House Property

Charging Section

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"

Analysis

a. Property should consist of any building or land appurtenant thereto. Land appurtenant
means land connected with the building like garden, garage etc.

b. Income from letting out of vacant land is outside the ambit of this Section.

c. Assessee must be the owner of the property. Ownership includes both free-hold and
lease-hold rights. The person who owns the building need not also be the owner of the
land upon which it stands.

d. The assessee must be the owner of the house property during the previous year. It is not
material whether he is the owner in the assessment year.

e. The property may be used for any purpose i.e., commercial or residential purpose, but it
should not be used by the owner for the purpose of any business or profession carried on
by him, the profit of which is chargeable to tax.

f. In case of a resident in India (resident and ordinarily resident in case of individuals and
HUF), income from house property situated outside India is taxable, whether such
income is brought into India or not.

g. In case of a non-resident or resident but not ordinarily resident in India, income from
a house property situated outside India is taxable only if it is received in India.

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Annual Value (Section 23)

Particulars Amount Amount

Gross Annual Value XXX

(-) Municipal taxes paid (XXX)

Net Annual Value XXX
Deductions u/s 24

(a) 30% of NAV (XXX)

(b) Interest on Housing Loan (XXX) (XXX)

Income from House Property XXX

Property is let out throughout the previous year

Where the property is let out for the whole year, then the GAV would be the higher of:
a. Expected Rent (ER) and

b. Actual rent received or receivable during the year

Computation of Expected Rent

The Expected Rent (ER) is the higher of fair rent (FR) and municipal value (MV), but restricted
to standard rent (SR). Steps involved for determining ER is

1. FR or MV, whichever is higher

2. Higher of (1) or SR, whichever is lower

Property is vacant for part of the year

Where let out property is vacant for part of the year and owing to vacancy, the actual rent is lower
than the ER, then the actual rent received or receivable will be the Gross Annual Value of the
property

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Self-occupied property or unoccupied property

a. Where the property is self-occupied for own residence or unoccupied throughout the
previous year, its Annual Value will be Nil, provided no other benefit is derived by the
owner from such property.

b. The benefit of “Nil” Annual Value is available only for upto two self-occupied or
unoccupied house properties i.e., for either one house property or two house properties.

c. No deduction for municipal taxes is allowed in respect of such property/ properties as

annual value means value determined after deduction of municipal taxes.

Partly let out and partly self-Occupied

a. The ER for the whole year shall be compared with the actual rent for the let out period
and whichever is higher shall be adopted as the GAV.

b. Municipal tax for the whole year is allowed as deduction provided it is paid by the owner
during the previous year.

Property held as stock-in-trade

a. In such cases, the annual value of such property or part of the property shall be Nil.

b. This benefit would be available for the period upto 2 years from the end of the financial
year in which certificate of completion of construction of the property is obtained from
the competent authority

Municipal taxes
a. Municipal taxes or Property taxes are allowable as deduction from the GAV subject to the
following two conditions:
i. It should be borne by the assessee (owner); and
ii. It should be actually paid during the previous year
b. Irrespective of the previous year in which the liability to pay such taxes arises according
to the method of accounting regularly employed by the owner, the deduction in respect
of such taxes will be allowed only in the year of actual payment by the owner.
c. In respect of self-occupied/unoccupied house property/properties for which “Nil” Annual
Value benefit is claimed, deduction of municipal taxes paid is not allowable.

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Unrealised Rent
1. The Actual rent received/receivable should not include any amount of rent which is not
capable of being realised if the conditions mentioned below are fulfilled.

2. The amount of rent which the owner cannot realise shall be equal to the amount of rent
payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable
where,—

a. the tenancy is bona fide;

b. the defaulting tenant has vacated, or steps have been taken to compel him to vacate the
property;

c. the defaulting tenant is not in occupation of any other property of the assessee;

d. 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.

Deductions u/s 24

Standard Deduction [24(a)]

a. A flat deduction of 30% of NAV is allowed irrespective of the actual expenditure incurred.

b. The assessee will not be entitled to deduction of 30% where the annual value itself is Nil.

Interest on Borrowed Capital [24(b)]

a. Where the property has been acquired, constructed, repaired, renewed or reconstructed
with borrowed capital, the amount of any interest payable on such capital.

b. Interest payable on a fresh loan taken to repay the original loan raised earlier for the
aforesaid purposes is also admissible as a deduction.

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 c. This Interest can be split into three categories

i. Pre-construction Interest
 Pre-construction period is the period prior to the previous year in which
property is acquired or construction is completed.

 PCI can be claimed as deduction over a period of 5 years in equal annual

installments commencing from the year of acquisition or completion of
construction.

ii. Interest during the year of completion of Construction

Interest relating to the year of completion of construction/ acquisition of property
can be fully claimed in that year irrespective of the date of completion/
acquisition.

iii. Post-completion Interest

Interest can be fully claimed in that year.

Quantum of Deduction

1. For Let-out Property

Total interest payable during a previous year is allowed as a deduction.

