TAX-Income From House Property AY 23-24

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Golapbag More, Burdwan.

Dumdum, Mobile : 9932926701
1 Income From House Property P.P
SUB : DIRECT TAX AY 2023 – 2024 jk jkj
Q.) Discuss chargeability of income from house property? Or which type of income is chargeable under the
head income from house property?
Ans.) Rental income is taxable under the head income from house property if the following conditions are
satisfied :- (i) The property should consist of any building or land appurtenant there to.
(ii) The assessee should be the owner of the property. It is not necessary the ownership of land.
(iii) The property should not be used by the owner for the purpose of any business or profession carried on by
him.
(iv) Owner may be the deemed owner of house property.
Q.) What do you mean by building under the head income from house property?
Ans.) Building is land and construction there on, covering a space of land. So Boat, ship etc. are not building.
Building is an enclosure of brick or stone or wood etc. and it is not necessary that there should be a roof to
cover the construction. So, a stadium, an open air swimming pool, music / cinema hall etc. are building. An
incomplete, ruined or demolished house can not be termed as house property.
Q.) Who is the owner of the property?
Ans.) The term owner includes legal owner, beneficial owner or deemed owner. The following points are to be
considered:- i) The owner may be individual, firm, company, association of persons.
ii) Owner of building may not be the owner of land.
iii) A person may be owner even if he is under obligation to let the property free of rent.
iv) A trustee of property, an executor of a property, life-estate holder may be the owner.
v) Individual members of a cooperative housing society may be the owner.
vi) In case of lease of property the leassor and in case of mortgage the mortgagor is the owner.
Prob) X owns a house property. He lets it out to Y for 3 years (rent being Rs. 10,000 per month). Y
sublets it to Z on monthly rent of Rs. 40,000. Rental income of X is taxable under the head “Income
from house property”. Since Y is not the owner of the house, his income is not taxable as under the
head “Income from house property”, but is taxable as business income under section 28 or as income
from other sources under section 56.
Q.) Who is deemed owner?
Ans) u/s 27, the income from house property is also taxable in the hands of deemed owner. The following are deemed owner:-
a) An individual, who transfers house property to spouse otherwise than adequate consideration or without an
agreement of live apart is treated as deemed owner.
b) An individual, who transfers house property to minor child (not being married daughter) otherwise than
adequate consideration is treated as deemed owner.
c) The holder of impartible estate is treated as deemed owner. Impartible estate (property which is not legally
divisible) is an estate to which the assessee has achieved something by grant or agreement/ contract.
d) A person who takes possession of building without registration is deemed owner.
f) A member of cooperative society / company /of any other AOP to whom the building is allotted / leased
under a house building scheme is deemed owner.
g) A person who acquires any right of building by way of lease agreement for a period not less than 12 years is
deemed owner.( it does not include renew of lease from month to month or for period not exceeding 1 year.)
Prob) a) X, an individual, owns a house property. On April 1, 2021, he transfers the property without
any consideration to his wife. Rental income is received by Mrs. X after April 1, 2021. However, for
the purpose of charging tax on rental income, X will be deemed as “owner” of the property.
Consequently, income would be taxable in the hands of X.
b) Y gifts Rs. 10,00,000 to Mrs. Y. Mrs. Y purchases a house property out of the gifted money. In this
case, the aforesaid provisions are not applicable, as Y has transferred a sum of money to his wife
who has purchased a property out of the gifted amount (he has not transferred a house property).
Consequently, Y will not be deemed as “owner” of the property. In such a case, income of the
property would be computed in the hands of Mrs. Y (as she is the owner of the property) and the
income so calculated will be included in the income of Y under the provisions of section 64(1)
c) X is one of the ex-Rulers of a former princely state. He has divided all his properties amongst his
three sons. However, he could not transfer a building, which is occupied by a temple and which is
given, as per family convention, to his eldest son. All the three brothers along with other family
members have right to enjoy the benefit of the property. Property is given to the eldest son as it
cannot be divided amongst the three brothers as per the family convention. The eldest son is not the
beneficial owner of the property. In other words, he holds the property as a trustee on behalf of hi s
younger brothers. For the purpose of section 22, the eldest son, as holder of “impartible estate”, is
deemed as “owner” of the property.
d) A flat is allotted by a co-operative group housing society to X, one of its members under the house
building scheme of the society. X is deemed as “owner” of the property for the purpose of section 22
(although under the general law the property is owned by the co -operative society).
e) X enters into a written agreement to purchase a property from Y for Rs. 25,00,000. He has paid the
consideration and taken possession of the property. The sale deed is yet to be registered. He
becomes deemed “owner” of the property for the purpose of p aying tax on rental income, although he
is not the registered owner of the property.
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f) X owns a property. It is given on lease for a period of 12 years to Y, lease rent being Rs. 40,000 jk jkj
per month. As the period of lease is not less than 12 years, Y become s deemed “owner” of the
property.
g)A owns a property. It is given on lease for a period of 6 years to B, lease rent being Rs. 20,000 per
month. B has a right to get renewal of lease for further period of 6 years after the expiry of lease. In
this case, the aggregate period of lease is not less than 12 years. Therefore, B is deemed as “owner”
of the property.
h)C owns a property, it is given on lease to D for a period of one month, rent being Rs. 10,000. D has
a right to get renewal of the lease subject to the condition that every time it will be renewed only for a
period of one month and such renewal is possible with mutual consent till 2051. In this case, the
aggregate period of lease is more than 12 years, but D will not become deemed “owner” of the
property (the property is given on lease from month to month).
i) X owns a property. He uses the property as his office, factory or godown. As the property is used
for the purpose of carrying on own business or profession, nothing is taxable under section 22.
J)X Ltd. is a manufacturing company. The factory of the company is situated in Andhra Pradesh.
Within the factory campus, there is a residential colony having 80 quarters for workers. These
quarters are given to the workers for residential purposes. A nominal rent of Rs. 100 per month is
recovered from the workers. As the purpose of letting out of residential quarters is to run the business
smoothly, the residential quarters will be treated as house property used by the assessee for the
purpose of its business. Accordingly, annual value thereof is not chargeable under section 22.
Recovery of rent of Rs. 100 per month from the workers will be taken as business receipt.
K)Y Ltd. makes available a few rooms in its factory on nominal rent to the Government for lo cating a
branch of nationalised bank, post office and central excise office for carrying on its business
efficiently and smoothly. Nothing is taxable under section 22. Rent collected, being incidental to the
business of Y Ltd., is assessable as business in come under section 28.
L) X owns a property. It is given on rent to Y. Y annually pays Rs. 1,00,000 as rent of the property
and Rs. 20,000 for different services like lift, security, air -conditioning, etc. In this case, Rs. 20,000 is
not taxable in the hands of X as income from house property. Rs. 20,000 would be taxed in the hands
of X after deducting his actual expenditure for providing different services (lift, security, air -
conditioning, etc.) as income from other sources or as business income.
M)A owns a property. It is given on rent to B. B annually pays Rs. 1,50,000 as rent of the building as
well as the charges for different services (like lift, security, etc.) provided by A. In this case, one has
to split up the annual payment of Rs. 1,50,000 into rent of the building and charges for different
services. The amount, which relates to rendition of the services (after deducting actual expenditure)
is taxable either as business income or as income from other sources. The sum, which is attributable
to the use of the property, is to be assessed in the form of annual value under section 22 under the
head “Income from house property”. This rule is applicable even if it is difficult to split up the annual
payment of Rs. 1,50,000. In other words, in such a case it is not legally correct to assess the entire
amount of Rs. 1,50,000 (less expenditure) as business income or as income from other sources.
N) X owns an air-conditioned furnished lecture hall. It is let out, annual rent being Rs. 5,00,000 (it
includes rent of building and rent of air-conditioner and furniture). In this case, letting of lecture hall is
not separable from the letting of air-conditioner/furniture. This income (after excluding expenditure) is
taxable as business income or as income from other sources.
O)X owns an air-conditioned furnished lecture hall. It is let out, annual rent being Rs. 3,00,000 for
building and Rs. 2,00,000 as rent of air-conditioner and furniture. In this case, letting of lecture hall is
not separable from the letting of air-conditioner/furniture. This income (after excluding expenditure) is
taxable as business income or as income from other sources. This rule is applicable even if from the
agreement one can find out rent of building and rent of air-conditioner/furniture separately.
P) X gets Rs. 20,000 per month as rent from Y for letting out of a building and a car [the two lettings
are separable in the sense that Y was given an option to take on rent either the building (at Rs.
16,000) or the car (at Rs. 4,000) or both]. The rent of the building is taxable under the head “Income
from house property” and the rent of car is taxable either as business income or income from other
sources.
Prob 1) Discuss the tax treatment of the following points:-

