Income from House Property

Income from House Property :

Topics Covered in this Page

• Scope of Chargeability

• Calculating Income from House Property

• House Property Used For Own Business/Profession

• Concession In Respect of Any one Residential House Property

• Calculation of House Property Income from Wholly Let-Out property

• Deemed Let Out

• Unrealised Rent Recovered

• Exemption Under Section 10

Scope of Chargeability

Resident

Rent earned by a Resident for property let-out in or outside India are both taxable (whether received in India or not).

Non-resident or a Not Ordinarily Resident

• In the case of a non-resident or a not ordinarily resident, rent received in India, whether for properties in India or outside India, is taxable in India.

• The rent through or from a house property in India (whether received in India or not), is taxable in their hands in India, since it is deemed to accrue or arise in India.

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Calculating Income from House Property

The computation of 'Income from House Property' depends upon the purpose for which it is used.

They are: -

1. Any House Property used for own Business or Profession

2. One House Property used for own Residence or Deemed to be used for own Residence

3. Let-out for Residence or Business/Profession

4. More than one House Property used for own Residence - Deemed Let-out

In any case, the computation of 'Income from House Property' involves two steps: -

1. Determination of Annual Value [Gross Annual Value less Municipal Tax]

2. Deduction under Section 24 [Standard Deduction & Interest]

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House Property Used For Own Business/Profession [Section 22]

As per section 22, House Property used for the owner's own business/profession, is not chargeable to income-tax.

All the expenses incurred, such as municipal taxes, repairs or interest on borrowed capital are deductible from the "Profits and Gains of Business or Profession" chargeable under section 28.

Depreciation can be claimed under section 32, in the respect of the house property.

If the building, used for private purpose is brought into Business or Profession, then the value of House Property shall be taken as :

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Concession In Respect of Any one Residential House Property
[Section 23(2)]

Concession is given in the computation of income in respect of the following property consisting of "a house" or "a part of a house": -

1. Which is in the occupation of the owner for the purposes of his own residence; or

2. Which could not actually be occupied by the owner, 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 belonging to him.

Conditions: -

However, such benefit cannot be availed if such 'House' or 'Part of the House' is -

1. Actually let during the Previous Year. Or

2. Any other benefit is derived from that property.

The computation of income is as under: -

Note: -

1. Where property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of interest payable on such capital is eligible for deduction as under: -

1. Interest upto the day prior to the date of construction/acquisition of the house property is to be deducted over a period of 5 years in equal instalments.

2. The entire interest payable from the date on which the property was acquired/constructed can be claimed in the respective year itself.

2. Interest payable outside India is deductible, only if tax has been deducted at source (section 25).

3. The assessee has to furnish a Certificate from the person to whom he is liable to pay interest, specifying the amount of interest payable by the assessee.

The Maximum Amount of Interest Deductible: -

The maximum amount of interest deductible is restricted to the following amounts as per proviso to section 24: -

The benefit of additional interest up to Rs.1,50,000, is available only in respect of properties acquired or completed after 31.03.1999.

Such beneficial deduction cannot be claimed in respect of loan borrowed after 31.03.1999 to repay a loan borrowed before 01.04.1999.

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Calculation of House Propery Income from Wholly Let-Out property [Section 23(2)]

In the case of a property, which is let out, either for residential purpose or business purpose, the income is to be computed as discussed hereinafter.

The computation of income is as under: -

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Deemed Let Out

An assessee can claim concession under section 23(2) only in respect of one residential house property. All other properties will be deemed to be let out for the purpose of charge to income tax.

The computation is similar to that of the wholly let out properties but subject to the following changes: -

1. The concept of actual rent received is not applicable.

2. Vacancy allowance cannot be claimed.

3. Unrealised rent does not arise.

For selecting the property, which is to be treated as self-occupied for own residence, the following procedure can be followed: -

1. Determine the income chargeable under the head "House Property" for all the properties, treating them as Self-occupied (or partly Self-occupied) for own residence.

2. Determine the income chargeable under the head "House Property" for all the properties, treating them as let-out.

3. Evaluate the alternative "combinations"

   [Ex: taking first house as self-occupied (or partly Self-occupied) for own residence and all other properties as deemed let-out, taking second house as self-occupied (or partly Self-occupied) for own residence and all other properties as deemed let-out, so on.]

4. Choose the alternative, which results in minimising the chargeable income.

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Unrealised Rent Recovered

Charge to Income-tax in Respect of Unrealised Rent Recovered [Section 25A]

Any recovery made by the assessee in respect of unrealised rent claimed as deduction in earlier previous years (up to the previous year ending on 31.03.2001), shall be charged to income-tax, whether the assessee is the owner of that property in that year or not, as the income of the previous year in which the recovery was made.

However, no deduction under section 23 or 24 can be claimed.

Charge to Unrealised Rent Received Subsequently [Section 25A]

With effect from assessment year 2002-2003, where the assessee cannot realize rent from a property let-out to a tenant and subsequently the assessee has realised any amount as rent, the amount so realised shall be deemed to be income chargeable under the head "Income from House Property".

And its charged to income-tax as the income of the previous year in which such rent is realised whether or not the assessee is the owner of that property in that previous year.

Special Provision for Charge of Arrears of Rent Received [Section 25B]

With effect from assessment year 2001-2002, the amount of arrears rent received shall be deemed to be income chargeable under the head "Income from House Property".

And accordingly charged to income-tax as income of the previous year in which such rent is received, whether the assessee is the owner of that property in that year or not.

The amount chargeable to income-tax is as under: -

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Exemption Under Section 10

The Annual Value of any one Palace in the Occupation of Ex-ruler is exempt under section 10(19A).

There are certain other persons, in whose hands the income under the head "Income from House Property" is exempt.

Few of them are: -

1. Local Authority - Section 10(20)

2. Registered Trade Union or An Association of Registered Unions - Section 10(24)

3. Political Parties - Section 13A

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