Prof.

Uday Prabhupatkar

Income from House Property
Section 22 to section 26 deal with the head Income from House Property.
Sec.22 deals with chargeability of income under this head. To bring the income to tax under
this head, following conditions must be satisfied
a! The property from which income is earned must be a House property,
b! "ssessee must be the owner of the House Property
c! The property should not be used by assessee to carry out any business or
profession.
If all the abo#e conditions are satisfied simultaneously, then only the income deri#ed from
house property can be brought to tax under this head of income.
The concept of $House property% must be understood &eeping in mind following propositions
House property generally comprises of a building along with the land beneath the
structure and also land appurtenant to such building.
'uilding means a structure constructed from wood, cement, bric&s, metal, roc&s, mud or
any other &ind of building material, may or may not ha#e door ( windows but definitely
has a roof and used for inhabitance of human beings.
" #acant plot of land can not be considered as house property.
The concept of $)wner $ as well should be understood in a proper perspecti#e. *ith reference
to the income from house property, owner means legal owner as well as deemed owner under
specified circumstances.
+egal owner means a person in whose name the title to the property is registered. Howe#er,
deemed ownership is recogni,ed under the following circumstances
" person who transfers the house property to his-her spouse .transfer not being a
transfer in connection with an agreement to li#e apart! or to his -her minor child .not
being a married daughter! without ade/uate consideration for such transfer is deemed
to be the owner for taxing income in his hands, derecogni,ing such transfer for the
aforesaid limited purpose.
The holder or the person ha#ing possession of an impartible estate is a deemed owner.
" member of a 0o1op. Housing society who is occupying the flat allotted to him is
recogni,ed as deemed owner.
" transferee in possession of the house property pending con#eyance in his fa#our but
ha#ing fulfilled conditions as laid down u-s.23" of Transfer of Property "ct.
+essee of the house property who has obtained such property on lease for a period of
not less than for 42 years, is deemed owner for computation of income in his hands
under this head of income.
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Prof. Uday Prabhupatkar

5ifferent types of transactions in relation to house property are brought to tax under this head.
*e can see few such instances, where in the income is taxed under this head.
a! House property situated in foreign country 6 In case of resident ( ordinary resident the
income from property situated any where .whether in India or abroad! is taxable in India
under this head. Howe#er, in case of 7esident but not ordinarily resident ( 8on
7esident, the income from house property located abroad is held taxable under this
head only if income is recei#ed in India.
b! Property ha#ing disputed title 6 under such circumstances, the income tax authorities
will decide about the taxability in the hands of one of the parties claiming title
irrespecti#e of the outcome of pending court case for title ( the e#entuality - uncertainty
of returning the income assessed in the hands to the other claimant of the title.
c! Property owned by co1owners 6 if the share in the property is identifiable or clearly
defined then in such case, share of the income will be held assessable in the hands of
each such co1owner. In any case, it will not be treated as income of an ")P
.association of persons i.e. co1owners collecti#ely!.
d! Property held as stoc& in trade 6 if the house properties are held as stoc& in trade say in
case of corporate, builders etc. still it will not be assessed under the head of profits (
gains of business or profession but will be held taxable under the head income from
house property only.
Howe#er, if the house property is let1out which is incidental ( subser#ient to the main
business or if the unit is let1out along with plant ( machinery, furniture etc. which is not
separable from the unit then the income will be taxed as profits ( gains of business or
profession.
The concept of Income from House property can be well understood in case of house being
let1out by the )wner-land lord to a tenant for 7ent. The 7ent recei#ed in such instance will be
considered as income from house property.
Howe#er, in case of only one house being owned by an assessee, what could be the amount
that can be attributed as income from house property9
To see& clarity about this aspect, we need to understand that in case of income from house
property what is being brought to tax is $"nnual :alue% of the house property and not the
house property itself which is under consideration. ;ross "nnual #alue is defined u-s. 23.4! of
the Income tax "ct. i.e. the inherent capacity of the house property to fetch income to it<s
owner. "ccordingly in case of self occupied property or the house property which is owned but
not .let1out ! or used for own residence, the notional #alue is ta&en in to account as income.
"t this =uncture, it would be appropriate for us to understand different types of House property
as contemplated under the Income Tax "ct. There are three types of property as en#isaged
under the "ct
a! Self )ccupied House Property
b! +et1out House Property (
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Prof. Uday Prabhupatkar