a).X, an individual, owns a house property. On April 1, 2022, he transfers the property without any
consideration to his wife. Rental income is received by Mrs. X after April 1, 2022.
Ans) For the purpose of charging tax on rental income, X will be deemed as "owner" of the property. So,
income would be taxable in the hands of X.
b) Y gifts Rs. 10,00,000 to Mrs. Y. Mrs. Y purchases a house property out of the gifted money. Rental
income is received by Mrs. Y after April 1, 2022.
Ans) As Y has transferred a sum of money to his wife who has purchased a property out of the gifted amount
(he has not transferred a house property). So, Y will not be deemed as "owner" of the property. In such a
case, income of the property would be computed in the hands of Mrs. Y (as she is the owner of the property)
and the income so calculated will be included in the income of Y under the provisions of section 64(1).
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c).X, an individual, owns a land and he transferred the land to his wife with the condition that she jkwill jkj
construct house out of her own fund and give right of residence to Mr X & his 2 children for life Rental
income is received by Mrs. X after April 1, 2022.
Ans) In the given case Mr X is owner of land & Mrs X is owner of house. Income of the property would be
taxable in the hands of Mrs. X
d) X is one of the ex-Rulers of a former princely State. He has divided all his properties amongst his three
sons. However, he could not transfer a building, which is occupied by a temple and which is given, as per
family convention, to his eldest son (all the three brothers along with other family members have the right to
enjoy the benefit of the property; property is given to the eldest son as it cannot be divided amongst the three
brothers as per the family convention; the eldest son is not the beneficial owner of the property.
Ans) The eldest son holds the property as a trustee on behalf of his younger brother). For the purpose of
section 22, the eldest son, as holder of "impartible estate", is deemed as "owner" of the propertyand income
is taxable in the hands of eldest son.
e) A flat is allotted by a co-operative group housing society to its members under the house building scheme
of the society, although under the general law the property is owned by the co-operative society. The society is
received rental income.
Ans) Here, Members are deemed as "owners" of the property for the purpose of section 22 Once a member
of a co-operative society is deemed to be owner of a building under section, irrespective of fact that legal
ownership continues to vest with co-operative society,rental income is taxable in the hands of members
f) - X enters into a written agreement to purchase a property from Y for Rs. 25,00,000. He has poid the
consideration and taken possession of the property. The sale deed is yet to be registered.
Ans) He becomes deemed "owner" of the property for the purpose of paying tax on rental income, although
he is not the registered owner of the property.
g) X owns a property. It is given on lease for a period of 1 2 years to Y, lease rent being Rs. 40,000 per
month.
Ans) As the period of lease is not less than 1 2 years, Y becomes deemed "owner" of the property.
h) A owns a property. It is given on lease for a period of 6 years to B, lease rent being Rs. 20,000 per month.
B has a right to get renewal of lease for further period of 6 years after the expiry of lease.
Ans) In this case, the aggregate period of lease is not less than 1 2 years. Therefore, B is deemed as
"owner" of the property.
i) C owns a property, which is given on lease to D for a period of one month, rent being Rs. 10,000. D has a
right to get renewal of the lease subject to the condition that every time it will be renewed only for a period of
one month and such renewal is possible with mutual consent till 2050.
Ans) In this case, the aggregate period of lease is more than 1 2 years, but D will not become deemed
"owner" of the property (the property is given on lease from month to month).
Q)State which property income exempt from tax ?
Ans.) The following property income is exempt from tax :-
(i) Income from farm house. (ii) Income from one house of ex-ruler provided no part of that house is let out.
(iii) Property income of approved scientific research association. (iv) Property income of local authority.
(v) Property income of trade association. (vi) Property income of games association.
(vii) Property income of a person resident of Ladakh.
(viii) Property income of educational, hospital, medical institution..
(ix) If income from letting of godown of cooperative society is included in gross total income then such income
is exempted.(x) Income from properly held for charitable purpose. (xi) Property income of a political party.
(xii) Property used for own business or profession. (xiii) One self occupied property.
(xiv) If gross total income of cooperative society does not exceed Rs 20000, any income from house property is fully
exempted.
Q.) State which type of income from house property is not taxable under the head income from house property
Ans.) The following income from house property is not taxable under the head income from house property.
(i) The house property used for own business – notional rent should not be taxable under the head income
from house property and should not be debited to P & L A/c in computing business income.
(ii) If the property let out to the employee of own business which is helpful in efficient running of business then
such rent is not taxable under the head income from house property.
(iii) If the property situated outside India and income received in that country then such income is not taxable in
the hands of resident but not ordinary resident or in the hands of non-resident assessee.
(iv) If the building is let out including other assets or furniture then such rent received is known as composite
rent. If it is separable then rent of property is taxable under the head income from house property and income
from assets is taxable under the head income from other source or business income as the case may be. If
composite rent is not separable then total income is taxable as income from other source or business income.
v) If house held as stock in trade then 2 years from the end of financial year in which confiscate of
completion is received , the annual value is taken as nil. Thereafter, the annual value is taxable as
income from house property.
Q.) Tax treatment from subleasing the property.
Ans.) Income from property received by land lord from the tenant is income from house property. But income
received by tenant from the sub lessee by giving the sub lease or sub let is taxable as income from other
source.
Q.) Tax treatment of composite rent.
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Ans.) If assessee earns income from letting out property as well as for providing furniture and assets andjkfor jkj
providing service then –(a) If such income is divisible – the income from property is taxable as income from
house property. The income from assets and other services is taxable as income from other source.
(b) If such income is not separable then all income is taxable as income from other source.
(c) If letting out of asset is a condition for letting out of the house i.e., if letting out of house is not possible
without letting other assets and incomes are separable OR not separable then income is taxable either as
business income or income from other sources.
Problem2) 1) X owns a property. It is given on rent to Y. Y annually pays Rs. 1,00,000 as rent of the property
and Rs. 20,000 for different services like lift, security, air-conditioning, etc. Discuss Taxability.
Ans) In this case, Rs. 1,00,000 is taxable in the hands of X as income from house property. Rs. 20,000 would
be taxed in the hands of X after deducting his actual expenditure for providing different services (lift, security,
air-conditioning, etc.) as income from other sources or as business income.
2. A owns a property. It is given on rent to B. B annually pays Rs. 1,50,000 as rent of the building as Well as
the charges for different services (like-lift, security, etc.) provided by A. Discuss Taxability.
Ans) In this case, one has to split up the annual payment of Rs. 1,50,000 into rent of the building and charges
for different services. The amount , which is allocable to the use of the property/ building , is to be assessed in
the form of annual value under section 22 under the head "Income from house property". The amount, which
relates to the services (after deducting actual expenditure) is taxable either as business income or as income
from other sources. This rule is applicable even if it is difficult to split up the annual payment of Rs.
1,50,000. In other words, in such a case it is not legally correct to assess the entire amount of Rs.
1,50,000 (less expenditure) as business income or as income from other sources.
3. X owns an air-conditioned furnished lecture hall. It is let out, annual rent being Rs. 5,00,000 (it includes rent
of building and rent of air-conditioner and furniture). Discuss Taxability.
Ans) In this case, letting of lecture hall is not separable from the letting of air-conditioner/furniture. This Rs.
5,00,000 (after excluding expenditure) is taxable as business income or as income from other sources.
4. X owns an air-conditioned furnished lecture hall. It is let out, annual rent being Rs. 3,00,000 for building and
Rs. 2,00,000 as rent of air-conditioner and furniture. Discuss Taxability.
Ans) In this case, letting of lecture hall is not separable from the letting of air-conditioner/furniture. This Rs.
2,00,000 (after excluding expenditure) is taxable as business income or as income from other sources. This
rule is applicable even if one can find out rent of building and rent of air-conditioner/furniture
separately.
Q.) Tax treatment of following items :-
(a) Income from open land. (b) House property used in own business. (c) Let out of house to the employee of his
business. (d) Income from market. (e) Income from Zamindary. (f) Transfer of money to spouse for construction of
house. (g) House property situated abroad. (h) Disputed ownership. (i) Property of HUF used by the firm. (j)
Property of partner used by the firm. (k) Letting out to bank, post office.( l) property held as stock in trade.(m)
income from business of letting out house property.(n) revenue received by club by providing lodging to its
members.
Ans.) (a) It is taxable as income from other source.
(b) Notional income of house property used in own business is not taxable as income from house property and notional
rent is not debited to P/L A/c of the business. But actual expenses of house are debited to P/L A/c of the business.
(c) If house is let out to employee of his own business and if such letting out is helpful for efficient running of
the business then such income is taxable as business income and actual expenses of the house are debited to
P/L A/c of business. If such letting out is not helpful for efficient running business then such income is taxable
as income from house property. Actual expenses are expenses of house property.
(d) Income from market, shops, godown is taxable in income from house property.
(e) It is taxable as income from other source.
(f) When amount is transferred by assessee to spouse without adequate consideration or without agreement of
live apart for construction of house then income from that house is taxable in the hands of transferor. If part
amount of house is transferred then proportionate income is taxable in the hands of transferor.
(g) Income from house property situated outside India is taxable in the hands of resident assessee whether it is
received in India or outside India.
If income is received outside India then it is not taxable in the hands of resident but not ordinary
resident assessee and not taxable in the hands of non resident assessee.
(h) If there is dispute on account of ownership and if it is pending before a court of law then it is taxable in the
hands of that deemed owner( generally receiver of income) decided by Assessing Officer.
(i) In this case, the property shall not be regarded as property used for the purpose of the business carried by
HUF.
(j) In this case the property can not be treated as property used in own business.
(k) If such letting out is helpful for efficient running of his business then it is taxable as business income.
Otherwise it is income from house property.
(l) If an assessee held a property as stock in trade then income from property earned before re-sale is taxable
as income from house property. But business loss can be setoff from this income.
(m) income from business of letting out house property is taxable as income from house property.
(n) Tax is levied on annual value of house property, not on actual income from house property. So, revenue
received by club by providing lodging to its members is exempted from tax.
Q.) What will be tax treatment of co-owner property ?
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Ans.) If the house property is owned by two or more persons and the respective shares of co-ownersjkare jkj
definite then –
(i) If total property is self occupied by all the co-owners then income from house property is divided between
co-owners and shall be included in total income of each person.
(ii) If the property is let out by some co-owner and self occupied by others co-owners then income from
property is computed separately according to shares and included in total income of each person separately.
Q.) In the case of a resident assessee, discuss whether municipal tax paid on the immovable properties
situated outside India is a permissible deduction in the computation of Income.
Ans.) If municipal tax is paid on the immovable properties situated outside India by a resident assessee is a
permissible deduction in the computation of annual value of property.
Q.) What is annual value ?
Ans.) Under income from house property, the tax is not charged on house rent but on inherent earning
capacity of house property. Such earning capacity is annual value. It depends on actual rent receivable (de
facto rent), gross municipal value, notional rent and standard rent.
Q.) What is actual rent receivable or de facto rent ?
Ans.) Rent of house receivable during the previous year, measured on accrual basis is actual rent receivable or
de facto rent. De facto rent = actual rent received + outstanding rent (not advance rent) – cost of benefit provided
to tenant by owner + obligation paid by tenant on behalf of owner. But rent shall not be adjusted for i) municipal
tax paid by tenant, ii) repair cost born by tenant, iii) notional interest on deposits made by tenant with the landlord.
Q.) What is gross municipal value ?
Ans.) Gross municipal value means value of property decided by local authority on which they charged house tax.
Q.) What is notional rent or fair rent ?
Ans.) Fair or notional rent of property means rent fetched by a similar property in similar locality from year to year.
Q.) What is standard rent ?
Ans.) Standard rent is maximum rent which a person can legally recover from his tenant under rent control act.
Q.) State the conditions of unrealised rent deductable from de facto rent or When unrealised rent shall be excluded from
rent ?
Ans.) When the assessee is unable to recover the rent from his tenant, the so called amount is unrealised rent.
And it is deductable from de facto rent if following conditions are satisfied :-
i) the tenancy is bonafide, ii) the defaulting tenant has vacated the property, iii) the assessee has taken all
reasonable steps for recovery of rent or has satisfied that legal proceeding would be worthless, iv) the
defaulting tenant is not in occupation of any other property of the assessee.
I. Computation of income from Let out Property:-

Gross Annual Value (please see point A) xxx
less - Municipal tax (please see point B) xxx
Net annual value xxx
less - Standard deduction u/s 24(a) (please see point C) x x x
less - Interest on loan u/s 24(b) (please see point D) xxx
Income from let out property xxx
Point A) Gross Annual Value is to be calculated considering the following factors :-
1) Rental value or actual rent receivable or de facto rent :- Rent receivable of previous year or part their of, for
which the property is available for letting out is de factor rent. That is, Rental value or actual rent receivable or
de facto rent = Actual rent received + outstanding rent during previous year (advance rent received can not be
taken) – (minus) if owner of the house paid tenant’s share of electric bill, water charge etc. then that amount –
(minus) if owner of house collect some amount for providing lift and water facility or for other asset, then that
cost of benefit + non refundable deposit on proportionate basis. If tenant paid repair and Municipal tax of that
house and refundable deposit and interest on refundable deposit are not to be considered, i.e., not to be added
or deducted.
2) Notional Rent or Fair Rent :- Notional Rent or Fair Rent is the estimated rent that may be received by a
similar property in similar locality.
3) Gross Municipal value :- It is the value on which municipality or local authority calculate municipal tax. If the
house is situated other than Calcutta, Bombay, Delhi, Madras then the given Municipal Value is Gross, or Net
i.e., this value is considered. If the house is situated in Calcutta, Bombay, Delhi, Madras and given the value as
Gross municipal value or municipal value or annual municipal value then it is taken as gross municipal value. If
given Net Municipal value, Municipal Annual value, retebble value, letable value then it is considered as Net
Municipal value. Now Gross Municipal value is to be calculated in the following way :-
Net Municipal Value Rs. X
Add – Sewerage Tax, Water Tax Service Tax Rs.Y
Rs X + Y
Add – 1/9 of (X+Y) Rs. Z
Gross Municipal Value Rs. X+Y+Z.
4) Standard rent :- Standard rent is the maximum rent which a person can legally recover for his tenant under
rent control act.
After calculation 1, 2, 3, 4 then gross annual value can be determined in different situation in the
following way :-
Step 1 : Calculate expected rent (ER), being highest of the following :-
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a) Gross municipal value( full year) jk jkj
b) Fair rent ( full year)
Here E.R. cannot exceed the standard rent ( full year). ( suppose Rs A)
Step 2 : Calculate actual rent receivable or de facto rent for the year.( let-out period+ vacancy period)
– unrealised rent of currnet year. Here Unrealised Rent can be deducted if (a) the tenancy is bonafide, (b) the
defaulting tenant is vacated, (c) the defaulting tenant is not in occupation of any other property of the
assessee, (d) the assessee has taken all reasonable steps for recovery of unpaid rent. ( suppose Rs B)
Step 3 : calculate value which is higher of step 1 and step 2.
If A=B then take A.
If A>B then take A.
If B>A then take B.
Step 4. calculate loss due to vacancy. If A is taken then loss=0.
If B is taken then loss=B x vacancy/12.
Step 5. Gross annual value (GAV)= Step 3– step 4.
Point B) Municipal tax, Service tax, Water tax, sewerage tax, Fire tax, etc. paid by owner ( full year) – is to be
deducted from gross annual value. If it is paid by tenant then deduction is not available. If it is paid for earlier
year then deduction is available. If it remain due in current year then deduction is not available. If it is paid
advance for future year then deduction is not available. For Calcutta, Bombay, Delhi, Madras, if given
Municipal Tax T%, then Municipal tax = Net Municipal Value x T%.
Net Municipal value is to be calculated from the gross value in the following way :-
Gross Municipal value Rs. K
Less 10% of K Rs. L
Rs. K – L
Less Sewerage & water Tax M
Rs. K – L – M
Municipal tax = (K – L – M) x T%
Refund of municipal tax is not taxable.
Point C) Deduction U/S 24(a) for Standard Deduction - 30% of net Annual Value
Point D) Interest on loan or borrowed capital ( full year) – u/s 24(b) :- If loan or borrowed capital is raised for
purchase, repair, construction, reconstruction of the house then interest paid or due on that loan is deductable.
Interest on outstanding interest can not be deducted. If new loan is taken for repayment of old loan then interest
on new loan upto the amount of old loan is deductable. Any brokerage or commission payable to loan raised is
not deductable. If loan is taken from non-resident in India, who has no agent in India, whose income tax is not
deducted at source then interest payable on that loan is not deductable. If loan is taken before the house
completed then total interest payable for the pre-construction period (i.e., interest payable on loan before the year
of house complete) is to be deducted for 5 years @ 1/5 of total interest of that period for 5 years from the year of
house completed. If loan is taken for municipal tax paid or for payment of other expenses then interest on that
loan is not deductable.
68.1-3P1 X, Y, Z, A and B separately own the following properties—
(Rs. in thousand)
H1 H2 H3 H4 H5
X Y Z A B
Municipal value (MV) 105 105 105 105 105
Fair rent (FR) 107 107 107 107 107
Standard rent under the Rent Control Act (SR) NA 88 88 135 135
Actual rent 103 112 86 114 97
Unrealized rent (conditions mentioned in para 68.1-2a are satisfied) 1 2 1 2 1
Period of the previous year (in months) 12 12 12 12 12
Period during which the property remains vacant Nil Nil Nil Nil Nil
Find out the gross annual value for the assessment year 2023-24.
Solution : In this case gross annual value shall be determined as follows—
(Rs. in thousand)
an institution
jk jkj
X Y Z A B
Computation of gross annual value
Step I – Reasonable expected rent of the property [MV or FR,
whichever is higher, but subject to maximum of SR] 107 88 88 107 107
Step II – Rent received/receivable after deducting unrealized
rent but before adjusting loss due to vacancy 102 110 85 112 96
Step III – Amount computed in Step I or Step II, whichever is higher 107 110 88 112 107
Step IV – Loss due to vacancy Nil Nil Nil Nil Nil
Step V – Gross annual value is Step III minus Step IV 107 110 88 112 107
68.1-3E1 Find out the gross annual value in the following cases for the assessment year 2023-24—
(Rs. in thousand)
X Y Z
Municipal value (MV) 95 60 60
Fair rent (FR) 96 54 55
Standard rent under the Rent Control Act (SR) 94 78 79
Actual rent 93 106 78
The entire rent is realised. Properties are let out throughout the previous year. Find out the gross annual value for
the assessment year 2023-24.
68.1-3P2 X owns a house property (municipal valuation: Rs. 1,45,000, fair rent: Rs. 1,36,000, standard rent:
Rs. 1,24,000). It is let out throughout the previous year (rent being Rs. 8,000 per month up to November 15,
2021 and Rs. 14,000 per month thereafter). X transfers the property to Y on January 31, 2023. Find out the
gross annual value of the property in the hands of X for the assessment year 2023-24.
Solution : Computation of gross annual value
Rs.
Municipal value from April 1, 2022 to January 31, 2023 (Rs. 1,45,000 ÷ 12 × 10) (MV) 1,20,833
Fair rent from April 1, 2022 to January 31, 2023 (Rs. 1,36,000 ÷ 12 × 10) (FR) 1,13,333
Standard rent from April 1, 2022 to January 31, 2023 (Rs. 1,24,000 ÷ 12 × 10) (SR) 1,03,333
Step I – Reasonable expected rent of the property [MV or FR, whichever is higher, but subject to
maximum
of SR] 1,03,333
Step II – Rent received/receivable after deducting unrealized rent but before adjusting loss due to
vacancy
(Rs. 8,000 × 7½ + Rs. 14,000 × 2½) 95,000
Step III – Amount computed in Step I or Step II, whichever is higher 1,03,333
an institution
jk jkj
Step IV – Loss due to vacancy Nil
Step V – Gross annual value is Step III minus Step IV 1,03,333
68.1-3P3 Find out the gross annual value in the case of the following properties let out throughout the previous
year for the assessment year 2023-24—
(Rs. in thousand)
X Y Z A B
Fair rent (FR) 68 68 68 117 117
Standard rent under the Rent Control Act (SR) 62 62 70 115 115
Annual rent 67 67 73 121 110
Unrealised rent of the previous year 2021-22 which could not be realised
and
conditions of rule 4 are satisfied [see para 68.1-2a] 2 6 5 50 40
Loss due to vacancy 1 1 1 1 –
Solution :
Step I – Reasonable expected rent of the property [MV or FR, whichever is

