Computation of income from house property

Presentation on computation of income from house property for the benefit of students of Income tax. Useful material for undergraduate students of commerce faculty. It covers most of the important section of Income tax act applicable for computation of Income from house Property.

1. COMPUTATION OF INCOME FROM HOUSE PROPERTY
Presentation on computation of income from
house property
For students of Income tax
Presented by – Dr. Sanjay P Sawant Dessai
Associate Professor
VVM’s Shree Damodar College of Commerce
and Economics Margao Goa
[email protected]

2. COMPUTATION OF INCOME FROM HOUSE
PROPERTY
•Sections:
•Definition of Annual Value u/s. 2(2).
• 22 Chargeability
• 23 Computation of annual value
• 24 Deductions available
• 25 deductions not allowed
• 25(AA) unrealised rent of previous year 2001-02 (or
subsequent years ) is collected subsequently
• 25(B) Mode of taxation of arrears of rent in the year of
receipt
• 26 Property owned by co-owners
• 27Deemed owner
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3. Annual Value u/s. 2(2)
•Annual value of house property (U/s 23) – It is
the annual value of house property which is
charged to tax after allowing certain
deductions therefore
•Annual value of property consisting of any
building or land appurtenant thereto except
such property which is used by assessee for
the purpose of business and profession.
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4. Section 22 Basis of charge
Income is taxable under head “Income from
house property ” if following conditions are
satisfied
1.The property should consist of any building or
lands appurtenant thereto. (land attached to
building )
2.The assessee should be owner of the property.
3.The property should not be used by the owner for
the purpose of any business or profession carried
on by him, the profits of which are chargeable to
tax .
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5. DETERMINATION OF ANNUAL VALUE
This is the inherent capacity of the property to earn income and it
has been defined as the amount for which the property may
reasonably be expected to be let out from year to year.
It is not necessary that the property should actually be let out.
 It is also not necessary that the reasonable return from property
should be equal to the actual rent realized when the property is, in
fact, let out.
Where the actual rent received is more than the reasonable return,
it has been specifically provided that the actual rent will be the
annual value.
Where, however, the actual rent is less than the reasonable rent,
the latter will be the annual value.
The municipal value of the property, the cost of construction, the
standard rent, if any, under the Rent Control Act, the rent of similar
properties in the same locality, are all pointers to the determination
of annual value.
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6. Computation of Gross annual value
sec 23 (1)
•Step 1- find out
reasonable expected rent of the property
•Step 2-find out actual rent received or receivable
after deducting unrealised rent but before
deducting loss due to vacancy
•Step 3- find out which one is higher – among
computed in step 1 and 2
•Step 4- find out loss because of vacancy
•Step 5-step 3 minus step 4 is gross annual value
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7. Computation of gross annual value (illustration)
Municipal value 120000
Fair rent
(whichever higher of the MR &FR is reasonable expected rent )
115000120000
Standard rent ( Reasonable rent cannot exceed SR (wherever
rent control Act applicable
125000
Step I Reasonable expected rent
(Municipal value or fair rent , whichever is higher, but subject
to maximum of standard rent )
120000
Step II Rent received / receivable after deducting unrelised
rent of current previous year (132000- 2000)
1,30000
Amount computed in step I and II , whichever is higher 1,30,000
Less, Loss due to vacancy 11000
Gross annual value 119000
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8. Calculation of gross annual value
A B
Gross annual value
1. Reasonable expected rent (higher of
MR/FR not exceeding SR)
A) Municipal valuation
B) Fair rent
C) Standard rent
2. Actual rent ( Annual rent)
Less Unrealised rent
3. Higher of the above (1 &2)
Less loss due to vacancy
Gross annual value
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9. Reasonable expected rent
•Reasonable expected rent is deemed to be the sum for
which the property might reasonably be expected to
be let out for year to year.
•In determining reasonable rent, several factors have
to be taken into consideration, such as
•Location
•Annual ratable value fixed by the municipalities
•Rent of similar properties in neighborhood,
•Rent which property likely to fetch having regard to-
•Demand and supply
•Cost of construction of the property and
•Nature and history of the property
Back
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10. Reasonable expected rent
•In majority cases, reasonable rent can be
determined by taking into consideration the
following factors
•Municipal valuation of property
•Fair rent of the property
The higher of the above is generally taken as
reasonable expected rent
Note – If property is covered by rent control Act,
then the amount so computed cannot exceed the
standard rent.
Back
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11. COMPUTATION OF INCOME FROM
LET OUT HOUSE PROPERTY
•Income from house property is determined as under:
•Gross Annual Value xxxxxxx
•Less: Municipal Taxes xxxxxxx
•Net Annual Value xxxxxxx
