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Taxability of Income from House Property

The inherent capacity of the property to earn income called the Annual Value of the property is taxable under the head "House Property". This is taxed in the hands of the owner of the property

Computation of Annual Value:

The Gross Annual Value (G.A.V.) is the highest of

  1. Rent received or receivable
  2. Fair Market Value.
  3. Municipal valuation.

(If however, the Rent Control Act is applicable, the G.A.V. is the standard rent or rent received, whichever is higher).

It may be noted that if the let out property was vacant for whole or any part of the previous year and owing to such vacancy the actual rent received or receivable is less than the sum referred to in clause (a) above, then the amount actually received/receivable shall be taken into account while computing the G.A.V. If any portion of the rent is unrealisable, (condition of unrealisability of rent are laid down in Rule 4 of I.T. Rules) then the same shall not be included in the actual rent received/receivable while computing the G.A.V. Net Annual Value (N.A.V.) is the GAV less the municipal taxes paid by the owner, provided the taxes were paid during the year.

Annual Value is the N.A.V. less the deductions available u/s 24.

Deductions available under Section 24:

  1. A sum equal to 30% of the annual value as computed above.
  2. Interest on money borrowed for acquisition/ construction/ repair/ renovation of property is deductible on accrual basis. Interest paid during the pre construction/acquisition period will be allowed in five successive financial years starting with the financial year in which construction/acquisition is completed subject to the following:
    1. The amount of deduction shall not exceed Rs. 30000/-.
    2. Where the propertyis acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed, the amount of deduction shall not exceed Rs. 150000/-.

Some Important Points:

In case of a self occupied property, the annual value is taken as nil. Deduction u/s 24 for interest paid may still be claimed therefrom. The resulting loss may be set off against income under other heads but can not be carried forward.

If more than one property is owned and all are used for self occupation purposes only, then any one can be opted as self occupied, the others are deemed to be let out.

Annual value of one house away from workplace which is not let out can be taken as NIL, provided that it is the only house owned and it is not let out.

If a let out property is partly self occupied or is self occupied for a part of the year, then the value in proportion to the portion of self occupied property or period of self occupation, as the case may be is to be excluded from the annual value.

From assessment year 1999-2000 onwards, an assessee who apart from his salary income has loss under the head ”Income from house property”, may furnish the particulars of the same in the prescribed form to his Drawing and Disbursing Officer who shall then take the loss also into account for the purpose of TDS from salary.

As per section 25B, where an assessee, being the owner of any property consisting of any building or lands appurtenant there to which may have been let to a tenant, receives any arrears of rent not charged to income tax for any previous year, then such arrears shall be taxed as the income of the previous year in which the same is received after deducting therefrom a sum equal to 30% of the amount of arrears in respect of repairs/collection charges.

It may be noted that the above provision shall apply whether or not the assessee remains the owner of the property in the year of receipt of such arrears.

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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The visitors may visit the web site of Income Tax Department for resolving their doubts or for clarifications.

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