62 62 68 115 115
higher, but subject to maximum of SR]
Step II – Rent received/receivable after deducting unrealized rent but
before adjusting loss due to vacancy 65 61 68 71 70
Step IV – Loss due to vacancy 1 1 1 1 –
The following points should be noted—
1.
1. Unrealised rent shall be deducted from rent received/receivable only if conditions of rule 4 are
satisfied [seepara 68.1-2a]. Conversely, if these conditions are not satisfied, then unrealised rent shall not be
deducted from rent received or receivable.
2. If the conditions of rule 4 are satisfied, unrealised rent of the current previous year is deductible.
In other words, unrealised rent of the earlier year(s) is not deductible.
68.1-3P4 Find out the gross annual value in the case of the following properties for the assessment year 2023-24
(there is no unrealised rent)—(Rs. in thousand)
X Y Z A B C D
Municipal value (per annum)(MV) 60 61 60 80 80 140 140
Fair rent (per annum) (FR) 65 66 64.5 78 78 150 150

an institution
jk jkj
Standard rent under the Rent Control Act (per
59.5 59 63 85 76 120 120
annum) (SR)
Annual rent 72 57 72 72 NA 96 144
Property remains vacant (in number of month) (1) (1½) (5) (3) (12) (10) (10)
Loss due to vacancy 6 7.125 30 18 – 80 120
Solution :
Step I – Reasonable expected rent of the property

[MV or
FR, whichever is higher, but subject to maximum of

59.5 59 63 80 76 120 120
SR]
Step II – Rent received/receivable after deducting un-
realized rent but before adjusting loss due to vacancy 72 57 72 72 Nil 96 144
Step III – Amount computed in Step I or Step II,

whichever
is higher 72 59 72 80 76 120 144
Step IV – Loss due to vacancy 6 7.125 30 18 76 80 120
Step V – Gross annual value is Step III minus Step IV 66 51.875 42 62 Nil 40 24
68.1-3P5 Find out the gross annual value in the following cases for the assessment year 2022-23 (there is no
unrealised rent)—
X Y
Rs. Rs.
Municipal value (per annum) (MV) 61,000 61,000
Fair rent (per annum) (FR) 1,08,000 30,000
Standard rent under the Rent Control Act (per annum) (SR) 60,000 60,000
Rate of rent
– old tenant (from April 1, 2021 to June 30, 2021) (per month) 5,000 2,000
– new tenant (from July 1, 2021 to December 31, 2021) (per month) 9,000 2,500
January 1, 2022
Period when the property remains unoccupied because suitable tenant January 1, 2022 to
to
was not available March 31, 2022 March 31, 2022
Actual rent received/receivable (if there is no vacancy) 96,000 28,500
Loss due to vacancy 27,000 7,500

an institution
jk jkj
Step I – Reasonable expected rent of the property [MV or FR, whichever
is higher, but subject to maximum of SR] 60,000 60,000
Step II – Rent received/receivable after deducting unrealized rent but
before adjusting loss due to vacancy 96,000 28,500
Step III – Amount computed in Step I or Step II, whichever is higher 96,000 60,000
Step IV – Loss due to vacancy 27,000 7,500
Step V – Gross annual value is Step III minus Step IV 69,000 52,500
68.1-3P6 Find out the gross annual value in respect of the following properties for the assessment year 2022-
23—
(Rs. in thousand)
X Y Z A B
Fair rent (FR) 145 185 185 145 262
Standard rent (SR) 142 175 175 142 241
Actual rent if property is let out throughout the previous year 2021-22 168 168 168 168 252
Unrealised rent of the previous year 2021-22 14 42 1 70 42
Unrealised rent of the previous year 2020-21 3 4 5 6 7
Period when the property remains vacant (in number of months) (½) (1) (1) (3) (5)
Loss due to vacancy 7 14 14 42 105
Solution :
Step I – Reasonable expected rent of the property [MV or FR, whichever

142 175 175 142 241
is higher, but subject to maximum of SR]
Step II – Rent received/receivable after deducting unrealized rent of the

current previous year but before adjusting loss due to vacancy 154 126 167 98 210
(unrealized of earlier years is not considered)
Step IV – Loss due to vacancy 7 14 14 42 105
68.3-2P1 X takes a loan of Rs. 40,000 @ 15 per cent per annum for constructing a house on June 10, 2016.
Construction of the house is completed on January 20, 2022.
an institution
Date of repayment of loan is (a) January 16, 2027, or (b) June 30, 2023, or (c) October 31, 2019. jk jkj
Solution : If date of repayment of loan is January 16, 2027 or June 30, 2023, then pre-construction period
ends on March 31, 2021 (being March 31 immediately prior to the date of completion of
construction/acquisition). Interest on Rs. 40,000 @ 15 per cent per annum from June 10, 2016 to March 31,
2021 is Rs. 28,849. Amount of instalment deductible in first 5 years is Rs. 5,770 (i.e., Rs. 28,849/5).
If date of repayment of loan is October 31, 2019, then pre-construction period ends on October 31, 2019 (being
March 31, immediately prior to completion of construction or date of repayment of loan, whichever is earlier).
Interest on Rs. 40,000 @ 15 per cent per annum from June 10, 2016 to October 31, 2019 comes to Rs. 20,341
(instalment deductible in first 5 previous years being Rs. 4,068). The table given below highlights the interest
deductible in different previous years :
Previous years
2027-
Ending 2022-23 2023-24 2024-25 2025-26 2026-27
28
on March
31, 2022
Rs. Rs. Rs. Rs. Rs. Rs. Rs.
If date of repayment of loan is

January 16, 2027 :
Current year’s interest 6,000* 6,000 6,000 6,000 6,000 4,767 Nil
Pre-construction period’s
5,770 5,770 5,770 5,770 5,770 Nil Nil
interest
Total deduction 11,770 11,770 11,770 11,770 11,770 4,767 Nil

June 30, 2023
Current year’s interest 6,000* 6,000 1,479 Nil Nil Nil Nil
5,770 5,770 5,770 5,770 5,770 Nil Nil
interest
Total deduction 11,770 11,770 7,249 5,770 5,770 Nil Nil

October 31, 2019 :
Current year’s interest Nil Nil Nil Nil Nil Nil Nil
4,068 4,068 4,068 4,068 4,068 Nil Nil
interest
Total 4,068 4,068 4,068 4,068 4,068 Nil Nil

Note – Interest is calculated on the basis of number of days. While the day of borrowing is included, the day of
repayment of loan is excluded.
Prob 4) X owns a house property (municipal valuation: Rs. 1,45,000, fair rent: Rs. 1,36,000, standard rent:
Rs. 1,24,000). It is let out throughout the previous year (rent being Rs. 8,000 per month up to November 15,
2022 and Rs. 14,000 per month thereafter). X transfers the property to Y on January 31, 20 23. Find out the
gross annual value of the property in the hands of X for the assessment year 2023-24.
Rs.
Municipal value from April 1, 2021 to January 31, 2023 (Rs. 1,45,000 ÷ 12 × 10) (MV) 1,20,833
an institution
jk jkj
Fair rent from April 1, 2022 to January 31, 2023 (Rs. 1,36,000 ÷ 12 × 10) (FR) 1,13,333
Standard rent from April 1, 2022 to January 31, 2023 (Rs. 1,24,000 ÷ 12 × 10) (SR) 1,03,333
Step I – Reasonable expected rent of the property [MV or FR, whichever is higher, but
1,03,333
subject to maximum of SR]
Step II – Rent received/receivable after deducting unrealized rent but before adjusting loss
due to vacancy
(Rs. 8,000 × 7½ + Rs. 14,000 × 2½) 95,000
Step IV – Loss due to vacancy Nil
Prob 5) Find out the gross annual value in the case of the following properties let out throughout the previous
H1-X H2-Y H3-Z H4-A H5-B
Fair rent (FR) 68 68 68 117 117
Actual rent 67 67 73 121 110
Unrealized rent (conditions are satisfied] 2 6 5 50 40
Loss due to vacancy 1 1 1 1 Nil
Prob 6) Find out the gross annual value in the case of the following properties let out throughout the previous
H1-X H2-Y H3-Z H4-A H5-B
Fair rent (FR) 145 185 185 145 262
Actual rent if let-out through out the PY 2021-22 168 168 168 168 252
PY 22-23
PY 2019-20
Loss due to vacancy 7 14 14 42 105
II. INCOME FROM SALE OCCUPIED PROPERTY :- Where an assessee and his family uses one or two
property for own residential purpose for the full year, if no income or benefit are raised from that house, if part
of the year is used for own residence and remaining part of the year remain vacant for business or profession
or service, if part of the year is used for own residence and remaining part of the year is used for own business
then according to section 23(2)(a) that house is self occupied house.
Net Annual Value u/s 23(2)(a) Nil
Less Deduction for interest on loan u/s 24(b)
Here interest on loan is to be deducted in the following way :-
(i) Maximum amount of interest on loan on one or two self occupied house will be Rs. 30,000 in all the
cases.
(ii) If the loan is taken on or after 1.4.1999 for purchase or construction of property, the house should be
completed within 5 years from the end of previous year in which the loan was taken and certificate of
interest is attached in Return Form, then maximum amount of interest one or two self occupied house will
be Rs. 2,00,000.
Here negative income of house property remain as negative amount.
III. If assessee has more than one or two self occupied house then one house (where net income of
assessee is minimum) is treated as self occupied house and remaining self occupied house should be treated
as let out house property.
IV. If one part of house is let out and another part is self occupied then we consider it is two separate houses.
Let out portion will be treated as let out property and self occupied portion will be treated as self -occupied
house.
an institution
V. If the house remains let out for some portion of time of the previous year and remaining time is used forjkself
jkj
occupied purpose then total house will be treated as let out property and self occupied portion is to be
considered as vacant property. i.e., ER shall be taken for the full year but actual rent receivable shall be
taken only for let out period. All deduction u/s 24 will be available.
VI) What is pre-construction period and interest thereof ?
Ans.) Pre-construction period depends upon the situation whether the loan for house is repaid before
completion of construction or not. a) If the loan for house is repaid before completion of construction, then–
Pre-construction period means the period starting from the day of starting of construction or the day of loan
taken which ever is later and ending on day of loan repayment. b) If the loan for house is repaid after
completion of construction, then–Pre-construction period means the period starting from the day of starting of
construction or the day of loan taken which ever is later and ending on 31-3 immediately prior to the year of
construction complete .
Total interest of Pre-construction period will be deducted in 5 equal installments from annual value, starting
from the year of completion of house.
69.1-1P1 X owns a house property. It is used by him throughout the previous year 2021-22 for his (and his
family members) residence. Municipal value of the property is Rs. 1,66,000, whereas fair rent is Rs. 1,76,000
and standard rent is Rs. 1,50,000. The following expenses are incurred by X: repairs: Rs. 20,000, municipal tax
: Rs. 16,000, insurance: Rs. 2,000; interest on capital borrowed to construct the property: Rs. 1,66,000; interest
on capital borrowed by mortgaging the property for daughter’s marriage: Rs. 20,000 (in either case capital is
borrowed before April 1, 1999). Income of X from business is Rs. 7,10,000. Find out the net income of X for the
assessment year 2022-23.
Solution : Rs.
Gross annual value Nil
Less: Municipal tax Nil
Net annual value Nil
–
Less: Interest on borrowed capital (maximum: Rs. 30,000)
30,000†
Property income – 30,000
Business income 7,10,000
Net income 6,80,000
69.1-1P2 X owns two residential houses – one at Mumbai and another at Bengaluru. These properties are
used by X and his family for own residential purposes throughout the previous year (not let out, not put to any
other use). Acquisition of these properties was partly financed by taking housing loan from banks. Find out
income from these properties for the assessment year 2022-23 under the following different situations
(construction in all cases completed within 3-4 years of taking loan) –
Mumbai property Bengaluru property
Interest liability of the

