Income Under the Head “Income from House Property”
Basis of Charge
The annual value of any property comprising of buildings or lands appurtenant thereto, of which the assessee is the owner, is chargeable to tax under the head “Income from house property”.
(i) Property should consist of any buildings or lands appurtenant thereto
Income from letting out of vacant land is, however, taxable under the head “Income from other sources” or “Profits and gains from business or profession”, as the case may be.
(ii) Assessee must be the owner of the property
(iii) The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax.
Further, the income earned by an assessee engaged in the business of letting out of properties on rent would be taxable as business income.
(iv) Property held as stock-in-trade etc.
Annual value of house property will be charged under the head “Income from house property”, where it is held by the assessee as stock-in-trade of a business also.
Annual Value of let-out property
Annual value is the amount arrived after deducting the municipal taxes actually paid by the owner during the previous year from the Gross Annual Value (GAV). The GAV of Let-out property would be determined in the following manner:
Annual Value of self-occupied property
Where the property is self-occupied for own residence or unoccupied throughout the previous year owing to his employment, business or profession carried on at any other place and residing at that other place in a building not belonging to him, its Annual Value will be Nil, provided no other benefit is derived by the owner from such property.
An assessee can claim benefit of Nil Annual Value in respect of one or two residential house properties self-occupied by him.
Annual Value of deemed to be let-out property
If more than two properties are so self-occupied/unoccupied, the assessee may claim benefit of Nil annual value in respect of any two properties at his option. The other property(s) would be deemed to be let out, in respect of which Expected Rent would be the GAV.
Annual value where the property held as stock-in-trade etc.
Where property consisting of any buildings or lands appurtenant thereto is held as stock-in-trade and the whole or any part of the property is not let out during the whole or any part of the previous year, the annual value of such property or part of the property for the period upto 2 years from the end of the financial year in which certificate of completion of construction of the property is obtained from the competent authority shall be taken as “Nil”.
Deductions from Annual Value
- 30% of Annual Value [Section 24(a)]
- Interest on borrowed capital [Section 24(b)]: Interest payable on loans borrowed for the purpose of acquisition, construction, repairs, renewal or reconstruction can be claimed as deduction.
Pre-construction interest: Interest for the period prior to the previous year in which property is acquired or construction is completed.
Pre-construction interest is allowable as deduction in 5 equal installments from the previous year of completion of construction or acquisition.
(a) Let out property: Whole of the amount of interest on borrowed capital payable during the previous year and apportioned pre-construction interest without any ceiling limit would be allowed as deduction.
(b) Self-occupied property:
(i) Loan taken on or after 1.4.99: Interest on loan taken for acquisition or construction of house on or after 1.4.99, where such construction is completed within 5 years from the end of the financial year in which capital was borrowed, aggregate interest paid or payable for one or two self-occupied properties subject to a maximum of Rs. 2,00,000 (including apportioned pre-construction interest).
(ii) Loan taken before 1.4.99: In case of loan for acquisition or construction taken prior to 1.4.99 or loan taken for repair, renovation or reconstruction at any point of time, aggregate interest paid or payable for one or two self-occupied properties subject to a maximum of Rs. 30,000 (including apportioned pre-construction interest).
Note – Total amount of interest deduction under (i) and (i) in respect of one or two self-occupied properties owned by the assessee cannot exceed Rs. 2,00,000.
Interest chargeable under this Act which is payable outside India shall not be deducted if –
(a) tax has not been paid or deducted from such interest and
(b) in respect of which there is no person in India who may be treated as an agent
Taxability of recovery of unrealised rent & arrears of rent received
(i) Taxable in the year of receipt/ realisation
(ii) Deduction@30% of rent received/ realised
(iii) Taxable even if assessee is not the owner of the property in the financial year of receipt/ realization
(i) Self-occupied property: The annual value of the property of each co-owner will be Nil and each co-owner shall be entitled to a deduction of Rs. 30,000 / Rs. 2,00,000, as the case may be, on account of interest on borrowed capital.
However, aggregate deduction of interest to each co-owner in respect of co-owned self-occupied property and any other self-occupied house property, if any, cannot exceed Rs. 30,000/ Rs. 2,00,000, as the case may be.
(ii) Let-out property: The income from such property shall be computed as if the property is owned by one owner and thereafter the income so computed shall be apportioned amongst each co-owner as per their specific share.
The following persons, though not legal owners of a property, are deemed to be the owners:
- Transferor of the property, where the property is transferred to the spouse or to minor child except minor married daughter, without adequate consideration
- Holder of an impartible estate
- Member of a co-operative society etc.
- Person in possession of a property
- Person having right in a property for a period not less than 12 years
Other important points
(i) The Actual rent received/receivable should not include any amount of rent which is not capable of being realized i.e., unrealized rent while determining gross annual value in case let-out property, provided the conditions specified in Rule 4 are satisfied.
Note – The income-tax returns, however, permit deduction of unrealized rent from gross annual value. If this view is taken, the unrealized rent should be deducted only after computing gross annual value.
(ii) If a portion of a property is let-out and a portion is self-occupied, then, the income will be computed separately for let out and self occupied portion.