Chapter 5 : Income from House

Property (Section 22 to 27)

Advance Direct Tax and Service Tax

[Sub code : 441]
 Learning Objectives
Income from House Property
Annual Value How Determined (Section 23)
Deductions from Income from House Property
Amounts not Deductible from Income When no
TDS Effected (Section 25)
Property Owned by Co-Owners
How to Compute Tax on House Property?
Exemptions

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 Introduction
Section 22 of the Income Tax Act, 1961 requires that annual
value of any property consisting of any buildings or lands
appurtenant thereto, of which the Assessee is the owner, shall
be taxable.
For being so taxed, the assessee must be the owner of such
property.
If a property is occupied by an assessee for the purposes of any
business or profession carried on by him, the profits of which are
chargeable to income-tax, its annual value shall not be taxable
under the head Income from House Property.
The levy of tax while taxing the income from House
Property is on the income from the property and not on the
property itself.

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INCOME FROM HOUSE PROPERTY [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".
What is charged under section 22 is the annual value of the
ownership of the property irrespective of the fact whether or
not any income was either actually received or had accrued to
the assessee.
When any property is mortgaged or a loan is obtained under
security of the property, its income computed as Prescribed
would be liable to be taxed.

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ANNUAL VALUE - HOW TO DETERMINED [Section 23]
The annual value of any property shall be deemed to be
Self occupied house or non-occupation by reason of
employment, business or profession :
Annual Value will be NIL
Where the non-occupied house is let out:
Annual value will be the Actual Rent Realized after
giving adjustment specified under the act.
Where the Assessee owns more than one house:
Annual value of any one house will be NIL, and for every
other house it will be calculated as if they are deemed to
be let out.

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 Unrealized Rent
The unrealized rent shall be that amount of rent payable
but not paid by a tenant of the assessee and so proved to
be lost and irrecoverable where:
the tenancy is bona fide;
the defaulting tenant has vacated, or steps have been taken
to compel him to vacate the property;
the defaulting tenant is not in occupation of any other
property of the assessee;
the assessee has taken all reasonable steps to institute legal
proceedings for the recovery of the unpaid rent or satisfies
the Assessing Officer that legal proceedings would be
useless

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DEDUCTIONS FROM INCOME FROM HOUSE PROPERTY
Standard Deduction:
A lump sum standard deduction of 30% of the annual value
Deduction towards Interest Payable:
Up to Rs.30,000/- for the Loans before 01/04/99
Up to Rs.1,50,000/- for the Loans after 01/04/99
(However, such acquisition/construction is completed in 3 years from the
end of the financial year in which capital was borrowed)

Where the property has been acquired or constructed with borrowed

capital, the interest, payable on such capital borrowed for the period prior
to the previous year in which the property has been acquired or
constructed, shall be deducted in equal installments for the said previous
year and for each of the four immediately succeeding previous years

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Unrealized Rent received subsequently
Where the assessee cannot realise rent from a
property let to a tenant and subsequently the
assessee has realised any amount in respect of such
rent, the amount so realised shall be deemed to be
income chargeable under the head "Income from
house property" and accordingly charged to income-
tax as the income of that previous year in which such
rent is realised whether or not the assessee is the
owner of that property in that previous year.

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 Special provision for arrears of rent received
[Section 25B]
Where the assessee-
is the owner of any property consisting of any buildings or
lands appurtenant thereto which has been let to a tenant; and
has received any amount, by way of arrears of rent from such
property, not charged to income-tax for any previous year,

the amount so received, after deducting a sum equal to

thirty per cent of such amount, shall be deemed to be the
income chargeable under the head "Income from house
property as the income of that previous year in which such
rent is received, whether the assessee is the owner of that
property in that year or not.

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 PROPERTY OWNED BY CO-OWNERS
Section 26 provides that where property consisting of
buildings or buildings and lands appurtenant thereto 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 (AOP),
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.
Where the shares of the co-owners are not definite and
ascertainable, the annual value of such property shall be
assessed as an association of persons (AOP) jointly. Here, the
benefit of deduction under the law is available only to the
AOP and not to each co-owner.

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 Owner of House Property
For the purposes of sections 22 to 26 the owner of the property
under various situations described below shall be
an individual shall be considered as owner of the property
transferred if it is transferred to spouse otherwise than for
adequate consideration
the holder of an impartible (indivisible) estate (i.e. group of
assets left by a deceased person)
a member of a co-operative society, company or other
association of persons to whom a building or part thereof is
allotted or leased under a house building scheme
a person who is allowed to take or retain possession of any
building or part thereof in part performance of a contract of the
nature referred to in section 53A of the Transfer of Property Act,
1882
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 Tax on House Property Income
There is no special rate of tax in respect of Income from
House Property
Tax on Income from House Property is chargeable at the
normal rates
The losses under Income from House Property are available
for being set off against income from other sources under
the same head [Section 70]
The loss still remaining is eligible to be set off against other
heads of Income in the same year [Section 71]
If such loss still remains unabsorbed, it may be carried
forward to following years to be set off against Income
from House Property of subsequent eight years [Section 71
B]
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 Exemptions
The following items of Income from House Property are
Exempted from Income Tax
Income from house property situated in the immediate
vicinity of or on the Agriculture Land ,
Income from house property held under trust for charitable or
religious purpose,
Income from property occupied by the owner for the purpose
of his business and profession and profits of which are
chargeable to income tax,
Income from house property belonging to a Registered Trade
Union
Income derived from the letting of godowns or warehouses
for storage, processing or facilitating the marketing of
commodities,

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 Contd
The annual value of any one Palace in the occupation of an
ex-ruler,
Income from house property belonging to a local authority,
Income from property of the approved scientific research
association subject to fulfillment of certain conditions,
Income from property of a games association,
Income from property in case of a person resident of
Ladakh,
Income from property of a Political Party,
Income from property of an authority constituted for the
purpose of planning, development or improvement of
cities, town and villages
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