year are already discussed earlier, hence, we will take an illustration for better understanding. Illustration From the following information provided by Mr. Raja in respect of 3 properties rented out by him compute the gross annual value of all the properties. ParticularsProperty A (Rs.)Property B (Rs.)Property C (Rs.)Municipal Value8,48,4848,48,4842,52,252Fair Rent2,52,2522,52,2528,48,484Standard RentNot Applicable84,2529,84,000Actual rent for the entire year9,60,00060,0009,60,000Unrealised rent (*)1,60,000NIL80,000 (*) All the conditions specified for deduction of unrealised rent are satisfied. ** Gross annual value will be computed as follows: Step 1: Compute reasonable expected rent of the property. Step 2: Compute actual rent of the property. Step 3: Compute gross annual value. Based on these steps the computation will be as follows ParticularsProperty A (Rs.)Property B (Rs.)Property C (Rs.)Amount at Step 1 (Note 1)8,48,48484,2528,48,484Amount at Step 2 (Note 2)8,00,00060,0008,80,000Amount at Step 3, i.e., Gross annual value (Note 3)8,48,48484,2528,80,000Note 1: Amount at Step 1 (,i.e., Reasonable expected rent) is higher of municipal value or fair rent (subject to standard rent). Note 2: Amount at Step 2 is actual rent after deducting unrealised rent., i.e., Rs. 8,00,000 (9,60,000 – Rs. 1,60,000) in case of property A, Rs. 60,000 in case of property B and Rs. 8,80,000 (Rs. 9,60,000 – Rs. 80,000) in case of property C. Note 3: Gross annual value will be higher of amount at Step 1 or Step 2.​ Computation the gross annual value in the case of a property which is vacant for some time during the year. ​​Where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the reasonable expected rent than the actual rent so received or receivable (as reduced by the vacant allowance) shall be considered to be the Gross Annual Value of the property.​ Computing income chargeable to tax under the head “Income from house property” in the case of a let-out property, what are the expenses to be deducted from gross annual value. ​​​​While computing income chargeable to tax under the head “Income from house property” in the case of a let-out property, only following items can be claimed as deductions from gross annual value. It other words, deduction cannot be claimed for any expenditure incurred by the taxpayer other than following:​

