INCOME UNDER THE

HEAD
HOUSE PROPERTY
 INTRODUCTION

• A house property could be your home, an office, a

shop, a building or some land attached to the
building like a parking lot. The Income Tax Act does
not differentiate between a commercial and
residential property. All types of properties are
taxed under the head ‘income from house property’
in the income tax return.

• The house property can be either self-occupied, let

out or inherited, based on which the taxation will
differ.
 BASIS OF CHARGE [SECTION 22]
The annual value of property consisting of any buildings or
lands appurtenant thereto of which the assessee is the
owner, other than such portions of such property as he may
occupy for the purposes of any business or profession carried
on by him, the profits of which are chargeable to income-tax,
shall be chargeable to income-tax under the head Income
from House Property.

This means that a house property is taxable under this head

if following conditions are satisfied:-

1. There should be a property consisting of any buildings or

lands appurtenant thereto;

2. Assessee should be the owner of such property

3. Such property should not be occupied by the assesse for

the purposes of any business or profession carried on by him,
the profit of which are chargeable to income tax.
 EXCEPTIONS

• Income from letting out a vacant land is chargeable

to tax under the head “Income From Other Sources”

• Income earned by an assessee who is engaged in the

business of letting out properties on rent, would be
chargeable to tax under the head “Profits / Gains
from Business / Profession”
 ANNUAL VALUE- SECTION 23(1)
• The measure of charging income-tax under this head
is the annual value of the property, i.e., the inherent
capacity of a building to yield income.
• ‘Annual value’ has been defined in Section 23(1) of
the Income-tax Act as:
(1) the annual value of 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.

• Annual value does not include the municipal taxes paid .

• The amount of actual rent received or receivable by the

owner shall not include, the amount of unrealized rent.

• Net Annual Value= Gross Annual Value – Municipal Taxes

 SECTION 23(2) -SELF OCCUPIED
PROPERTY /VACANT PROPERTY
• Where the property consists of a house or part of a
house-

(a) which is in the occupation of the owner for

the purposes of his own residence;

(b) or cannot actually be occupied by the owner

by reason of the fact that owing to his employment,
business or profession carried on at any other
place, he has to reside at that other place in a
building not belonging to him,
the annual value of such house or part of the house
shall be taken to be nil.
SECTION 23(3) –LET OUT PROPERTY
• However, the provisions of sub-section (2) shall not apply
if:

(a) the house or part of the house is actually let

during the whole or any part of the previous year; or

(b) any other benefit therefrom is derived by the

owner.

• This provision provides 2 situations of let out property

1) part of house self occupied and part of house let

out

2) house self occupied for few months and let out for
the rest
1) Part of house self occupied and part of house let out

• When a portion of the house is self-occupied for the

whole year, the annual value of the house shall be
determined as under:
(i) From the full annual value of the house the
proportionate annual value for self-occupied portion
for the whole year shall be deducted.

(ii) The balance shall be the annual value for let

out portion for a part of the year.

2) House self occupied for few months and let out for the
rest

• In this case the benefit of Section 23(2) is not available

and the income will be computed as if the property is let
out.
SECTION 23(4)- DEEMED TO BE LET-
OUT PROPERTY
• Assessee given the choice of any two houses to be
construed as self-occupied and for that the Annual Value
would be NIL

• For others, they would be treated as deemed to be let out

• The assessee is allowed by the Income Tax Act; the

flexibility to change the option to suit his needs / benefits

• In such as case, therefore, the Expected Rent becomes

the Gross Annual Value

• Municipal Taxes paid by the owner for the whole year

allowed as a deduction
 SECTION 23(5)-NOTIONAL INCOME
FROM HOUSE PROPERTY HELD AS
STOCK IN TRADE
• Annual value of house property held by a person as stock
in trade shall be taken as NIL if following conditions are
satisfied:
(a) The Property (consisting of buildings or land
appurtenant thereto) is held as stock in trade by the
owner of the property;

(b) The property (or any part of property) is not let

out during whole or any part of the previous year.

• Above benefit/concession is available only for 2 years

from the end of the financial year in which certificate of
completion of construction of the property is obtained
from the competent Authority.
 MUNICIPAL TAXES
• The taxes levied by any municipality or local
authority in respect of any house property to the
extent to which such taxes are borne and paid by the
owner, are deducted from gross annual value to
arrive at net annual value.

