2 INTRODUCTIONThe income from houses, buildings, bungalows, godowns etc is to be computed and assessed to tax under the head “ income from house property’.The income under this head is not based upon the actual income from the property but notional income or annual value of that building.
3 IMPORTANT POINTSThe scope of the head of income under this head is limited to the incomes from buildings or land appurtenant to buildings only.Tax is to be levied on the annual value of the property and not on actual rent received.Assessee should be the owner of the property.The property should not be used for the purposes of assessee’s business or professionIn case of a dispute about ownership, the person who is receiving the benefit will pay the tax till the dispute is settledLetting out of property for smooth conduct of assessee’s business or profession will not be treated as income from house property.Income from subletting of house property will be taxed as income from other sources and not as income from house property.
4 Ownership of house property If land is taken on long term lease and building constructed on that, the person who takes the land on lease will be treated as the owner.Where the property is mortgaged, the mortgager will be treated as the owner.If the property was constructed in the name of the partnership firm, the firm will be assessable as the owner.A person whose property is vested in the Custodian of Evacuee property is not the owner of the property for the purpose of this headThe person must be a owner in his own right and not on behalf of the owner.
5 DEEMED OWNERA person ,who transfers his house property to his spouse without adequate consideration , will be the deemed owner of the house. The only exception is when the transfer is in connection with an agreement to live apart An individual, who transfers his property to his minor child who is not an unmarried daughter, without adequate consideration will be the deemed owner of the house The holder of an impartible estate shall be deemed to be the individual owner of all the properties comprised in the estate. A member of a cooperative society to whom a building or a part thereof is allotted or leased under a house building scheme of the society will be deemed to be the owner of that building or part thereof.
6 EXEMPTED INCOMES UNDER THE HEAD HOUSE PROPERTY Agricultural house propertyHouse property held for charitable purposesHouse used for own business or professionHouse property held by a local authorityHouse property held by a scientific research institutionHouse property held by a political partyHouse property held by an educational institutionOne house property held by an ex ruler of an Indian statesOne self occupied houseOne self occupied but vacant house
7 DIFFERENT TYPES OF ANNUAL VALUES ACTUAL RENTREAL RENTAL VALUEMUNICIPAL RENTAL VALUEFAIR RENTAL VALUESTANDARD RENT
8 DETERMINATION OF ANNUAL VALUE ANNUAL VALUE OF LETOUT HOUSE PROPERTYANNUAL VALUE OF SELF OCCUPIED HOUSE PROPERTY
9 ANNUAL VALUE OF LETOUT HOUSE SITUATION IThe house property is letout for the whole year and there is no vacancy orUnrealised rentCompare MRV and FRV and whichever is higher is compared with standard rent and whichever is less is ERV( expected rental value)If actual rent received or receivable is more than ERV, then actual rent received or receivable is Gross Annual Value(GAV).If actual rent received or receivable is less than the ERV, then ERV is the GAV and previous step will not be applicable.This rule is applicable if the property is actually let out and not in case of deemed to be letout property.
10 SITUATION II House property is letout and there is vacancy If house property was vacant for full year, the GAV is taken as nilIf house property was vacant for part of the year:If rent received or receivable is more than ERVCompare MRV and FRV and whichever is higher is compared with standard rent and whichever is less is ERV( expected rental value)If actual rent received or receivable for full year is more than ERV, then actual rent received or receivable is Gross Annual Value(GAV).Such GAV is reduced by loss due to vacancy i.e an amount of actual rent in proportion of vacancyIf rent received or receivable is less than ERVIf actual rent received or receivable for full year is less than ERV, then ERV so calculated is Gross Annual Value(GAV).
11 SITUATION III House property is letout and there is unrealised rent If rent actually received or receivable, after deducting unrealised rent as per conditions is more than the ERV, such rent received or receivable is GAVIf rent actually received or receivable, after deducting unrealised rent as per conditions is less than the ERV, such ERV is the GAVConditions for deduction of unrealised rentThe tenancy should be bonafideThe tenant has vacated the house or steps have been taken to get the house vacatedThe tenant is not occupying any other house owned by the assesseeThe assessing officer is satisfied that there is no chance to recover the rentUnreallised rent of earlier years is not deductible
12 SITUATION IVHOUSE PROPERTY IS LETOUT AND THERE IS BOTH VACANCY AND UNREALISED RENTIf rent received or receivable for the full year after deducting the unrealised rent as per conditions, is more than the ERV, then such rent received or receivable is the GAV.If rent received or receivable for the full year after deducting the unrealised rent as per conditions, is less than the ERV, then such ERV is the GAV.Such GAV is reduced by an amount of actual rent in proportion of vacancy.
13 SITUATION VIf house property is letout for a part of the year because it is purchased or constructed during the previous year :Take all the values only for the period for which the house property is in existence or owned by the assessee during the PY. Compare these and calculate the GAV accordingly
14 CALCULATION OF NAV IN CASE OF LETOUT HOUSE Calculate GAV as per rulesDeduct the amount of local taxes actually paid by the owner. The important points in this respect are:Municipal taxes include service charges, sanitation cess, water cess etc levied by the local authority.If municipal taxes or part of the taxes are borne by the tenant, no deduction will be allowedThe deduction for taxes is allowed on payment basis only and not on due basis.
15 ANNUAL VALUE OF SELF OCCUPIED HOUSE One self occupied house is exempted and annual value reduced to nil.If assessee owns more than one house and claims as self occupied, then only one house of his choice will be exempted and the other house shall be deemed to be letout.If house property consists of several independent units and one is under self occupation and others are letout, then the annual value of one unit is taken as nil and other units are treated as let out.If house property is partly letout and partly self occupied and if the units are inseparable, then it is treated as one house and no benefit of self occupation is givenIf house property is letout for part of the year and self occupied for part of the year, then the whole property is treated as letout property and no benefit of self occupation is given. However actual rent is tken only for the number of months the house is actually letout.
16 DEDUCTIONS U/S 24 LETOUT HOUSE Standard deduction: 30% of the annual value will be allowed as deduction irrespective of the actual expenses incurred.Interest on loan: interest on loan to construct, purchase, repair or renovate the house is allowed as deduction. Actual interest for the relevant previous year plus 1/5th of the preconstruction interest is allowed as deduction with no limit.
17 DEDUCTIONS U/S 24 SELF OCCUPIED HOUSE Only one deduction allowed in case of self occupied house i.e. Actual interest for the relevant previous year plus 1/5th pre construction interest.If the loan was taken before , the maximum amount of interest on loan allowed is Rs 30,000.( current year’s interest plus pre construction interest)If the loan is taken on or after , the maximum limit on interest allowed is Rs 1,50,000, provided the construction of the house for which the loan is taken is completed within three years from the end of the financial year in which the money is borrowed.
18 UNREALISED RENT RECOVERED Unrealised rent shall be deemed to be the income of the year in which recovered.A comparison will be made between the amount of tax which has been paid and the amount he would have paid had there been no unrealised rent.The difference between the two will be the tax liability of the year in which rent is recovered.