•Less: Deductions under Section 24
•- Statutory Deduction (30% of Net Annual Value) xxx
•- Interest on Borrowed Capital xxx
•Income From House Property xxxxxx
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12. COMPUTATION OF INCOME FROM
LET OUT HOUSE PROPERTY (illustration)
Income from house property is determined as under:
Gross Annual Value 2,00,000
Less: Municipal Taxes 25,000
Net Annual Value 1,75,000
Less: Deductions under Section 24
Statutory Deduction (30% of NAV) 52500
Interest on Borrowed Capital 30,000
82,500
Income From House Property 92,500
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13. Deduction under head income from house property
( Let out and deemed to be let out ) Sec 24
1.Sum equal to 30 percent of net annual value
2.Interest on housing loan – if property is
acquired, constructed, repaired with borrowed
funds, the amount of interest payable on such
borrowings will be allowed as deduction
(Deduction is allowed on accrual basis)
3.Pre construction interest – will also be
deductible in five equal installments
commencing from the previous year in which
such property is constructed or acquired
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14. Amount not deductable (u/s 25)
•Deductions in respect of interest on borrowed
funds will not be allowed as deductions, if
such amount are payable outside India, and
no tax has been paid or deducted at source or
no person is taxable as agent in India in
respect of such amount of interest.
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15. Recovery of unrealized rent of AY
2002-03 and subsequent years
•The amount realized shall be charged to tax as
the income of the previous year in which such
rent is realized, whether or not the assessee is
the owner of that property in the previous
year.
•No deductions shall be allowed for such
unrealized rent received.
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16. Arrears of rent received (u/s 25 B)
•Any amount received by way of arrears of rent
from property, which is not being charged to
income tax in any previous year, then the
amount so received as arrears of rent, will be
charged to income tax as income of the previous
year in which such rent is received under head
income from house property, whether the
assessee is the owner of that property in that
year or not.
•However a deduction is allowed in respect of 30
percent of such amount received as arrears of
rent.
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17. Property owned by co –owners (u/s 26)
•Where house property is owned by two or
more persons and there respective share are
defined and ascertainable, such person shall
not be assessed in respect of such property as
an AOP but the share of each co-owner, in the
income of house property, will be included in
his total income
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18. Deemed owners
•Section 27 provides that following will be
deemed owner of the house property for the
purpose of charging tax on Annual Value.
•i) Transfer to spouse or minor child
•ii) Holder of impartible estate
•iii) Property held by a member of Co-operative
Society
•iv) Person who has acquired a property under
Power of attorney transaction
•v) Person who has acquired the Right in Property
u/s 269 UA (Property held on lease exceeding
12 years)
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19. Set off and carry forward of loss
•Loss from house property shall be set off
against income under the same head or any
other heads of income in the same year,
Thereafter, if there is a loss remaining
unadjusted, such unadjusted loss can be
carried forward and set off in subsequent
years subject to a limit of 8 assessment years
against income from house property.
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20. Income from self occupied house
property
•Where property consist of only one house or a
part of house which is occupied be the owner
for his own residence, the annual of such a
house (or a part of house) shall be taken as nil.
However, the following two conditions must
be satisfied ;
•The property or part thereof is not let out
actually during any part of the previous year,
and
•No benefit is derived from such property
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21. Deductions available for self
occupied house property
Interest on borrowed capital for self occupied property –
The deduction in respect of interest on borrowed fund is
Rs 1,50,000
Conditions
The house property is acquired or constructed with capital
borrowed on or after 1
st
April 1999
The acquisition or construction of the house is completed
within three years from end of the financial year in which
capital was borrowed
Loan should be taken for acquisition or construction and
not for repairs , renewals, reconstruction etc. ( for repairs,
renewals and reconstruction purpose Rs. 30,000 only )
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22. Deemed to be let out house
property
•If person has occupied two or more houses for
his residential purpose, in that case only one
house according to his choice is treated as self
– occupied and all other houses will be
treaded as deemed to be let out house and all
deductions as are applicable to let out
property would be allowed.
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23. Set off of loss from self occupied
house property
•Loss can be set off against the income of the
assessee under the same head of income or
any other income of the assessee for the same
assessment year
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