Income from house property

Objectives & Agenda :

One of the heads of income under the Income Tax Act is Income from House Property. Under this head, incomes earned from house properties are chargeable to tax. The webinar covers the aspects of basis of charging income to tax under this head, nature of house properties taxed under the Act, manner of computing income chargeable to tax under this head, deductions available under this head and eventually judicial precedents pertaining to this head of income.

1. Income from House Property CA. Divakar Vijayasarathy

2. Credits and Acknowledgments Sundar Rajan S CA Jugal Gala

3. Legends used in Presentation Act Income Tax Act, 1961 AO Assessing Officer AR Actual Rent AY Assessment Year COC Certificate of Completion ER Expected Rent FR Fair Rent FY Financial Year GAV Gross Annual Value IFHP Income from House Property IFOS Income from Other Sources MV Municipal Value PGBP Profits and Gains from Business or Profession Rule Income Tax Rules, 1962 SR Standard Rent

4. Presentation Schema

5. Meaning of Relevant Terms

6. Contd.

7. Basis of Charge – Section 22 * With effect from AY 2020-21. Prior to that, only one year shall be allowed

8. Computation of IFHP Particulars Amount (INR) Amount (INR) Gross Annual Value XXX Less: Municipal taxes paid (XXX) Net Annual Value XXX Less: Deductions under section 24: i. Standard deduction – Sec. 24(a) 30% of NAV (XXX) ii. Interest on borrowed capital – Sec. 24(b) (XXX) Income from House Property XXX

9. Types of House Property Property given for rent by the owner to the tenant Property used by the owner for own residence Property owned by the assessee is deemed to be given on rent

10. Gross Annual Value – Section 23 Type of House Property Determination of Gross Annual Value (GAV)

11. Contd. Type of House Property Determination of Gross Annual Value (GAV) * With effect from AY 2020-21. Prior to that it shall stand as 1 year/ property as the case may be.

12. Illustration Particulars House-1 House-2 Municipal Value Rs.90,000 Rs.55,000 Fair Rent Rs.75,000 Rs.65,000 Standard Rent Rs.85,000 NA Actual Rent Rs.80,000 (for 8 months) Rs.45,000 (for 9 months) Mr. D owns 2 houses. House-1 remained vacant for 4 months and House-2 was vacant for 3 months. Compute the GAV of both the houses for the AY 2019-20 with the details provided below.

13. Solution S. No. Particulars House-1 House-2 1 Higher of MV and FR 90,000 65,000 2 SR 85,000 NA 3 ER (Lower of 1 and 2) 85,000 65,000 4 AR (consider for 12 months) 1,20,000 (80000*12/8) 60,000 (45000*12/9) 5 GAV (Higher of 3 and 4) 1,20,000 65,000 6 Less: Vacancy loss (if AR=GAV) (40,000) [80000*4/8] NA 7 Actual GAV [(5) – (6)] 80,000 65,000 In case of House-1, AR for let out period (Rs. 80,000) is < ER owing to vacancy Computation of GAV for the AY 2019-20 But, in case of House-2, even if the House had not remained vacant, the AR would have still been < ER (60,000 < 65,000) Hence, GAV = AR (in case of House-1) and GAV = Higher of ER and AR for the let out period (in case of House-2)

14. Determination of Net Annual Value

15. Rule 4 Unrealised rent shall be reduced from GAV if the following conditions are satisfied

16. Deductions – Section 24 Deductions from Net Annual Value Let out and deemed let out property Self occupied property Standard deduction@30% -Sec. 24(a) Interest on borrowed capital- fully allowed – Sec. 24(b) For repair renewal or reconstruction Acquisition or construction Interest on borrowed capital - Sec. 24(b) Maximum Rs.30,000 in aggregate* Before 01/04/1999 On or after 01/04/1999 Acquisition or construction completed within 5 years from end of FY in which loan borrowed + certificate from lender specifying interest payable NO Maximum of Rs. 2,00,000 in aggregate* YES * Aggregate = Consideration of two self-occupied properties (if any) together

17. Interest on Borrowed Capital Interest under Sec 24(b) allowed as deduction on accrual basis I nterest pertaining to the FY prior to year of completion of construction or acquisition of property

18. Inadmissible Deduction – Section 25

19. Provisions for Arrears of Rent and Unrealised Rent – Section 25A

20. Income from Co-owned Property – Section 26 Self – occupied property Let out property The annual value of the property for each co-owner is considered as Nil Treated as one property for computation of IFHP Each co-owner is entitled to claim deduction on interest on borrowed capital u/s 24(b) IFHP is then apportioned on the basis of specific share of each co-owner In case of a co-owned property where the share of co-owners are determinate, then income of each co-owner is taxed separately under IFHP Co-owned property shall mean the property held by two or more persons together on a proportionate share in such property

21. Deemed Ownership – Section 27 The following persons are considered as deemed owners of the house property and IFHP is computed in the hands of such persons

22. Section 53A of Transfer of Property Act, 1882 The following cases shall be considered as part performance contract under Section 53A of Transfer of Property Act, 1882 In all the above cases, the buyer is deemed to be the owner of the property though the property is not registered in his/ her name

23. Exceptions to Section 27

24. Tax Treatment of Composite rent

25. Caveats

26. Amendments in Finance Act, 2019

27. Judicial Precedents

28. Contd.

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