Different situations Interest liability of the
previous year 2021-22
When loan was When loan previous year 2021-22
(including pre-
taken was taken (including pre-construction
construction period
period interest) Rs.
interest) Rs.
Situation 1 2011-12 2,60,000 2013-14 3,10,000
Situation 2 2013-14 1,90,000 2015-16 1,70,000
Situation 3 2012-13 2,80,000 2010-11 90,000
Situation 4 2015-16 2,10,000 1997-98 40,000
Situation 5 1997-98 2,10,000 2014-15 40,000

an institution
jk jkj
Situation 6 2016-17 2,70,000 1999-00 20,000
Situation 7 2015-16 1,60,000 1997-98 80,000
Situation 8 2018-19 4,90,000 1997-98 27,000
Situation 9 1997-98 25,000 1997-98 21,000
Situation 10 2008-09 1,10,000 2002-03 63,000

Solution :
In the case of one or two self-occupied properties, annual value is nil. Interest liability is deductible up to Rs.
30,000. If, however, capital is borrowed on or after April 1, 1999 for acquisition/construction of a property (and
a few conditions as given above are satisfied), interest liability is deductible in aggregate up to Rs. 2,00,000. In
view of this legal position, computation of deductible interest and income under the head “Income from house
property” will be as follows –
Interest deductible Aggregate interest
Interest deductible Income from two self-
for Bengaluru deductible under
for Mumbai property occupied properties
property section 24†
Rs. Rs.
Rs. Rs.
Situation 1 2,00,000 2,00,000 2,00,000 (–) 2,00,000
Situation 2 1,90,000 1,70,000 2,00,000 (–) 2,00,000
Situation 3 2,00,000 90,000 2,00,000 (–) 2,00,000
Situation 4 2,00,000 30,000 2,00,000 (–) 2,00,000
Situation 5 30,000 40,000 70,000 (–) 70,000
Situation 6 2,00,000 20,000 2,00,000 (–) 2,00,000
Situation 7 1,60,000 30,000 1,90,000 (–) 1,90,000
Situation 8 2,00,000 27,000 2,00,000 (–) 2,00,000
Situation 9 25,000 21,000 30,000 (–) 30,000
Situation 10 1,10,000 63,000 1,73,000 (–) 1,73,000
Prob 7) X takes a loan of Rs. 40,000 @ 15 per cent per annum for constructing a house on June 1, 2016.
Construction of the house is completed on January 20, 2023.
Date of repayment of loan (a) January 31, 2028, or (b) June 30, 2024
Ans) a) If date of repayment of loan is January 31, 2028 , then pre-construction period ends on March 31,
2022 (being March 31 immediately prior to the date of completion of construction/acquisition).
Interest on Rs. 40,000 @15 percent per annum from June 1, 2017 to March 31, 2022 is Rs. 28,997. Amount of
instalment deductible in first 5 years is Rs. 5,799 (i.e., Rs. 28,997  5).
Previous years
Ending on 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29
March 31, (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
2023
If date of repayment of loan
is January 31, 2028
Current year’s interest 6,000 6,000 6,000 6,000 6,000 5,000 Nil
Pre-construction period’s 5,799 5,799 5,799 5,799 5,799 Nil Nil
interest
Total deduction 11,799 11,799 11,799 11,799 11,799 5,000 Nil
VII. Unrealised rent Realised and Arrear Rent Received U/S 25 A : If assessee is the owner of house
property which has been let out to a tenant, if assessee has received amount of arrear rent/ Unrealised rent
Realised that was not taxable in earlier year then that received amount will be taxable in the previous year in
an institution
jk jkj
which it is received, even if the assessee is not the owner at present. Taxable = 70% of [arrear rent realised
or unrealised rent realised].
Problem 13) X has 3 houses
Kolkata House Delhi House ( Burdwan House ( let-out
( let-out for let-out for for commercial purpose)
residential business
purpose) purpose)
Municipal valuation 40,000 80,000( Net)
Sewerage tax 400 4% 4%
Water tax 1% 2% 2%
Fair rent (FR)/Notional rent 35,000 98,000 46,000
Standard rent (SR) 37,000 1,10,000 46000
Municipal tax paid by X 10% 10% Rs 3000(10%)
Paid for earlier year 1000 – –
Paid for next year 2000 –
Municipal tax refund 120
Insurance premium 1,000 2,000(due) 1,700
Collection charge 700 – 800
Rent received 48000 74,000 30,000
Municipal tax, repair paid by tenant 2000 2000 1000
Lift maintenance exp paid by tenant 5000 5000 –
Water charge & electric bill paid by X 3000 3000 500
Outstanding rent 6000 2000
Vacant 2 months 1 months
Unrealised rent 3000
Security deposit for 5 years Nonrefundable 4000(refundable) –

5000
Interest there on 500
Interest on capital borrowed for 1 ,200 5,000 54,090
purchase/construction or reconstruction
Q1. Mr. X owns five houses at Cochin. Compute the Gross Annual Value of each house from the
information given below:
Particulars House I House II House III House IV House V
Municipal Value 1,20,000 2,40,000 1,10,000 90,000 75,000
Fair Rent 1,50,000 2,40,000 1,14,000 84,000 80,000
Standard Rent 1,08,000 N.A. 1,44,000 N.A. 78,000
Actual rent
1,80,000 2,10,000 1,20,000 1,08,000 72,000
received/receivable
Ans.:
House
House II House III House IV House V
I
(a) Municipal Valuation 1,20,000 2,40,000 1,10,000 90,000 75,000
(b) Fair Valuation 1,50,000 2,40,000 1,14,000 84,000 80,000
(c) Higher of (a) and (b) 1,50,000 2,40,000 1,14,000 90,000 80,000
(d) Standard Rent 1,08,000 N.A. 1,44,000 N.A. 78,000

an institution
jk jkj
Expected Rent [Lower of (c) and
(e) 1,08,000 2,40,000 1,14,000 90,000 78,000
(d)]
(f) Actual Rent 1,80,000 2,10,000 1,20,000 1,08,000 72,000
Gross Annual value [Higher of

(g) 1,80,000 2,40,000 1,20,000 1,08,000 78,000
(e) and (f)]
Q2. Mr. A owns a commercial building let out @ ` 40,000 per month. During the financial year 2021-22,
he wants to claim expenses made towards insurance, water, etc. from the rent received. Comment in
the light of section 24(a).
Ans: The section 24(a) allows deduction to an extent of 30% of Net Annual Value (NAV) as a standard
deduction from the house property used as a let out property or deemed let out property. In the given case, Mr.
A is entitled to standard deduction but no other expenditure shall be allowed as deduction towards insurance,
repair, ground rent, collection charges, water charges, etc.
Q3. Ms. Jyoti purchased a house property costing ` 49 Lakhs on 1st May, 2021. The property is used
exclusively for her residential purpose. For this purpose she obtained loan from DHFL of ` 35 lakhs
bearing interest @ 14% p.a. on 1st April, 2021. She does not own any other house.
State with brief reasons the deductions that can be claimed by Ms. Jyoti in respect of interest on loan
for Assessment Year 2022-23. What would be the change in your answer if the loan has been taken
over for repairs.
Ans:
Interest paid on housing loan = 14% of ` 35,00,000 = ` 4,90,000
Status of house property = Self-occupied
(a) Loan taken for construction or acquisition: If the capital is borrowed on or after April 1, 1999 for
acquiring or constructing a property which is self-occupied, the interest on such borrowed capital is
deductible up to ` 2,00,000.
(b) Loan taken for reconstruction, repairs or renewal: In this case, the maximum amount of deduction on
account of interest is ` 30,000.
Q4. Mrs. Vimala commenced construction of house meant for residential purpose on 01.11.2019. She
raised a loan of ` 10 lakhs @ 11% per annum from a bank. Finding that there was over run in the cost of
construction, she raised a further loan of ` 5 lakhs from her friend at 15% rate of interest per annum on
1.10.2021. The construction was completed by February, 2022.
Compute the amount of interest allowable under section 24 of the income-tax Act, 1961 in the following
cases:
(i) The house was meant for self-occupation from 01.03.2022
(ii) The house was to be let out from 01.03.2022.
Is there any deduction available u/s 80C towards principal repayment in respect of above loans?
[
Ans:
(i) When the house was meant for self-occupation:
Computation of the amount of interest
allowable under section 24
(a) Interest for current previous year
` 10,00,000 × 11/100 1,10,000
` 5,00,000 × 15/100 × 6/12 37,500 1,47,500
(b) Interest for Pre Construction period (1-11-2019 to 31-3-2021)
` 10,00,000 × 11/100 × 17/12 × 1/5 31,167
Total Interest 1,78,667

As per section 24(b), the amount eligible for deduction for interest on borrowed capital (of the current year and
pre-construction period) is up to ` 2,00,000. The actual interest (` 1,78,667) is deductible as it is within limit.
an institution
(ii) When the house is let out w.e.f. 1-3-2022: jk jkj
If capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of the
property, then no maximum limit has been prescribed, if the house is let-out.
Therefore, the whole amount of ` 1,78,667 (calculated in first part) is deductible.
Q5. Sanjay commenced construction of a residential house intended exclusively for his residence, on
1-12-2020. He raised a loan of ` 8,00,000 @ 15% interest for the purpose of construction on 1-11-2020.
Finding that there was an over run in the cost of construction he raised a further loan of ` 9,00,000 at
14% p.a. on 1-9-2021. What is the interest allowable under section 24 in Assessment year 2022-23,
assuming that the construction was completed on 31-3-2022?
Ans:
Computation of the amount of interest
allowable exemption under section 24
(a) Interest for current previous year
` 8,00,000 × 15/100 1,20,000
` 9,00,000 × 14/100 × 7/12 73,500 1,93,500
(b) Interest for Pre Construction period (1-11-2020 to 31-3-2021)
` 8,00,000 × 15/100 × 5/12 × 1/5 10,000
Total Interest 2,03,500

As per section 24(b), in case of self-occupied property, the amount eligible for deduction for interest on
borrowed capital (of the current year and pre-construction period) is up to ` 2,00,000. Thus, the deduction
under section 24 in respect of borrowed capital is ` 2,00,000.
Q6. Mr. X owns a house property which is let out. During the previous year ending 31-3-2021, he
receives the following:
(i) Arrears of Rent ` 30,000
(ii) Unrealized Rent ` 20,000
You are requested to
(a) State, how they should be dealt with as per the provisions of the Act.
(b) Compute the income chargeable under the head “Income from House Property”.
[May 2002, 4 Marks]
Ans.:
(a) State, how they should be dealt with as per the provisions of the Act.
As per section 25A, the arrears of rent received are taxable in the year in which arrears have been received.
However, deduction shall be allowed @ 30% of such arrears and only the balance amount is taxable. The
taxability exists irrespective of the fact whether assessee remains the owner of the property in the year of
receipt or not.
(b) Computation of Income from House Property
(Assessment Year 2021-22)
Amount (`)
Arrear of Rent received 30,000
Less: Deduction @ 30% u/s 25 A (9,000) 21,000
Unrealized Rent received 20,000
Less: Deduction @ 30% u/s 25 A (6,000) 14,000
Taxable Income from House property 35,000

an institution
Q7. [Elementary] Amalesh owns a house property which is let-out for ` 6,500 per month. The fair jk rent
jkj
of the property is ` 90,000. Municipal taxes paid during the year for each half year is ` 3,200. The tenant
has spent ` 10,000 towards repairs of the property during the year. Compute the income from house
property for the assessment year 2022-23.
Ans.: Computation of Income from House Property
Amount (` )
Gross Annual Value (Note 1) 90,000
Less: Municipal Taxes paid (Note 2) 6,400
Net Annual Value (NAV) 83,600
Less: Deduction under section 24
Standard (30% of ` 83,600) (25,080)

Working Notes:
1. The GAV of the house property is determined as under:
Step 1: Computation of Expected Rent
(a) Municipal Valuation : NA
(b) Fair Valuation : ` 90,000
(c) Higher of (a) and (b) : ` 90,000
(d) Standard Rent : NA

Expected Rent = Lower of (c) and (d) = ` 90,000
Step 2: Computation of Gross Annual value
(i) Expected Rent (As per step 1) : ` 90,000
(ii) Actual Rent Received (6,500 × 12) : ` 78,000
Gross Annual Value: The expected rent is higher than the rent received. Thus, the expected rent i.e. ` 90,000
shall be GAV.
2. The Municipal Taxes paid during the year for each half year is ` 3,200 i.e. ` 6,400 annual.
Q8. Mr. Lal is the owner of a commercial property let out at ` 60,000 per month. The Corporation tax on
the property is ` 30,000 annually, 60% of which is payable by the tenant. This tax was actually paid on
15.04.2021. He had borrowed a sum of ` 40 lakhs from his cousin, resident in Singapore (in dollars) for
the construction of the property on which interest at 8% is payable. He has also received arrears of
rent of ` 80,000 during the year, which was not charged to tax in the earlier years. What is the property
income of Mr. Lal for the assessment year 2021-22?
Ans.: Computation of Income from House Property
Amount (`)
Gross Annual Value (` 60,000 × 12) 7,20,000
Less: Municipal Taxes (Note 1) Nil
Net Annual Value (NAV) 7,20,000
Standard (30% of ` 7,20,000) (2,16,000)
Interest on Borrowed Capital (40,00,000 × 8%) (Note 2) (3,20,000) (5,36,000)

an institution
jk jkj
Income from House property (Let out portion) 1,84,000
Arrears of rent received
Arrear of Rent received 80,000
Less: Deduction under section 25A
Standard (30% of ` 80,000) (Note 3) (24,000)
Income from arrears of rent 56,200
Taxable Income from House property 2,40,000