5. Deduction on account of municipal taxes paid by the taxpayer during the year (*).

6. Deduction under section 24(a) @ 30% of Net Annual Value.

7. Deduction under section 24(b​)​​ on account of interest on capital borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the property.(*) Only municipal taxes paid by the owner during the year can be deduced, hence, municipal taxes due but not paid during the year cannot be deducted or taxes borne by the tenant cannot be deducted.​ Interest paid on loans taken from friends and relatives be claimed as deduction while calculating house property income. Yes, if the loan is taken for purchase, construction, repair, renewal or reconstruction of the house. If the loan is taken for personal or other purposes then the interest on such loan cannot be claimed as deduction.​ While computing income chargeable to tax under the head “Income from house property” in the case of a let-out property, how much interest on housing loan can be claimed as deduction. ​​​​While computing income chargeable to tax under the head “Income from house property” in case of a let-out property, the taxpayer can claim deduction under section 24(b) on account of interest on loan taken for the purpose of purchase, construction, repair, renewal or reconstruction of the property. In case of a let-out property, there is no limit on the quantum of interest which can be claimed as deduction under section 24(b​)​. However, in case of a self occupied property, limit is Rs. 2,00,000 or Rs. 30,000, as the case may be. My spouse and I jointly own a house in which both of us have invested equally out of independent sources. Can the rental income received be split up between us and taxed in the individual hands. ​​Yes, if the share of each co-owner is ascertainable.​ Self-occupied property. Ans: ​​​A self-occupied property means a property which is occupied throughout the year by the taxpayer for his residence What is pre-construction period. ​While computing income chargeable to tax under the head “Income from house property” in case of a let-out property, the taxpayer can claim deduction under section 24(b) on account of interest on loan taken for the purpose of purchase, construction, repair, renewal or reconstruction of the property. Deduction on account of interest is classified in two forms, viz., interest pertaining to pre-construction period and interest pertaining to post-construction period. Post-construction period interest is the interest pertaining to the relevant year (i.e., the year for which income is being computed). Pre-construction period is the period commencing from the date of borrowing of loan and ends on earlier of the following: ➣  Date of repayment of loan; or ➣  31st March immediately prior to the date of completion of the construction/acquisition of the property. Interest pertaining to pre-construction period is allowed as deduction in five equal annual instalments, commencing from the year in which the house property is acquired or constructed. Thus, total deduction available to the taxpayer under section 24(b)​​ on account of interest will be 1/5th of interest pertaining to pre-construction period (if any) + Interest pertaining to post construction period (if any).​ Computation income from self occupied property. ​​​​​Ans: A self-occupied property means a property which is occupied throughout the year by the taxpayer for his residence. Income chargeable to tax under the head “Income from house property” in case of a self-occ​upied property is computed in following manner : ParticularsAmount​Gross annual valueNilLess:- Municipal taxes paid during the yearNilNet Annual Value (NAV)NilLess:- Deduction under section 24➣ Deduction under section 24(a) @ 30% of NAV ➣ Deduction under section 24(b​) on account of interest on borrowed capitalNil (XXXX)Income from house propertyXXXX From the above computation it can be observed that “Income from house property” in the case of a self occupied property will be either Nil (if there is no interest on housing loan) or negative (i.e., loss) to the extent of interest on housing loan. Deduction in respect of interest on housing loan in case of a self-occupied property cannot exceed Rs. 2,00,000 or Rs. 30,000, as the case may be (discussed later). Deduction of municipal taxes paid during the year will not be allowed in case of self occupied property.  Can a property not used for residence by the taxpayer be treated as self occupied property? ​A self-occupied property means a property which is occupied throughout the year by the owner for his residence. Thus, a property not occupied by the owner for his residence cannot be treated as a self occupied property. However, there is one exception to this rule. If the following conditions are satisfied, then the property can be treated as self-occupied and the annual value of a property will be “Nil”, even though the property is not occupied by the owner throughout the year for his residence : (a) The taxpayer owns a property; (b) Such property cannot actually be occupied by him owing to his employment, business or profession carried on at any other place and he has to reside at that other place in a building not owned by him; (c)  The property mentioned in (a) above (or part thereof) is not actually let out at any time during the year; (d) No other benefit is derived from such property. What income is charged to tax under the head “Income from house property”? ​ Rental income from a property being building or land appurtenant thereto of which the taxpayer is owner is charged to tax under the head “Income from house property”.​​ What will be the tax implications if a person occupies more than one property for his residence? Can he treat all the properties as self occupied (SOP) and claim gross annual value (GAV) as Nil? ​The SOP benefit (i.e., treating property as SOP and claiming GAV as Nil) is available only in respect of one property occupied by the owner for his residence. If a person occupies more than one property for his residence, then the SOP benefit will be granted only in respect of any one property as selected by him and other property/properties will be treated as “Deemed to be let-out”. Income from deemed to be let-out property is computed in the same manner as discussed in the case of “Let-out” Property.​ Own two houses. One is a farmhouse that I visit on weekends and the other is in the city that I use on weekdays. Is it correct to treat both these residences as self occupied? ​​No, for the purpose of Income-tax Law you can claim only one property as self occupied property and other property will be deemed to be let-out property.​ I own two houses both of which are occupied by me and my family. Is there any tax implication? ​​​​Yes. As already mentioned in the earlier FAQ, income from house property is a notional income and only in respect of one residential unit, if self occupied, it will be considered as nil. In case of the other residential unit, fair rent will have to be treated as your income and will be taxed accordingly.​​ Computation of income from a property which is self-occupied for part of the year and let out for part of the year At times a property may be let-out for some time during the year and is self-occupied for the remaining period (i.e., let-out as well as self occupied during the year). For the purpose of computation of income chargeable to tax under the head “Income from house property”, such a property will be treated as let-out throughout the year and income will be computed accordingly. ​However, while computing the taxable income in case of such a property, actual rent will be considered only for the let-out period. Computation of  income from a property, when part of the property is self-occupied and part is let-out. ​A house property may consist of two or more independent units, one of which is self-occupied and the remaining are/are used for any other purpose (i.e., let-out or used for own business). Income from such property will be computed in the following manner: In case of a self-occupied property, how much of interest on housing loan can be claimed as deduction? ​​​​​In the case of self-occupied property, deduction under section 24(b)​​ cannot exceed Rs.2,00,000 or Rs. 30,000 (as the case may be). If all the following conditions are satisfied, then the limit in respect of interest on borrowed capital will be Rs.2,00,000: ​➣Capital is borrowed on or after 1-4-1999. ➣Capital is borrowed for the purpose of acquisition or construction (i.e., not for repair, renewal, reconstruction). ➣Acquisition or construction is completed within 5 years from the end of the financial year in which the capital was borrowed. ➣The person extending the loan certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as re-finance of the principal amount outstanding under an earlier loan taken for acquisition or construction of the property. If any of the above condition is not satisfied, then the limit of Rs. 2,00,000 will be reduced to Rs. 30,000.

8. a) Part/unit which is occupied by the taxpayer for his residence throughout the year will be treated as an independent property and income from such a part/unit will be computed in the manner as discussed in case of a self-occupied property.

9. b) Part/unit which is let out will be treated as an independent property and income from such a part/unit will be computed in the manner as discussed in case of let out property.​Tax of treatment of unrealised rent which is subsequently realised. ​​​Any subsequent recovery of unrealized rent shall be deemed to be the income of taxpayer under the head “Income from house property” in the year in which such rent is realized (whether or not the assesse is the owner of that property in that year).​ It will be charged to tax after deducting a sum equal to 30% of unrealized rent.​ I have 5 separate let out properties. Should I calculate the house property income separately for each individual property or by clubbing all the rental receipts in one calculation? ​​​​The calculation will have to be made separately for each of the properties.​