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Income from House property

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.


Other Categories

Taxation of Individuals
Who is liable to pay income tax
Sources of Income
Income from Salaries
Income from Capital Gains
Income from House property
Income from Profits & gains of business or profession
Income from other sources
Taxation of Partnerships
Customs Duties (Import Duty and Export Tax)
Wealth Tax
Taxation of Corporates
Taxation of Agents
Excise Duty
Permanent Account Number (PAN)
Taxation of other forms of business entities
Taxation of Trusts
Taxation of Small Scale Industries
Joint Venture Companies
Cooperative Societies
Taxation of Representative offices
Service Tax
Value Added Tax (VAT)


India has a well developed tax structure. The power to levy taxes and duties is distributed among the three
tiers of Government, in accordance with the provisions of the Indian Constitution. The main taxes/duties that
the Union Government is empowered to levy are:- Income Tax (except tax on agricultural income,
which the State Governments can levy), Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are:- Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities like water supply, drainage, etc.

In the wake of economic reforms, the tax system in India has under gone a radical change, in line with the
liberal policy. Some of the changes include:- rationalization of tax structure; progressive reduction in peak
rates of customs duty; reduction in corporate tax rate; customs duties to be aligned with ASEAN levels;
introduction of value added tax; widening of the tax base; tax laws have been simplified to ensure better compliance. Tax policy in India provides tax holidays in the form of concessions for various types of investments. These include incentives to priority sectors and to industries located in special area/ regions. Tax incentives are available also for those engaged in development of infrastructure.