Working Notes:
1.
1. Municipal taxes paid by tenant (60%) are not deductible. The balance 40%, although paid by
assessee, is not deducted because it was paid in FY 2021-22 and not in 2020-21.
2. It is presumed that the tax has been deducted at source on the amount of interest payable
outside India.
3. As per section 25A, the arrears of rent received are taxable in the year in which arrears have
been received. However, deduction shall be allowed @ 30% of such arrears and only the balance amount is
taxable.
Q9. Tarun, employed in a private company, commenced construction of a commercial complex in July,
2020. He borrowed ` 50 lakhs from a bank @ 9% per annum. Interest up to 31.03.2021 was ` 2,20,000
and for the period from 01.04.2021 to 31.12.2021 ` 2,30,000; ` 1,40,000 towards interest for the balance
three months remained unpaid.
The construction of the building was completed on 31st December, 2021. The building was let out
w.e.f. 01.01.2022 for a monthly rent ` 90,000. Municipal tax of ` 1,20,000 was paid by cash on 10.01.2022.
He repaid ` 1,90,000 towards principal during the previous year 2021-22, of which he paid ` 1,20,000 up
to 31.12.2021. The municipal value of the property is ` 9,00,000.
Compute the income from house property of Tarun for the assessment year 2022-23.
Ans: Computation of Income from House Property
Amount (`)
Gross Annual Value (Note 1) 2,70,000
Less: Municipal Taxes paid (1,20,000)
Standard (30% of ` 1,50,000) (45,000)
Interest on Borrowed Capital
Current Year (3,70,000)
Pre-construction Period (2,20,000 × 1/5) (44,000) (4,59,000)
Taxable Income from House property (3,09,000)

Q10. Mr. Ganesh owns a commercial building whose construction got completed in June 2020. He took
a loan of ` 15 lakhs from his friend on 1-8-2019 and had been paying interest calculated at 15% per
annum. He is eligible for pre-construction interest as deduction as per the provisions of the Income
Tax Act.
Mr. Ganesh has let out the commercial building at a monthly rent of ` 40,000 during the financial year
2021-22. He paid municipal tax of ` 18,000 each for the financial years 2020-21 and 2021-22 on 1-5-2021
and 5-4-2022 respectively.
an institution
Compute income under the head ‘House Property’ of Mr. Ganesh for the Assessment Year 2022-23. jk jkj

Amount (`)
Gross Annual Value (Actual Rent: ` 40,000 × 12) 4,80,000
Less: Municipal Taxes paid (Note 1) (18,000)
Standard (30% of ` 4,62,000) (1,38,600)
Interest on Loan for current Previous year (` 15,00,000 × 15%) (2,25,000)
Interest on Loan for pre-construction period (Note 2) (30,000) (3,93,600)

Working Notes:
1.
1. Municipal taxes paid on 5-4-2022 are not considered because these are not paid in financial
year 2021-22.
2. The interest for pre-construction period deductible in previous year is determined as under:
(a) Pre-construction period (PCP) : 1-8-2019 to 31-3-2020 i.e. 8 Months
(b) Loan amount : ` 15,00,000
(c) Rate of Interest : 15%
(d) Total Pre-construction Interest : 15,00,000 × 15% × 8/12 = ` 1,50,000
(e) PCP Interest deductible in current Pr. Yr. : ` 1,50,000 × 1/5 = ` 30,000
Q11. Mr. Ashok owns two buildings which are let out during the financial year 2021-22. The relevant
details are as under:
House 1 House 2
Particulars
Residential (`) Commercial (` )
Municipal Value 1,80,000 3,60,000
Standard Rent 1,50,000 3,00,000
Actual Rent 2,40,000 6,00,000
Municipal Tax paid 20,000 30,000
Municipal Tax unpaid 10,000 15,000
Interest on money borrowed paid 60,000 20,000
Interest on money borrowed outstanding 1,00,000 1,60,000
Housing loan principal repaid to bank 50,000 30,000
You are requested to compute income of Mr. Ashok under the head income from house property for
an institution
jk jkj
the assessment year 2022-23.
House 1 House 2
Residential Commercial
Gross Annual Value (Note 1) 2,40,000 6,00,000
Less: Municipal Taxes paid (20,000) (30,000)
Net Annual Value (NAV) 2,20,000 5,70,000
Standard (30% of NAV) (66,000) (1,71,000)
Interest on Loan (1,60,000) (1,80,000)
Taxable Income from House property (6,000) 2,19,000

Note: Repayment of principal amount of housing loan to bank is deductible from Gross Total Income under
section 80C.
Working Notes:
1. The GAV of both the houses are determined as under:
House 1 House 2
(a) Municipal Valuation : ` 1,80,000 ` 3,60,000
(b) Fair Valuation : NA NA
(c) Higher of (a) and (b) : ` 1,80,000 ` 3,60,000
(d) Standard Rent : ` 1,50,000 ` 3,00,000
(e) Expected Rent Lower of (c) and (d) : ` 1,50,000 ` 3,00,000
(f) Actual Rent : ` 2,40,000 ` 6,00,000
(g) Gross Annual value Higher of (e) and (f) : ` 2,40,000 ` 6,00,000
Q12. Mr. Chaturvedi, Delhi has 3 house properties in various parts of India. The details are given below:
Location of Property Delhi Chandigarh Kolkata
Usage Self-Occupied Let out Let Out
Amount (`) Amount (`) Amount (`)
Rent Received NIL 360,000 1,80,000
Fair Rent 2,40,000 30,000 1,50,000
Municipal Value 2,10,000 240,000 1,20,000
Standard Rent 1,80,000 210,000 90,000
Municipal Tax Due 20,000 40,000 30,000

an institution
jk jkj
Municipal Tax paid by the assessee NIL NIL 20,000
Interest on money borrowed 2,80,000 1,40,000 1,50,000

Note: All the properties were acquired/constructed after 01.04.2013.
You are required to compute the income of Mr. Chaturvedi chargeable under the head Income from
house property for the assessment year 2022-23.
Delhi Chandigarh Kolkata
Self-Occupied Let out Let Out
Gross Annual Value (Notes 1 and 2) NA 3,60,000 1,80,000
Less: Municipal Taxes paid NA Nil (20,000)
Net Annual Value (NAV) Nil 3,60,000 1,60,000
Standard (30% of NAV) Nil (1,08,000) (48,000)
Interest on Loan (2,00,000) (1,40,000) (1,50,000)
Taxable Income from House property (2,00,000) 1,12,000 (38,000)

Total taxable Income from House Property = (2,00,000) + 1,12,000 + (38,000) = – 1,26,000
Working Notes:
1.
1. The NAV of self-occupied property (Delhi) is always taken as nil.
Chandigarh Kolkata
(h) Municipal Valuation : ` 2,40,000 ` 1,20,000
(i) Fair Valuation : ` 3,00,000 ` 1,50,000
(j) Higher of (a) and (b) : ` 3,00,000 ` 1,50,000
(k) Standard Rent : ` 2,10,000 ` 90,000
(l) Expected Rent Lower of (c) and (d) : ` 2,10,000 ` 90,000
(m) Actual Rent : ` 3,60,000 ` 1,80,000
(n) Gross Annual value Higher of (a) and (b) : ` 3,60,000 ` 1,80,000
Q13. X (44 years) owns a residential property in Ranchi. Municipal valuation of the property is Rs.
8,00,000. Rent of similar property in the same locality of Ranchi is Rs. 12,00,000. Standard rent of the
property under the relevant Rent Control Act is Rs. 10,00,000. It is let out to A Inc. (a foreign company)
on monthly rent of US $ 3,100 (amount is deposited in New York branch of Citibank, with prior
permission of RBI). There is no unrealized rent. However, property remains vacant for one month
commencing from March 16, 2022 when A Inc. has vacated the property. With effect from April 15,
2022, the same property is let out to B Ltd., an Indian company.
The following expenses are incurred by X during the previous year 2021-22 –
Municipal tax : Rs. 1,70,000 (actually paid).
Collection charges : Rs. 10,000
Interest on borrowed capital : Rs. 3,00,000 (actual amount paid is Rs. 2,30,000).
Fire insurance premium : Rs. 30,000.
an institution
Income of X from other sources is Rs. 12,45,000. Amount deposited in New York branch of Citibank is
jk jkj
yet to be remitted to India. X has repaid Rs. 90,000 to the bank from whom loan was taken for
purchasing the aforesaid property. Besides, he deposits Rs. 40,000 in the provident fund account of
Mrs. X.
Find out the net income and tax liability of X for the assessment year 2022-23. Ignore section 115BAC
pertaining to alternative tax regime‡. For conversion of rent into Indian currency, the following
telegraphic transfer buying/selling rates of US $ adopted by SBI are given –
Buying (1 US $) Selling (1 US $)
Rs. Rs.
On April 1, 2021 47 49
On March 31, 2022 45 46

Solution : For converting rental income received in foreign currency into Indian currency, the telegraphic
transfer buying rate offered by SBI on the last date of the previous year shall be adopted. This rule is
applicable if rent is not remitted up to March 31 of the previous year.
Rs.
Municipal value (MV) 8,00,000
Fair rent (FR) 12,00,000
Standard rent (SR) 10,00,000
Annual rent (US $ 3,100 × 12 × Rs. 45) 16,74,000
Unrealized rent Nil
Loss due to vacancy (US $ 3,100 × Rs. 45 × ½) 69,750
10,00,000
16,74,000
due to vacancy
Step IV – Loss due to vacancy 69,750
Less: Municipal tax 1,70,000
Net annual value 14,34,250
Less: Deductions under section 24 –
Standard deduction @ 30% 4,30,275
Interest on borrowed capital 3,00,000
Income 7,03,975
Computation of income and tax liability

an institution
jk jkj
Income from house property 7,03,975
Income from other sources 12,45,000
Gross total income 19,48,975
Less: Deduction under section 80C (Rs. 90,000 + Rs. 40,000, subject to a maximum of Rs.
1,30,000
1,50,000)
Net income (rounded off) 18,18,980
Tax on net income
Income-tax† 3,58,194
Add: Health and education cess 14,328
Tax liability (rounded off) 3,72,520

Q14. Mrs. X (57 years) owns a commercial property in Chennai. Municipal value of the property is Rs.
9,00,000. Market rent of a similar property in the same locality is Rs. 10,00,000. However, market rent of
a similar property in a different locality in Chennai is Rs. 12,00,000. Standard rent of the property
owned by Mrs. X is Rs. 12,50,000. This property is let out to a departmental store with effect from May
15, 2021 on monthly rent of Rs. 70,000. During March 10, 2021 and May 14, 2021, the property remains
vacant as suitable tenant is not available. Mrs. X could not realize 3 months rent from the tenant during
the previous year 2021-22. Most probably the tenant will pay rent before September 2022.
Mrs. X makes the following expenditures in respect of the house property –
Municipal tax at the rate of 15 per cent (amount actually paid by the tenant during the previous year
2021-22 is Rs. 80,000); repairs (incurred by the tenant) : Rs. 75,000; fire insurance premium (paid by
Mrs. X) : Rs. 30,000. A loan of Rs. 40,00,000 was taken on April 1, 2013 at the rate of 9 per cent per
annum from PNB for construction of the commercial property which was completed on March 1, 2017.
Nothing is repaid up to March 31, 2020. During the previous year 2020-21, Mrs. X has repaid Rs.
10,00,000. Further, on March 31, 2022, she pays a sum of Rs. 5,00,000 to PNB on account of housing
loan (this repayment of loan according to Mrs. X is qualified for deduction under section 80C). Income
of Mrs. X from other sources is Rs. 9,14,000. She deposits Rs. 1,50,000 in public provident fund in
November 2021. She has taken medi-claim insurance premium on the life of her mother for which she
pays Rs. 34,000 every year.
Find out net income and tax liability of Mrs. X for the assessment year 2022-23. Ignore section 115BAC
pertaining to alternative tax regime‡.
Solution :
Rs.
Annual rent (Rs.70,000 × 12) 8,40,000
Unrealized rent (unrealized rent is not deductible, as there is a possibility of recovering the
Nil
amount)
Loss due to vacancy (Rs. 70,000 × 1.5) 1,05,000
10,00,000
Step II – Rent received/receivable after deducting unrealized rent but before adjusting loss 8,40,000
an institution
jk jkj
due to vacancy
Step IV – Loss due to vacancy 1,05,000
Less: Municipal tax Nil
Interest from borrowed capital (9% of Rs. 30,00,000) 2,70,000
Income 3,56,500
Less: Deductions
Under section 80C (repayment of loan taken for acquiring a commercial property is not
1,50,000
eligible for deduction under section 80C)
Under section 80D (mother of Mrs. X is a senior citizen) 34,000
Tax on net income