• However, deduction in respect of municipal taxes will

be allowed in determining the annual value of the
property only in the year in which municipal taxes
are actually paid by the owner.
 UNREALIZED RENT
• The amount of rent which the owner cannot realise shall
be equal to the amount of rent payable but not paid by a
tenant of the assessee and so proved to be lost and
irrevocable only if following conditions are satisfied:
(a) tenancy is bonafide;

(b) the defaulting tenant has vacated, or steps have

been taken to compel him to vacate the property;

(c) the defaulting tenant is not in occupation of any

other property of the assessee;

(d) the assessee has taken all reasonable steps to

institute legal proceedings for the recovery of the
unpaid rent or satisfied the Assessing Officer that
legal proceedings would be useless.
 DEDUCTIONS- SECTION 24
1. Standard Deduction: 30% of Net Annual Value
a. This is not available when the Annual Value is
NIL
b. This is a flat deduction irrespective of the
actual expenditure incurred
Let out / Deemed to be let out property
Standard deduction of 30% of NAV is fully allowed

Self-occupied properties
Since the Annual Value is nil, there is no Standard
deduction available
2. Interest on Borrowed Capital

• Interest on borrowed capital for

purchase/construction/repair/renewal / re-
construction is allowed as a deduction from gross
annual value.

Let out / Deemed to be let out property

• Interest on borrowed capital is fully allowed

Self-occupied properties

In case the capital is borrowed

a. for repairs / renewals / reconstruction, the

maximum allowable deduction on account of
interest is limited to INR 30,000
b. for acquisition / construction, the deduction would
depend on whether the loan was taken prior to 1.4.99
or later

• In case capital borrowed prior to 1.4.1999; the

maximum allowable deduction on account of interest
is limited to INR 30000

• In case capital borrowed post 1.4.1999; as long as

the acquisition / construction was completed within
5 years from the end of the FY in which the capital
was borrowed, and the assessee is in possession of a
certificate on interest payable from the lender, the
maximum allowable deduction on account of interest
is limited to INR 200,000.
 INADMISSIBLE DEDUCTIONS –
SECTION 25

• Interest paid outside India over foreign loans,

deduction cannot be claimed in India with regard to
house property.

• This means if loan taken for house property for

which interest is paid outside, the same cannot be
subject to deduction under Section 24.
TREATMENT OF UNREALIZED RENT
/ ARREAR OF RENT - SECTION 25A
• Arrears of Rent and the unrealised rent received
subsequently from a tenant by an assessee, shall be
deemed to be the income from House Property in the
FY in which such rental is received and shall be
included in the Income from House Property of that
year; irrespective of whether he is the owner of the
property any more or not in that FY.

• 30% of such arrears or unrealised rent received

subsequently is allowed as a deduction.
PROPERTY OWNED BY CO-OWNERS-
SECTION 26
• When house property is owned by two or more
persons and their respective shares are definite and
ascertainable,

• such persons shall not in respect of such property

be assessed as an association of persons,

• but the share of each such person in the income

from the property as computed in accordance with
sections 22 to 25 shall be included in his total
income.
DEEMED OWNERSHIP- SECTION 27

• House property is transferred by an

individual to his/her spouse, otherwise than
for adequate consideration - The transferor
will be the deemed owner.

• Exception: In case the transfer is

necessitated owing to a separation
between, them, the transferee will be the
deemed owner
• House property is transferred by an
individual to his/her minor child, otherwise
than for adequate consideration - The
transferor will be the deemed owner.

• Exception: In case the transfer is to a minor

married daughter, then, the transferor will
not be the deemed owner.
 CASE LAWS FOR REFERENCE
• Chennai Properties and Investments Ltd. v. CIT
(2015) (SC) Would income from letting out of
properties by a company, whose main object as per
its memorandum of association is to acquire and let
out properties, be taxable as its business income, or
as income from house property, considering the fact
that the entire income of the company as per its
return of income was only from letting out of
properties?

• Nutan Warehousing Company Limited v. Dy.

Commissioner of Income Tax [2010] [326 ITR 94,
Mumbai]
• Income from letting of warehouse whether would
constitute Business or Property Income