c! 5eemed to be let out House Property.
Self occupied house property is that property which is owned ( occupied by the owner for his
own residence i.e himself > members of his family. *hen assessee owns more than one
house property then only one house property which he occupies for self ( his family members
is considered as $self1occupied House property% ( the other house properties owned by him
are considered to be $deemed to be let1out% house properties, pro#ided no other benefit .direct
or indirect! is deri#ed by him from such properties.
+et1out house property is such house property which is owned by the assessee but which is
let1out to a tenant on rent. The concept of the let1out property is fairly easy to understand in
that sense.
Ha#ing understood different types of House properties, let us try to understand how to
compute income from house property under each such category.
A) Annual Value of Self-occupied House Property:
'y #irtue of pro#iso to Sec.23.2!.a!.i!, it is specified that ;ross annual #alue of only one
house property .at the choice of the assess!, owned ( occupied by him during the pre#ious
year, will be deemed to be NIL.
The deduction u-s 2?.b! i.e. interest paid - payable on housing loan would howe#er be
applicable in the case with a ceiling of 7s.3@,@@@-1 or 7s.4,2@,@@@-1 per annum, as the case
may be as explained below under the heading 5eductions from income from House Property.
B) Annual Value of Let-out House Property:
Aollowing methodology to be adopted to wor& out gross annual #alue of let1out house property.
I! Aind out 7easonable Bxpected 7ent 6 It would be higher of a) Cunicipal #aluation or b) fair
rent for the house property. Aurther compare it with c) standard rent as per 7ent control "ct
.if applicable!.
"ccordingly, 7easonable Bxpected 7ent will be higher of a or b sub=ect to c.
Here, Cunicipal #aluation means #aluation adopted by the local Cunicipality to wor& out
ratable #alue for assessment ( collection of annual municipal tax.
Aair 7ent means the rent fetched by a similar property ha#ing same amenities, locational
ad#antage etc. ( situated in the #icinity of the property under e#aluation or situated in the
same or similar locality.
Standard 7ent is the concept of 7ent 0ontrol "ct. To establish control on the rent being
charged by landlords to the tenants, go#ernment has passed 7ent 0ontrol "ct ha#ing
territorial =urisdiction o#er certain local area confined in the metropolitan limits of metro
cities 6 say 'ombay 7ent 0ontrol "ct. "ccordingly standard rent means rent as determined
under the pro#isions of such local rent control "ct.
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Prof. Uday Prabhupatkar

II! *or& out 7ent actually recei#ed-recei#able from the tenant.
III! ;ross "nnual #alue is Higher of 7easonable Bxpected 7ent or 7ent actually
7ecei#ed - recei#able.
I:! If howe#er, the rent recei#ed-recei#able is less than the reasonable expected rent and such
lower rent is attributable to a! the house property is #acant for part of the year, b! the
decline in rent recei#ed is solely due to #acancy ( no other factor then following
methodology is applicable
7ent reali,ed is solely because of #acancy, then rent actually recei#ed is ta&en to be ;ross
"nnual :alue. If rent reali,ed is partly due to #acancy ( partly due to other factors then
7easonable expected rent less loss of rent due to #acancy will be treated as ;ross "nnual
#alue. If rent reali,ed is less than the reasonable expected rent and such reduction is on
account of other factors then 7easonable expected 7ent is treated as ;ross "nnual :alue.
The typical schematics for computation of income from let1out House Property is as follows
;ross "nnual :alue xxxxxxx
+ess Cunicipal Taxes paid by the ownerxxxxxxx
8et "nnual :alue .8":! xxxxxxx
+ess
Standard 5eduction D 3@E of 8": u-s 2?.a! xxxxxxx
Interest paid-payable on sum borrowed for
"c/uisition-construction of House Property xxxxxxx
a!able income from House Property !!!!!!
If the taxable income under the head income from House Property is positi#e, it will be
included in ;ross total income of the assessee and will be assessed to tax accordingly.
Howe#er, if the resultant income from house property is negati#e .i.e. +oss! it is a#ailable for
set1off to the assessee and can be set1off against the positi#e income under any other head of
income during the same pre#ious year in terms of Sec.F4.
If the loss under this head can not be so set1off against income under any other head within
the same pre#ious year, then the from ".G. 4HHH12@@@, such unabsorbed loss can be carried
forward to the subse/uent years .up to I ".G.s! and would be a#ailable for set1off against
income from house property only.
") Annual #alue of $eemed Let-out House Property:
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Prof. Uday Prabhupatkar