Note – Interest of pre-construction period is deductible in 5 years in 5 equal instalments. First instalment is
deductible in the year in which construction is completed. In this case, first instalment is deductible in the
previous year 2016-17. The fifth instalment is deductible in the previous year 2020-21. Nothing is, therefore,
deductible on account of pre-construction period’s interest of the previous year 2021-22.
Q15. X is a doctor. He owns a property in a posh colony in Cochin. The property has four units of equal
size. Unit 1 on the ground floor is used by X for his medical profession. Unit 2 on the first floor is let
out to a non-resident on monthly rent of Rs. 80,000 with effect from July 1, 2021. This unit remains
vacant during May and June 2021 as suitable tenant is not available. The old tenant has occupied Unit
2 since 1986 and after a Court verdict he vacates it on April 30, 2021 without paying rent of 6 months
(monthly rent being Rs. 10,000).
Unit 3 on the second floor and Unit 4 on the third floor are converted into one residential unit and is
occupied by X for his residential purposes.
Municipal valuation of the entire property is Rs. 3,00,000. Market rent of a similar property is Rs.
7,00,000. Standard rent is Rs. 6,50,000. Municipal tax is levied at the rate of 15 per cent. Entire
municipal tax is payable by X. Municipal tax of previous year 2021-22 is paid in two instalments – Rs.
28,000 on March 31, 2022 and Rs. 17,000 on June 1, 2022.
an institution
X has taken a loan of Rs. 20 lakh from SBI at the rate of 9 per cent per annum for renovation of second
jk jkj
and third floor. This loan was taken in 2020 and nothing is repaid up to March 31, 2022. On March 31,
2022, he repays Rs. 15,00,000. Interest on loan is not paid although it has become due for payment.
Income of X from medical profession is Rs. 33,10,000 (without deducting depreciation of Unit 1 which
comes to Rs. 32,000 and municipal tax). X annually pays life insurance premium of Rs. 50,000 on the
life of his dependent mother (64 years) and Rs. 1,20,000 in public provident fund. He wants to claim
deduction under section 80C in respect of repayment of loan taken from SBI.
Determine the amount of net income and tax liability of X for the assessment year 2022-23. Ignore
section 115BAC pertaining to alternative tax regime‡.
Solution : Computation of income of Unit 2 which is let out
Rs.
Municipal value of Unit 2 (Rs. 3,00,000 ÷ 4) (MV) 75,000
Fair rent Unit 2 (Rs. 7,00,000 ÷ 4) (FR) 1,75,000
Standard rent Unit 2 (Rs. 6,50,000 ÷ 4) (SR) 1,62,500
Annual rent Unit 2 (Rs.10,000 × 1 + Rs. 80,000 × 11) 8,90,000
Unrealized rent Unit 2 10,000
Loss due to vacancy (Rs. 80,000 × 2) 1,60,000
Step I – Reasonable expected rent of Unit 2 [MV or FR, whichever is higher, but subject to
1,62,500
maximum of SR]
8,80,000
due to vacancy (Rs. 8,90,000 – Rs. 10,000)
Less: Municipal tax of Unit 2 (Rs. 28,000 ÷ 4) 7,000
Interest on borrowed capital Nil
Income from Unit 2 4,99,100

Computation of income of Units 3 and 4 – These two units are used as one residential unit. Gross annual value
is nil. Municipal tax is not deductible. Interest on borrowed capital is deductible up to Rs. 30,000. Higher
deduction up to Rs. 2,00,000 is applicable only in the case when loan is taken for purchase or construction of a
residential purposes. Since loan is taken for renovation of Units 3 and 4, the higher amount of Rs. 2,00,000 is
not deductible. Interest of the previous year 2021-22 comes to Rs. 1,80,000. However, amount deductible is
only Rs. 30,000. Interest on borrowed capital is deductible on accrual basis. In other words, Rs. 30,000 is
deductible even if interest is not actually paid. Income from Units 3 and 4 will be (–) Rs. 30,000.
Computation of income from medical profession –
Rs.
Income 33,10,000
an institution
jk jkj
Less: Depreciation 32,000
Less: Municipal tax [(Rs. 28,000 + Rs. 17,000) ÷ 4, municipal tax paid up to due date of
submission of return of income is deductible for the previous year 2021-22 under section 11,250
43B]
Income from profession 32,66,750
Computation of income and tax liability –
Income from house property [Unit 1 : Nil, as it is occupied for own business/profession +
4,69,100
Unit 2 : Rs. 4,99,100 + Units 3 and 4 : (–) Rs. 30,000]
Income from profession 32,66,750
Less: Deductions under section 80C (deposit of Rs. 1,20,000 in public provident fund,
insurance premium on mother’s life is not eligible, repayment of loan is deductible only 1,20,000
when it is taken for acquiring or purchasing a property)
Tax on net income

Q16. X owns House A (75, Nikolson Road, Chennai). Y owns House B (76, Nikolson Road, Chennai).
These two Houses – A and B, are identical in size and were constructed in 2019. X and Y are
employees of A Ltd. (salary being Rs. 1,85,000 per month in each case). Besides, X and Y get Rs.
80,000 per month as house rent allowance and Rs. 30,000 per month as commission. On April 1, 2021,
X and Y reside in a rented accommodation at Chennai for which each pays Rs. 60,000 per month as
rent.
House A and House B are given on rent. The following information is available about these houses –
House A House B
Rs. Rs.
Municipal valuation (MV) 8,00,000 8,00,000
Fair rent (FR) 10,50,000 10,50,000
Rent (Rs. 70,000 per month) – –
Standard rent (SR) 9,00,000 9,00,000
Municipal tax paid in May 2021 by landlords for 2021-22 80,000 80,000
Arrears of municipal tax paid in May 2021 by landlords for 2020-

12,000 12,000
21
Interest on capital borrowed for acquisition of these properties 3,30,000 3,30,000

On June 20, 2021, the above properties have been vacated by the tenants. On July 1, 2021, House A is
given on rent to A Ltd. for which the company will pay Rs. 80,000 per month. The same house is given
as a rent-free perquisite to X for his residence. House rent allowance has been discontinued. On the
same day, Y has shifted in his house but he continues to get house rent allowance from the employer.
an institution
On March 31, 2022, A Ltd. has given advance rent of 6 months to X (i.e., Rs. 4,80,000). On the same day,
jk jkj
A Ltd. has given Rs. 4,80,000 as advance salary to Y.
Employer and employees contribute 15 per cent of salary towards recognized provident fund. Income
from other sources of X is Rs. 2,50,000 (FD interest) and Y is Rs. 2,50,000 (from coaching). Find out net
income and tax liability of X and Y for the assessment year 2022-23 (X and Y are resident in India and
born in 1989). Ignore section 115BAC pertaining to alternative tax regime‡.
Solution : Computation of income from house properties –
House A House B
Rs. Rs.
Rent of House A (Rs. 70,000 × 3 + Rs. 80,000 × 9) 9,30,000 –
Rent of House B (Rs. 70,000 × 3) – 2,10,000
Step I – Reasonable expected rent [MV or FR, whichever is

9,00,000 9,00,000
higher, but subject to maximum of SR]
Step II – Rent received/receivable after deducting unrealized

9,30,000 2,10,000
rent but before adjusting loss due to vacancy
Step III – Amount computed in Step I or Step II, whichever is

9,30,000 9,00,000
higher
Step IV – Loss due to vacancy Nil Nil
Step V – Gross annual value is Step III minus Step IV 9,30,000 9,00,000
Less: Municipal tax (Rs. 80,000 + Rs. 12,000) 92,000 92,000
Net annual value 8,38,000 8,08,000
Standard deduction @ 30% 2,51,400 2,42,400
Interest on borrowed capital 3,30,000 3,30,000
Income 2,56,600 2,35,600
Computation of tax and income of X and Y –
X Y
Rs. Rs.
Salary (Rs. 1,85,000 × 12) 22,20,000 22,20,000
House rent allowance [see Notes 1 and 3] 1,15,500 8,35,500
Commission (Rs. 30,000 × 12) 3,60,000 3,60,000
Rent-free house 2,90,250 –
PF contribution of employer in excess of 12% of salary 66,600 66,600
Advance salary – 4,80,000
Gross salary 30,52,350 39,62,100

an institution
jk jkj
Less: Standard deduction 50,000 50,000
Salary income 30,02,350 39,02,100
Income from house property 2,56,600 2,35,600
Income from other sources 2,50,000 2,50,000
Gross total income 35,08,950 43,97,700
Less: Deduction under section 80C (15% of Rs. 1,85,000 × 12,

1,50,000 1,50,000
but subject to maximum of Rs. 1,50,000)
Net income 33,58,950 42,47,700
Tax on net income
Income-tax† 8,20,185 10,86,810
Add: Health and education cess 32,807 43,472
Tax liability (rounded off) 8,52,990 11,30,280

Notes –
1.
1. House rent allowance taxable in the case of X – X gets house rent allowance at the rate of Rs.
80,000 per month for 3 months. The exempt portion of house rent allowance will be determined as follows –
2. Rs. 92,500 per month (being 50% of Rs. 1,85,000);
3. Rs. 80,000 per month (being house rent allowance);
4. Rs. 41,500 per month (being the excess of rent paid of Rs. 60,000 per month over 10% of Rs.
1,85,000).
Rs. 41,500 (being least of the above) is exempt from tax. Rs, 38,500 (i.e., Rs. 80,000 – Rs. 41,500) per month
for 3 months is chargeable to tax (amount taxable being Rs. 1,15,500).
1. Perquisite in respect of rent-free house given to X – With effect from July 1, 2021, the company has
taken House A on lease and the same house is given as a perquisite to X. Salary for this purpose is Rs.
2,15,000 (Rs. 1,85,000 + Rs. 30,000) per month. 15% of salary (i.e., Rs. 32,250 per month) or lease rent of Rs.
80,000 per month, whichever is lower is taxable value of the perquisite. For the year ending March 31, 2022,
the amount taxable is Rs. 2,90,250 (Rs. 32,250 × 9).
2. House rent allowance taxable in the case of Y – Y gets house rent allowance at the rate of Rs. 80,000
per month for 12 months. He resides in a rented accommodation up to June 30, 2021. From July 1, 2021
onwards, he uses his own house for residence for which he does not pay any rent. Exemption will be available
from house rent allowance only up to June 30, 2021 as follows –

 Rs. 92,500 per month (being 50% of Rs. 1,85,000);
 Rs. 80,000 per month (being house rent allowance);
 Rs. 41,500 per month (being the excess of rent paid of Rs. 60,000 per month over 10% of Rs.
1,85,000).
 Rs. 41,500 (being least of the above) is exempt from tax for 3 months. Total exemption is Rs.
1,24,500. Amount taxable is Rs. 8,35,500 (i.e., Rs. 80,000 × 12 – Rs. 1,24,500).
Advance rent of 9 months received by X will be taxable as income from house property in the next year.
However, advance salary received by Y is taxable during the current year.
Q17. X (40 years) owns a commercial property in Bangalore. It is let out to different tenants. Municipal
valuation of the property is Rs. 25,00,000. Market rent of a similar property is Rs. 32,00,000. Annual rent
(if there is no vacancy and no unrealized rent) is Rs.40,00,000. Standard rent is not applicable.
Unrealized rent is Rs. 3,20,000 [there are two tenants who have defaulted – A : Rs. 1,20,000 and B : Rs.
2,00,000]. It is not possible to realize anything from A and B. B has also occupied a property owned by
Mrs. X. One flat in the property (annual rent being Rs. 60,000) remains vacant for 4 months during the
previous year. Another flat (annual rent being Rs. 90,000) remains vacant for 8 months during the
previous year.
Annual rent of Rs. 40,00,000 includes Rs. 10,00,000 pertaining to different amenities provided in the
building. Rs. 30,00,000 is rent of building and Rs. 10,00,000 is for different amenities which is
calculated as follows –
1.
1. Lift maintenance charges : Rs. 3,50,000.
an institution
2. Electricity charges : Rs. 2,00,000. jk jkj
3. Air-conditioning charges : Rs. 3,50,000.
4. Security guard charges : Rs. 1,00,000.
X has incurred following expenses in respect of the aforesaid property –
1.
1. Advocate fees and court charges for drafting lease agreements with tenants : Rs. 75,000.
2. Municipal tax of 2021-22 : Rs. 4,70,000 (however, 10 per cent rebate is obtained for
payment before due date).
3. Arrears of municipal tax of 2020-21 paid during the current year : Rs. 1,20,000 (it includes
interest on arrears of Rs. 15,000).
4. Expenditure on lift maintenance : Rs. 2,10,000 (a payment of Rs. 30,000 is made in cash).
5. Electricity bill : Rs. 2,40,000.
6. Air-conditioner maintenance : Rs. 80,000 (an amount of Rs. 40,000 is paid to B Ltd. in
which X is a director holding 15 per cent share capital, similar services can be obtained from any other
person for Rs. 18,000).
7. Salary to security guard : Rs. 1,25,000.
8. Salary of staff for supervising lift maintenance and air-conditioner services : Rs. 2,40,000.
9. Salary of staff for collecting rent and other charges : Rs. 90,000.
10. Insurance of building : Rs. 1,17,000.
11. General repair of building : Rs. 80,000.
12. Interest on loan taken from a foreign company payable outside India for construction of
the property : Rs. 7,50,000 (tax is not deducted by X under section 195).
13. Interest on the same loan for the previous year 2020-21 : Rs. 2,00,000 (paid during the
current year after deducting tax at source).
Besides, the above expenses, X can claim depreciation on lift and air-conditioning system which
comes to Rs. 5,07,500.
Assuming that income of X from business is Rs. 9,70,000 and he annually contributes Rs. 1,20,000 in
public provident fund, find out net income and tax liability of X for the assessment year 2022-23. Ignore
section 115BAC pertaining to alternative tax regime‡.
Solution : Annual rent is Rs. 40,00,000. Out of which annual rent of the property is Rs. 30,00,000 and charges
for different amenities (like lift, air-conditioning, electricity, security guard) are Rs. 10,00,000. In other words,
75% of the annual rent pertains to rent of building and 25% of rent pertains to charges for different amenities.
From the data given in the problem, the following calculation can be made –
Total Rent of Charges for
building different
(75% of total) amenities
(25% of total)
Rs. Rs. Rs.
Annual rent if there is no vacancy and no unrealized rent 40,00,000 30,00,000 10,00,000
Less: Unrealised rent (Rs. 1,20,000 + Rs. 2,00,000) 3,20,000 2,40,000 80,000
Rent after deducting unrealized rent 36,80,000 27,60,000 9,20,000
Less: Loss due to vacancy [(Rs. 60,000 × 4 ÷ 12) + (Rs.

