Guide and Frequently Asked Questions on
Income from House property

Under the Income-tax Act, the owner of a house property (consisting of any building or land appurtenant thereto) is taxed on the income in the form of its annual value under the head "Income from house property".

It is therefore clear that following conditions must be satisfied before the rental income from property can be taxed under this head-

  1. The property must consist of buildings or lands appurtenant thereto;
  2. The assessee must be the owner of such property;
  3. The property may be used by the owner for any purpose but any portion of such property shall not be used by the owner for the purposes of business or profession carried on by him, the profits of which are chargeable to tax.

Basis of Computation of Income from house Property

1. Gross Annual Value (Section 23):
  1. Reasonable expected rent and is deemed to be the sum for which the property might reasonably be expected to be let out from year to year;
  2. Rent actually received or receivable, if this sum is in excess of the sum referred to in clause (a), then the amount so received or receivable;
  3. If due to vacancy during the whole or part of the year, the actual rent received or receivable is lower than the reasonable expected rent, then such rent is taken as the Gross Annual Value.

Unrealized rent (which the owner could not realize) shall be excluded from rent received or receivable in clauses (a)&(b), above.{Expln. To section 23(1)]

However, if the owner is in self occupation of the house property for his residential use, or cannot actually occupy it owing to his employment, business or profession carried on at any other place and he has to reside in a building not owned by him, then the annual value of such house shall be taken to be Nil.

2. Deduct municipal taxes- From the Gross annual value, deduct municipal taxes (including service tax) levied by any local authority, only if these taxes are borne by the owner and actually paid by him during the previous year.

3. Deduction under section 24-

The following two deductions are available u/s 24:

(a)Standard deduction- 30% of the net annual value irrespective of any expenditure incurred by the taxpayer;

(b)Interest on borrowed capital is allowed as deduction on accrual basis if capital is borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of house property.

For self-occupied house, deduction is allowable on capital borrowed for acquiring or constructing a house property, and the construction, acquisition is completed within 3 years from the end of the financial year in which the capital was borrowed and further that the person extending the loan certifies that such interest was advanced for acquisition or construction of the house property or as re-finance of the principal amount outstanding under an earlier loan. The maximum amount of deduction allowable is as stated below :

Frequently Asked Questions

What do you mean by 'Income from House Property'?
Unlike the other heads of income, Income from house property is a notional income based on a concept called 'Annual value'. This is the value a property is expected to fetch if it is let out. It may be more than the actual rent being received if let out. If it is not let out the expected market/fair rent will be considered as 'annual value' for the purpose of taxation. Property includes the building and the land surrounding it.
If a property is not a residential house, can its income still be considered as income from house property?
Yes, provided the property is not used for business purpose.
What are the conditions for taxing income from a property under this head?
The person should own the property.
Can interest paid on hand loans taken from friends and relatives be claimed as deduction while calculating house property income?
Yes.
I have two houses. One is a farmhouse that I visit on weekends and the other is in the city that I use on weekdays. Is it correct to treat both these residences as self occupied?
No. You can claim any one as self occupied. Incomes from buildings situated in or near agricultural farm are considered exempt provided they are used for dwelling of the farm owner/cultivator or for related purposes of storage etc.
I own two houses both of which are occupied by my family and me. Is there any tax implication?
Yes. As already mentioned in earlier question, income from house property is a notional income and only in respect of one residential unit, if self occupied, it will be considered as 'nil'. In case of the other residential unit, marketable rental value will have to be offered for tax.
My spouse and I are joint owners of a house constructed by availing housing loan separately. Are we both individually/separately entitled for deduction of the maximum interest payable of Rs.1.5 lakh?
No. The net taxable income from the property must be calculated first and then apportioned between the co-owners. In this process of calculation maximum interest payable of Rs.1.5 lakh can be considered only once.
My spouse and I jointly own a house for construction of which both of us have invested equally out of independent sources. Can the rental income received be split between us and taxed in the individual hands?
Yes.
I have 5 separate let out properties. Should I calculate the house property income separately for each individual property or by clubbing all the rental receipts in one calculation?
The calculation will have to be made separately for the various properties.

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