;ross "nnual #alue of deemed let1out House Property is same as that of let1out house
property except for one element i.e. the amount of rent recei#ed-recei#able is missing ( is not
a#ailable for comparison while determining the gross annual #alue of such house property.
Since deemed let1out means the owner has not actually let1out the house property to a tenant
for rent to be recei#ed but actually the property is &ept #acant or under loc& ( &ey and no other
direct or indirect benefit is deri#ed by the owner in respect of such house property.
"ccordingly, as per the discussion narrated at let1out house property abo#e, ideally a! or b!
whiche#er is higher sub=ect to c i.e. standard rent where#er applicable would turn out to be the
;ross annual #alue of deemed let1out house property.
$eductions a#ailable under the head Income from House Property:
4. Cunicipal taxes paid by the owner are allowed as deduction from ;ross annual #alue
while arri#ing at 8et annual #alue. It is /uite important to note that this deduction is
allowed to the owner and purely on the payment basis i.e deduction is permissible only
if paid within the financial year .pre#ious year!.
2. Standard 5eduction u-s 2?.a!
3@E of 8et "nnual #alue of house property is allowed as deduction while calculating
income under this head. The logic behind granting this deduction is apart from Cunicipal
taxes, the owner has to incur #arious other expenses li&e repairs, maintenance ( up1
&eep of house property, insurance, ground rent, rent collection charges etc. to meet the
cost of such expenses which other wise the owner might ha#e to incur the same are
consolidated under this head and allowed as a deduction in a standardi,ed manner.
3. Interest on 'orrowed capital u-s 2?.b!
If assessee has obtained any loan from a ban&, a public financial institution, a limited
company incorporated with the ob=ect of pro#iding loan for ac/uiring house property or
from his employer for the purpose of ac/uisition or construction of house property or for
carrying out repairs to the house property owned by such assessee. The interest paid
-payable in respect of such loan is allowed as deduction from computation of income
under the head income from house property.
Aollowing points are worth noting while claiming this deduction
In case of one self occupied house property owned ( occupied by the assessee, while
calculating deduction in respect of interest on borrowed capital, following limit would be
applicable 1
If the loan is sanctioned ( disbursed prior to @4.@?.4HHH then the amount
deductible on this account is 7s.3@,@@@-1 per annuam.
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Prof. Uday Prabhupatkar

If the loan is sanction prior to @4.@? 4HHH but disbursed there after or sanctioned
( disbursed after @4.@?.4HHH the amount deductible on this account is
7s.4,2@,@@@-1 pear annum.
In case of +et1out House property, howe#er, the aforesaid limit of 7s.3@,@@@-1 or
7s.4,2@,@@@-1 in respect of interest payable on borrowed capital is not applicable.
In case of interest paid during the construction period, since the house property in
/uestion is not in existence, assessee would not get any deduction on this account.
Howe#er from the pre#ious year in which construction is complete and possession is
obtained by the assessee, the accumulated interest for under construction period is
allowed as a deduction to the extent of 4-2
th
of such accumulated interest in the year of
possession ( for subse/uent four years.




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