80,000 60,000 20,000
90,000 × 8 ÷ 12)]
Balance 36,00,000 27,00,000 9,00,000
Rs.

an institution
jk jkj
Standard rent (SR) NA
Annual rent 30,00,000
Unrealized rent 2,40,000
Loss due to vacancy 60,000
32,00,000
Step II – Rent received/receivable after deducting unrealized rent but before adjusting
27,60,000
loss due to vacancy
Less: Municipal tax [(90% of Rs. 4,70,000) + (Rs. 1,20,000 – Rs. 15,000) 5,28,000
Interest on borrowed capital Nil
Income 18,28,400
Note – Interest payable outside India is not deductible if proper tax has not been deducted by the taxpayer.
Interest of last year (in respect of which tax is deducted during the current year) is not deductible during the
current year.
Computation of income from other sources –
Rs.
Amount collected for different amenities (after excluding vacancy and unrealized amount,
9,00,000
as calculated above) (Rs. 9,20,000 – Rs. 20,000)
Less: Expenses and depreciation
Legal expenses for drafting agreements (25% of Rs. 75,000) 18,750
Lift maintenance expenditure (Rs. 2,10,000 – cash payment of Rs. 30,000 to be

1,80,000
disallowed)
Electricity 2,40,000
Air-conditioner maintenance (Rs. 80,000 – excess payment to B Ltd., i.e., Rs. 22,000) 58,000
Security guard 1,25,000
Supervisor salary 2,40,000
Salary of staff for collecting rent and other charges (25% of Rs. 90,000) 22,500
Depreciation 5,07,500
an institution
jk jkj
Income from other sources (–) 4,91,750
Computation of income and tax liability –
Business income 9,70,000
Income from other sources (–) 4,91,750
Less: Deduction under section 80C 1,20,000
Net income 21,86,650
Tax on net income

Q18. X (66 years) is the owner of a residential house whose construction was completed on July 31,
2014. It has been let out for residential purposes from October 1, 2014. The following information is
available from the records supplied by X –
Rs.
Municipal tax (levied by Pune Municipal Corporation @ 17.5 per cent) 1,70,000
Market rent of a similar property in Mumbai 26,00,000
Market rent of a similar property in Pune 8,00,000
Annual rent (if there is no vacancy or unrealized rent) 11,75,000
Standard rent under the Pune Rent Control Act 10,50,000
Unrealized rent due from the new tenant (the defaulting new tenant has still
occupied the property and no action has been taken to compel him to vacate the 1,00,000
property)
Loss due to vacancy (the old tenant has vacated the property on February 1, 2021
and the current tenant has occupied it with effect from April 11, 2021) –
– Loss for 2021-22 31,507
– Loss for 2020-21 1,90,000
Municipal taxes paid during 2021-22 (including Rs. 70,000 paid by the tenant and
Rs. 20,000 paid by X as penalty for giving incorrect information pertaining to 1,90,000
municipal tax to municipal authorities)
Interest on loan taken for the construction of the house. Interest is paid to B Ltd., an
4,00,000
Indian company, without deducting tax at source
Arrears of rent pertaining to 2019-20 recovered on May 10, 2022 80,000
Legal expenditure for recovering arrears of rent 32,000

an institution
Taking into consideration the following information, find out net income and tax liability of X for jkthe
jkj
assessment year 2022-23 (ignore section 115BAC pertaining to alternative tax regime‡) –
1.
1. The tenant has deducted a sum of Rs. 25,000 from the rent payable to X for the year 2021-
22 on account of poor maintenance of building.
2. For the previous year 2020-21, X has not claimed deduction of Rs. 50,000 paid by him on
March 31, 2020 on account of municipal tax. He wants to claim deduction of the from the income of
2021-22.
3. During the previous year 2021-22, X has paid arrears of interest of Rs. 30,000. This
interest pertains to housing loan which he has taken from B Ltd.
4. Income of X from other sources is Rs. 16,07,000.
5. He wants to claim deduction of Rs. 1,40,000 on account of payment of life insurance
premium (sum assured is Rs. 70,00,000) (policy was taken in 2009-10).
Solution : Computation of gross annual value – Rs.
Municipal value (Rs. 1,70,000 ÷ 17.5 × 100) (MV) 9,71,429
Annual rent (Rs. 11,75,000 – Rs. 25,000) 11,50,000
Unrealized rent (not to be considered as the tenant has not been asked to vacate the
Nil
property)
Loss of 2021-22 due to vacancy 31,507
9,71,429
11,50,000
due to vacancy
Less: Municipal tax (Rs. 1,90,000 – Rs. 70,000 – Rs. 20,000) 1,00,000
Interest on borrowed capital 4,00,000
Income 3,12,945

an institution
jk jkj
Tax on net income

Notes –
1.
1. Municipal tax is always deductible on payment basis. Municipal tax paid on March 31, 2021 is
deductible from the gross annual value of the previous year 2020-21. It cannot be claimed as deduction from
the gross annual value of the previous year 2021-22.
2. Interest on borrowed capital is deductible under section 24(b) on accrual basis. In other words,
amount pertaining to arrears of interest of an earlier year, cannot be claimed as deduction during the current
year, even if it is paid in the current year.
Q19. X (29 years) owns a property in Trivandrum. The property has two units – Unit A and Unit B and
both are of identical size. Municipal valuation of the entire property is Rs. 6,10,000. Market rent is Rs.
7,20,000. Standard rent is Rs. 9,00,000. Unit A is let out throughout the year on monthly rent of Rs.
47,000. Unit B is self-occupied up to May 31, 2021. X has vacated Unit B on May 31, 2021, as he has got
a rent-free furnished house from his employer A Ltd. Unit B is let out on August 15, 2021 on monthly
rent of Rs. 49,000. Taking into consideration the following information, find out net income of X and tax
liability thereon (after deducting TDS) for the assessment year 2022-23 (ignore section 115BAC
pertaining to alternative tax regime‡) –
1.
1. Unit A is let out to DEF Ltd. DEF Ltd. pays Rs. 42,300 (i.e., Rs. 47,000 – 10 per cent TDS
under section 194-I). DEF Ltd. has given an interest-free refundable deposit of Rs. 10,00,000. It is
deposited in fixed deposit with SBI, Chennai and X gets annual interest of Rs. 1,29,500.
2. X is employed by A Ltd. on salary of Rs. 85,000 per month. Besides, he gets special
allowance of Rs. 10,000 per month. With effect from June 1, 2021, he has been allotted a rent-free
furnished house at Chennai by A Ltd. House is owned by subsidiary company of A Ltd. for which A
Ltd. has to pay a nominal rent of Rs. 10,000 per month (rent of 2021-22 is not paid so far). Furniture in
the house is owned by A Ltd. (it was purchased in 1998 for Rs. 30,000).
3. Municipal tax of the property owned by X is Rs. 82,000 for the previous year 2021-22. It is,
however, paid by the employer company, A Ltd.
4. X has a brought forward house property loss of Rs. 75,000. This loss pertains to the
previous year 2018-19 of the property mentioned above. It was possible to set off this loss during 2018-
19 against salary income. However, X has not claimed the adjustment in 2018-19. He wants to claim
deduction of Rs. 75,000 from the property income of the previous year 2021-22.
5. X pays life insurance premium of Rs. 40,000 on an insurance policy taken by Mrs. X on
her life. Sum assured of the policy taken in 2009 is Rs. 3,60,000. Till the previous year 2020-21, Mrs. X
has paid insurance premium and availed deduction under section 80C. He also pays Rs. 72,000 as
tuition fee of his daughter’s school.
6. Tax deducted by A Ltd. on salary income under section 192 is Rs. 2,95,000.
7. X Ltd. maintains unrecognized provident fund.
Solution : Computation of income from house property –
Unit A Unit B
Rs. Rs.
Municipal value (MV) 3,05,000 3,05,000
Fair rent (FR) 3,60,000 3,60,000
Standard rent (SR) 4,50,000 4,50,000
Annual rent (*Rs. 47,000 × 12, **Rs. 49,000 × 10, as Unit B is

5,64,000* 4,90,000**
available for letting out from June 1, 2021)
Unrealized rent Nil Nil

an institution
jk jkj
Loss due to vacancy (Rs. 49,000 × 2.5 months, i.e., from June 1,
Nil 1,22,500
2021 to August 15, 2021)
Municipal tax 41,000 41,000
Step I – Reasonable expected rent of the property [MV or FR,

3,60,000 3,60,000
whichever is higher, but subject to maximum of SR]
Step II – Rent received/receivable after deducting unrealized rent

5,64,000 4,90,000
but before adjusting loss due to vacancy
Step III – Amount computed in Step I or Step II, whichever is

5,64,000 4,90,000
higher
Step IV – Loss due to vacancy Nil 1,22,500
Step V – Gross annual value is Step III minus Step IV 5,64,000 3,67,500
Less: Municipal tax 41,000 41,000
Net annual value 5,23,000 3,26,500
Standard deduction @ 30% 1,56,900 97,950
Interest on borrowed capital Nil Nil
Income 3,66,100 2,28,550
Computation of salary income –
Basic salary (Rs. 85,000 × 12) 10,20,000
Special allowance (Rs. 10,000 × 12) 1,20,000
Rent-free furnished house [see Note 3] 1,02,500
Municipal tax paid by employer (being an obligation of employee met by employer) 82,000
Standard deduction (–)50,000
Salary income 12,74,500
Computation of net income and tax –
Salary 12,74,500
Income from house property (Rs. 3,66,100 + Rs. 2,28,550) 5,94,650
Income from other sources (being bank interest) 1,29,500
Net income 18,86,650

an institution
jk jkj
Tax on net income
Tax liability 3,93,635
Less: Prepaid tax –
– Tax deducted by employer under section 192 2,95,000
– Tax deducted by DEF Ltd., tenant, under section 194-I (10% of Rs. 47,000 × 12) 56,400
Net tax liability (rounded off) 42,230

Notes –
1.
1. Refundable deposit – Refundable deposit is not taken into consideration to find out gross annual
value.
2. Municipal tax – Municipal tax paid by employer, is taxable in the hands of X as a perquisite. At
the same time, municipal tax paid (which is included as perquisite) is taken as payment by X and,
consequently, it is deductible.
3. Perquisite in respect of rent-free house – Rent-free house is provided with effect from June 1,
2021. During the previous year 2021-22, the perquisite is provided for 10 months. Salary of X from June 1,
2021 to March 31, 2022 is Rs. 9,50,000 [i.e., (Rs. 85,000 + Rs. 10,000) × 10]. 15% of Rs. 9,50,000 is Rs.
1,42,500. Actual rent paid/payable by employer for 10 months is Rs. 1,00,000. Value of unfurnished house is
Rs. 1,00,000 (i.e., 15% of salary or actual rent, whichever is lower). Value of furniture for 10 months is Rs.
2,500 (i.e., 10% of Rs. 30,000 × 10 ÷ 12). The aggregate amount is Rs. 1,02,500.
4. Brought forward loss – Loss from house property for the year 2018-19 can be set off against
any income including salary income of the previous year 2018-19. There is no option available to the taxpayer
in respect of this rule. If salary or any other income is sufficient to adjust loss from house property, then it
cannot be carried forward and adjusted against income of any other year.
Q20. X (40 years) is an Indian but now he is a citizen of USA. During the previous year 2021-22, he is in
India for 300 days. During April 1, 2011 and March 31, 2020, he is in India for 600 days. He is resident in
India for the previous years 2018-19 and 2019-20.
He has two businesses — Business A (chemical manufacturing business) and Business B (business of
letting out of properties on rent in India and outside India). From Business, A he has generated income
of Rs. 7,00,000 in India and Rs. 5,00,000 outside India. The following information is available from the
records of X pertaining to Business B –
(All figures in INR)
House properties House properties
in India outside India
Number of properties 6 9
Gross annual value of these properties 46,72,000 83,70,000
Municipal tax actually paid in 2021-22 6,00,000 12,50,000
Repair expenses 14,000 15,90,000
Insurance 80,000 4,15,000
Interest on capital borrowed for repairing properties 50,000 60,000
Charges for lift, electricity, air-conditioning and

security services collected (in addition to rent) from 25,12,972 37,65,000
tenants (a)
an institution
jk jkj
Amount actually spent for this purpose (b) 15,00,000 22,00,000
Depreciation admissible in respect of lift and air-

7,10,000 12,80,000
conditioning system (c)
Business A and Business B are controlled partly from India and partly from outside India. Rent of 9
properties situated outside India is received outside India. Later on approximately 30 per cent rent is
remitted to India. X is employed by a foreign company. During the previous year 2021-22, he has
received salary of Rs. 36,00,000 out of which Rs. 10,00,000 pertains to services rendered in India. As
per agreement with the employer Rs. 10,00,000 is accrued outside India and paid outside India. X pays
insurance premium of Rs. 20,000 in India (sum assured : Rs. 2,00,000) and Rs. 2,50,000 outside India
(sum assured : Rs. 30 lakh).
Find out net income and tax liability of X in India for the assessment year 2022-23. Ignore double
taxation relief available under section 90. Ignore section 115BAC pertaining to alternative tax regime‡.
Solution : During the previous year 2021-22, X is in India for 300 days. During last 7 years he is not in India
for at least 730 days. Consequently, X is resident but not ordinarily resident in India for the assessment year
2022-23.
Indian income is chargeable to tax in India. Foreign income is taxable if it is a business income and arises from
a business which is controlled wholly or partly from India. Business A is controlled from India as well as from
outside India. Even income generated and received outside India pertaining to Business A is taxable in India.
Business B consists of letting out of properties in India and outside India. It also includes the business of
providing services (like lift, electricity, air-conditioning, security, etc.) to tenants. Income from letting out of
properties cannot be taken as business income, as it is taxable under the head, “Income from house property”.
However, income from the incidental business of providing different services to the tenants can be taken as
business income.
Computation of income of Business A and Business B –
Indian income Foreign income
Rs. Rs.
Computation of business income –
Business A 7,00,000 5,00,000
Business B (the activity of providing incidental services to tenants)

