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Income from House property
The term 'House property' consists of buildings or land appurtenant to such buildings. Income from letting out
of vacant plots of land when there is no adjoining building will not be taxed under this head (but will be
taxed as income from other sources). The existence of a building is, therefore, an essential prerequisite for
taxation of income from house property. 'Building' will include residential house (whether let out or
self-occupied), office building, factory building, godowns, flats etc. But, the purpose for which the building
is used by the tenant is also immaterial. It does not make any difference at all if the property is owned by a
limited company or a firm. However, if the building or part thereof is used by the owner himself for the
purpose of his own business then there will be no income from such portion of the house property.
Under the Income-tax Act, the basis of calculating income from House property is the 'Annual Value'. This is
the inherent capacity of the property to earn income and it has been defined as the sum for which the property
might reasonably be expected to let from year to year. Where the actual rent received is more than the reasonable
return, it has been specifically provided that the actual rent will be the annual value. Where, however, the
actual rent is less than the reasonable rent , the latter will be the annual value.
The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is
the owner shall be subjected to Income Tax under the head 'Income from property' after claiming deductions
(under section 24) provided such property, or any portion of such property is not used by the assessee for the
purposes of any business or profession, carried on by him, the profits of which are chargeable to income tax.
Computation of income from Self Occupied property
Income is computed after giving certain deductions from the annual value of the property.
Computation of annual value of self occupied property : Self occupied
property does not generate any rent and its annual value will be determined on a notional basis as if it
had been let out. The annual value of Self occupied property is taken as NIL if the property is fully
utilized for own residential stay during the year or if the property is not actually occupied as owner and
is also not let out. However, if a property is let out for only a part of the year, proportionate annual
value will be calculated. Entitled deductions for self occupied property : The only entitled deduction
is interest, if any payable, on loan taken for the purchase or construction of the house property.
Computation of income from let out property
Income is computed after giving certain deductions from the net annual value of the let out property.
Computation of net value of let out property : For let out properties, the
gross annual value will be the greater of the following three amounts.
Municipal value of the property Actual rent received during the year; Fair rent i.e. rent of similar properties in the same or similar locality.
Out of the gross annual value, municipal taxes actually paid during the year has to be
deducted to arrive at the net annual value. The municipal taxes are to be deducted in the following
cases :
The property is let out during the whole or any part of the previous year
(There is no such deduction in respect of one self-occupied house property for which 'nil' annual
value is adopted). The Municipal taxes must be borne by the landlord (If the Municipal taxes or
any part thereof are borne by the tenant, it will not be allowed). The Municipal taxes must be paid during the year (Where the municipal taxes
become due but have not been actually paid, it will not be allowed. Similarly, the year to which
the taxes relate to, is also immaterial).
Under section 24 the following expenses will be allowed as deductions from the net
annual value arrived at after deducting municipal taxes from the gross annual value :
Repairs & Collection Charges : 30% of the Annual Value. It is a
statutory deduction not dependent on the actual expenditure incurred on repairs or collection by the
owner. Interest : When money is borrowed on interest and the property in
question is either acquired or constructed or repaired or reconstructed with such borrowed funds,
interest payable thereon is deducted from the annual value. The amount of interest payable for the
relevant year should be calculated and claimed as deduction. It is immaterial whether the interest
has actually been paid during the year or not.
Entitled deductions for let out property : The deductions available for
computing House Property Income are the following.
30% of the net annual value for repair and maintenance and rent collection
expenses for the property Interest on money borrowed to build, buy or repair the property;
Ownership of property
The assessee for taxation of income from house property must be the owner. An 'owner' of the property is one
who can exercise the rights of the owner. The word 'owner' refers to the owner of the property and not to the
owner of its annual value. The definition of the term 'owner of house property' has been extended beyond mere
legal ownership to also cover the cases of deemed ownership.
A person is deemed as owner in following cases :
As transferor of the property to spouse or minor child for inadequate or no
consideration As holder of an impartible estate or a property in part performance of a contract
under the Transfer of Property Act As share holder of a co-operative society or a company, which entitles to hold any
property, etc.
In case of joint ownership of any property, when the share of each co-owner is definite and ascertainable, it
has been provided that each of the owners will be assessed individually in respect of share of income from the
property. In other words, income from the property will be determined and allocated to each co-owner according
to his share. When each of the co-owners of a property uses it for his residence, each of them will also get
the concessional treatment in respect of one self-occupied property.
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