3,02,972 2,85,000
[(a) – (b) – (c)]
Total 10,02,972 7,85,000
Computation of house property income –
Gross annual value 46,72,000 83,70,000
Less: Municipal tax 6,00,000 12,50,000
Net annual value 40,72,000 71,20,000
Less: Deductions –
Standard deduction 12,21,600 21,36,000
Interest on borrowed capital 50,000 60,000
Income 28,00,400 49,24,000
Salary (for rendering service in India) (after standard deduction) 9,50,000
House property income 28,00,400
Business income (Rs. 10,02,972 + Rs. 7,85,000) 17,87,972

an institution
jk jkj
Tax on net income
Add: Surcharge @10% 1,42,901
Tax and surcharge 15,71,912

Q21. X (53 years) owns a house property. It is situated at Nariman Point, Mumbai. The following
information is available –
Rs.
Municipal valuation 33,20,000
Market rent of a similar property at Nariman Point, Mumbai 60,00,000
Market rent of a similar property at Andheri (East), Mumbai 38,00,000
Standard rent 57,00,000
Municipal tax of 2021-22 4,50,000
Municipal tax of 2021-22 paid in 2021-22 3,92,000
Municipal tax of 2020-21 paid in 2021-22 3,00,000
Advance municipal tax for next 5 years paid in 2021-22 18,00,000
Repair expenses (10 per cent is borne by tenant) 90,000
Insurance 80,000
The above property is let out on monthly rent of Rs. 5,70,000 up to June 30, 2021. Tenant has vacated
the property on June 30, 2021 without paying one month rent. The property is lying vacant during July
and August 2021 as no suitable tenant is available. X occupies the property for his own residence from
September 1, 2021. Till September 1, 2021, he resides in a rented accommodation for which he pays
rent of Rs. 80,000 per month. Construction of the property was completed in April 2020. A loan of Rs.
90,00,000 was taken to finance construction of the property. This loan was taken from an Indian private
limited company.
Interest liability pertaining to the period ending March 31, 2020 is Rs. 24,80,000. Interest liability for the
previous year 2021-22 is Rs. 11,50,000. Every year interest is paid on due dates. However, tax is not
deducted under section 194A.
X is a businessman (turnover : above Rs. 5 crore). His business income for the previous year 2021-22
is Rs. 77,90,000 (an interest liability of Rs. 2,00,000 is paid to A Ltd. without deducting tax at source
under section 194A). X deposits Rs. 2,00,000 in a fixed deposit account with SBI, Nariman Point,
Mumbai for the purpose of claiming deduction under section 80C. After litigation with the tenant, X
recovers on March 20, 2022, one month’s unrecovered rent from the tenant with interest of Rs. 24,000
(total amount recovered is Rs. 5,94,000). Litigation expenditure is Rs. 12,500.
Find out the net income and tax liability of X for the assessment year 2022-23. Ignore section 115BAC
pertaining to alternative tax regime‡.
Solution : Computation of income of X –
an institution
jk jkj
Rs.
Rent of the property from April 1, 2021 to August 31, 2021 (i.e., the period for which the
28,50,000
property is available for letting out during the previous year 2021-22) (Rs. 5,70,000 × 5)
Unrealized rent (rent is ultimately recovered during the previous year) Nil
Loss due to vacancy (Rs. 5,70,000 × 2) 11,40,000
57,00,000
Step II – Rent received/receivable after deducting unrealized rent but before adjusting
28,50,000
loss due to vacancy
Less: Municipal tax (Rs. 3,92,000 + Rs. 3,00,000 + Rs. 18,00,000) 24,92,000
Interest on borrowed capital (1/5 of Rs. 24,80,000 + Rs. 11,50,000) 16,46,000
Income (–)1,98,400
Income from house property (–)1,98,400
Business income [Rs. 77,90,000 + disallowance of 30% of Rs. 2,00,000 under section
78,50,000
40(a)(ia) on account of non-deduction of tax under section 194A]
Income from other sources –
– Interest recovered : Rs. 24,000
– Less: Proportionate legal expenditure : Rs. 505 (i.e., Rs. 12,500 × Rs. 24,000 ÷ Rs.
23,495
5,94,000)

an institution
jk jkj
Tax on net income
Add: Surcharge @10% 2,07,030
Tax and surcharge 22,77,033

Note – Disallowance under section 40(a)(ia) is applicable only in the case of business income. If interest,
pertaining to house property, is paid without deduction of tax at source, disallowance provisions of section
40(a)(ia) are not applicable.
Q22. X (63 years) is a joint finance officer in A Ltd., Mumbai. He gets Rs. 70,000 per month as salary. He
owns two houses, one of which is let out to the employer-company which in turn provided the same to
X as rent-free accommodation. X contributes 10 per cent of his salary towards recognized provident
fund. The following information is available from the records of X –
House I House II
Rs. Rs.
Fair rent (FR) 4,00,000 16,00,000
Annual rent 4,12,000 20,70,000
Municipal valuation (MV) 3,70,000 14,00,000
Standard rent (SR) 3,50,000 15,50,000
Municipal taxes paid 41,000 1,60,000
Repairs 6,000 12,000
Insurance, land revenue, ground rent, etc. 20,000 40,000
Interest on capital borrowed by mortgaging House I

48,000 —
(funds are used for construction of House II)
Unrealised rent of the previous year 2019-20 — 1,70,000
Unrealised rent of 2020-21 — 65,000
Nature of occupation Let out to A Ltd. Let out to Y
for business
Date of completion of construction March 2003 April 2005

Determine the net income of X for the assessment year 2022-23. Also find out net tax liability after
deducting the amount of tax deducted at source. Ignore section 115BAC pertaining to alternative tax
regime‡. The following additional information is available –
1.
1. On December 15, 2021, X takes a loan of Rs. 50,000 from a bank to pay municipal tax of
financial year 2021-22 pertaining to House II. Interest of this loan of Rs. 3,000 for the period ending
March 31, 2022 is paid on March 31, 2022.
2. On April 1, 2020, he took a similar loan of Rs. 40,000 from another bank to pay municipal
tax of financial year 2020-21 of House II. This loan is repaid on April 30, 2021. X wants to claim
deduction under section 80C.
an institution
3. Rent of House I paid by A Ltd. for the financial year 2021-22 is Rs. 4,12,000. However,jk jkj
amount actually received by X is Rs. 3,70,800 (i.e., Rs. 4,12,000 – 10 per cent TDS under section 194-I).
4. House II is a commercial property. Annual rent of House II given above is inclusive of
service tax/GST of Rs. 2,70,000. However, service tax/GST collected by X during 2021-22 is not paid till
date. Tax is not deducted at source by the tenant of House II.
5. A Ltd. has deducted tax at source of Rs. 1,70,000 from salary under section 192.
6. Income of X from other sources is Rs. 6,08,000.
7. He deposits Rs. 70,000 to public provident fund account during the previous year.
Solution : Rs.
Basic salary (i.e., Rs. 70,000 × 12) 8,40,000
Perquisite in respect of rent-free house [see Note 1 infra] 1,26,000
Gross salary 9,66,000
Less: Standard deduction 50,000
Salary 9,16,000
Property income – House I (let out for residence)
3,50,000
4,12,000
due to vacancy
Q23. Raja is the owner of a residential house property having two independent floors of equal size in
Chennai. The ground floor of the property has been let out to a tenant at rent of ` 16,000 per month
from 1st June, 2021. The first floor of the property is occupied by Raja for his residential purpose.
Other particulars relating to the property are as follows:
Fair Rental Value 3,70,000
Municipal Value 3,80,000
Standard Rent 3,20,000
Annual Municipal Tax (50% paid) 57,000
Interest on loan taken for construction of property for the year 2020-21 30,000
Annual insurance premium 5,000

Compute income from house property of Raja for the Assessment Year 2022-23.
Amount (`)
I Ground Floor (Let out)(1/2 portion of house)
Gross Annual Value (Actual Rent) 1,60,000
Less: Municipal Taxes paid (28,500 × 1/2) (14,250)

an institution
jk jkj
Amount (`)
Standard (30% of ` 1,45,750) (43,725)
Interest on Borrowed Capital (Pre-construction Period)
(30,000 × ½ × 1/5) (3,000)
Income from House property (Let out) 99,025
II First Floor (Self-occupied))(1/2 portion of house)
Net Annual Value (Note 1) Nil
Interest on Borrowed Capital (Pre-construction Period)
(30,000 × ½ × 1/5) (3,000)
Income from House property (Self-occupied) (3,000)
Taxable Income from House property (after intra head adjustment-Note 2) (96,025)
Working Notes:
1.
1. The NAV of self-occupied property is always taken as nil.
2. As per section 70, the loss from one house property can be set-off against income from another
property.
Whole Property Ground Floor
(a) Municipal Valuation : Rs. 3,80,000 Rs. 1,90,000
(b) Fair Valuation : Rs. 3,70,000 Rs. 1,85,000
(c) Higher of (a) and (b) : Rs. 3,80,000 Rs. 1,90,000
(d) Standard Rent : Rs. 3,20,000 Rs. 1,60,000
(e) Expected Rent Lower of (c) and (d) : Rs. 3,20,000 Rs. 1,60,000
(f) Actual Rent : Rs. 1,60,000
(g) Gross Annual value Higher of (e) and (f) : Rs. 1,60,000
Gross Annual value: The Actual rent received and Expected rent both are equal. Thus, Rs. 1,60,000 shall be
GAV.
1.
4. Section 23 of the Income-tax Act, the annual value of the any property shall be deemed to be—
(a) the sum for which the property might reasonably be expected to let from year to year; or
(b) where the property or any part of the property is let and the actual rent received or receivable by the
owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable;
or
(c) where the property or any part of the property is let and was vacant during the whole or any part of
the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect
thereof is less than the sum referred to in clause (a), the amount so received or receivable.
an institution
Explanation— For the purposes of clause (b) or clause (c) of this sub-section, the amount of actual jk rent
jkj
received or receivable by the owner shall not include, subject to such rules as may be made in this behalf, the
amount of rent which the owner cannot realize.
Q24. Mr. Raphael constructed a shopping complex. He had taken a loan of ` 25 Lakhs for construction
of the said property on 01-08-2019 from SBI @ 10% for 5 years. The construction was completed on 30-
06-2020. Rental income received from shopping complex ` 30,000 per month being let out for the whole
year. Municipal Taxes paid for shopping complex ` 8,000. Arrears of rent received from shopping
complex ` 1,20,000.
Interest paid on loan taken from SBI for purchase of house for use as own residence for the period
2021-22 is ` 3 lakhs.
You are required to compute Income from House property of Mr. Raphael for A.Y. 2022-23 as per
Income Tax Act, 1961.
[Nov. 2015, 8 Marks]
Amount (`)
I Self-occupied residential house
Net Annual Value (Note 1) Nil
Interest on Borrowed Capital (Subject to max. limit: Note 2) (2,00,000)
Income from House property (self-occupied) (2,00,000)

TAX-Income From House Property AY 23-24

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an institution

Golapbag More, Burdwan.

Prob 1) Discuss the tax treatment of the following points:-

I. Computation of income from Let out Property:-

Municipal value (MV) 105 105 105 105 105

Fair rent (FR) 107 107 107 107 107

Actual rent 103 112 86 114 97

Unrealized rent (conditions mentioned in para 68.1-2a are satisfied) 1 2 1 2 1

Period of the previous year (in months) 12 12 12 12 12

Computation of gross annual value

Step I – Reasonable expected rent of the property [MV or FR,

whichever is higher, but subject to maximum of SR] 107 88 88 107 107

Step II – Rent received/receivable after deducting unrealized

Step IV – Loss due to vacancy Nil Nil Nil Nil Nil

Municipal value (MV) 95 60 60

Fair rent (FR) 96 54 55

Standard rent under the Rent Control Act (SR) 94 78 79

Actual rent 93 106 78

(Rs. 8,000 × 7½ + Rs. 14,000 × 2½) 95,000

Step V – Gross annual value is Step III minus Step IV 1,03,333

Municipal value (MV) 60 60 60 112 112

Fair rent (FR) 68 68 68 117 117

Annual rent 67 67 73 121 110

conditions of rule 4 are satisfied [see para 68.1-2a] 2 6 5 50 40

Loss due to vacancy 1 1 1 1 –

Step I – Reasonable expected rent of the property [MV or FR, whichever is

Step II – Rent received/receivable after deducting unrealized rent but

before adjusting loss due to vacancy 65 61 68 71 70

Step IV – Loss due to vacancy 1 1 1 1 –

Municipal value (per annum)(MV) 60 61 60 80 80 140 140

Fair rent (per annum) (FR) 65 66 64.5 78 78 150 150

Annual rent 72 57 72 72 NA 96 144

Loss due to vacancy 6 7.125 30 18 – 80 120

Computation of gross annual value

Step I – Reasonable expected rent of the property

FR, whichever is higher, but subject to maximum of

Step II – Rent received/receivable after deducting un-

Step III – Amount computed in Step I or Step II,

is higher 72 59 72 80 76 120 144

Step IV – Loss due to vacancy 6 7.125 30 18 76 80 120

Municipal value (per annum) (MV) 61,000 61,000

Fair rent (per annum) (FR) 1,08,000 30,000

was not available March 31, 2022 March 31, 2022

Actual rent received/receivable (if there is no vacancy) 96,000 28,500

Loss due to vacancy 27,000 7,500

Step I – Reasonable expected rent of the property [MV or FR, whichever

is higher, but subject to maximum of SR] 60,000 60,000

Step II – Rent received/receivable after deducting unrealized rent but

before adjusting loss due to vacancy 96,000 28,500

Step IV – Loss due to vacancy 27,000 7,500

Municipal value (MV) 140 180 180 140 231

Fair rent (FR) 145 185 185 145 262

Standard rent (SR) 142 175 175 142 241

Unrealised rent of the previous year 2021-22 14 42 1 70 42

Unrealised rent of the previous year 2020-21 3 4 5 6 7

Loss due to vacancy 7 14 14 42 105

Computation of gross annual value