2. For Self-occupied Property

Conditions Eligibility
The Property is acquired or constructed Actual interest payable in aggregate for
with capital borrowed on or after the 1st one or two self-occupied properties,
day of April, 1999 and such acquisition or subject to maximum of Rs. 2,00,000
construction is completed within five
years from the end of the financial year in
which capital was borrowed.

Other Cases Actual interest payable in aggregate for

one or two self-occupied properties,
subject to maximum of Rs. 30,000

Other Important Points

 The ceiling limit would not apply to let-out/deemed let-out property.

 Deduction under section 24(b) for interest is available on accrual basis. Therefore
interest accrued but not paid during the year can also be claimed as deduction.

 Interest on unpaid interest is not deductible.

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Co-owned Properties

 Section 26 of the Income Tax Act, 1961 contains provisions governing taxability of income
from house properties which are owned by two or more persons.

 Where property is owned by two or more persons, whose shares are definite and
ascertainable, then the income from such property cannot be taxed as income of an AOP.

 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 house property owned by co-owners is let out, the income from such property shall
be computed as if the property is owned by one owner and thereafter the income so computed
shall be apportioned amongst each co-owner as per their specific share.

 Where the house property owned by co-owners is self-occupied by each of the co-owners,
each co-owner shall be entitled to a deduction of Rs. 30,000 / Rs. 2,00,000 as the case may be,
under section 24(b) on account of interest on borrowed capital.

Deemed Ownership
The provisions of Deemed Ownership are contained in Section 27 of the Income Tax Act, 1961. As
per section 27, the following persons, though not legal owners of a property, are deemed to be
the owners for the purposes of section 22 to 26.

a. Transfer to a spouse/Minor Child [Section 27(i)]

In case of transfer of house property by an individual to his or her spouse
 otherwise than for adequate consideration,
 not being a transfer in connection with an agreement to live apart or
 to a minor child not being a married daughter, the transferor is deemed to be the
owner of the transferred property.

b. Holder of an impartible estate [Section 27(ii)]

The holder of an impartible estate shall be deemed to be the individual owner of all the
properties comprised in the estate.

Impartible estate

 The impartible estate is a property which is not legally divisible.

 By virtue of the Hindu Succession Act, 1956, all the properties comprised in an
impartible estate by custom is to be assessed in the status of a HUF

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c. Member of a co-operative society etc. [Section 27(iii)]
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 of the society,
company or association, as the case may be, shall be deemed to be the owner of that building
or part thereof.

d. Property Possession [Section 27(iiia)]

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, shall be deemed to be the owner of that building or part thereof.

This would include cases where the:

1. Possession of property has been handed over to the buyer,

2. Sale consideration has been paid or promised to be paid to the seller by the buyer,

3. Sale deed has not been executed in favour of the buyer, although certain other documents
like power of attorney/agreement to sell/will etc. have been executed.

e. Person having right in a property [Section 27(iiib)]

A person who acquires any rights in or with respect to any building or part thereof, by virtue
of any transaction as is referred to in Section 269UA(f) i.e. transfer by way of lease for not less
than 12 years, shall be deemed to be the owner of that building or part thereof.

Illustration 01
Mr. Vishnu has a property whose municipal valuation is Rs. 1,30,000 p.a. The fair rent is Rs.
1,10,000 p.a. and the standard rent fixed by the Rent Control Act is Rs. 1,20,000 p.a. The property
was let out for a rent of Rs. 11,000 p.m. throughout the previous year. Unrealised rent was Rs.
11,000 and all conditions prescribed by Rule 4 are satisfied. He paid municipal taxes @10% of
municipal valuation. Interest on borrowed capital was Rs. 40,000 for the year. Compute his
income from house property for A.Y.2024-25

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Important Case laws
1. Chennai Properties and Investments Ltd. v. CIT (2015) 373 ITR 673 (SC)

Issue Would rental income from the business of leasing out properties be taxable
under the head “Income from house property” or “Profits and gains from
business or profession”?

Judgement  In Chennai Properties and Investments Ltd. v. CIT (2015) 373 ITR 673, the
Supreme Court observed that holding of the properties and earning income
by letting out of these properties is the main objective of the company.

 The Supreme Court noted that the assessee was engaged only in the
business of renting its properties and earning rental income therefrom and
accordingly, held that such income was taxable as business income.

 The Supreme Court, accordingly, held that such income was taxable as
business income

2. CIT v. NDR Warehousing P Ltd (2015) 372 ITR 690 (Mad)

Issue Under what head of income should income from letting out of godowns and
Provision of warehousing services be subject to tax?

Judgement  The assessee’s activity was not merely letting out of warehouses but storage
of goods with provision of several auxiliary services such as pest control,
rodent control and fumigation service to prevent the goods stored from
being affected by vagaries of moisture and temperature.

 Further, service of security and protection was also provided to the goods
stored.

 The objects clause of the memorandum of the assessee as also the individual
aspects of the business clearly point out that it was a case of warehousing
business, and, therefore, the income would fall under the head “Profits and
gains of business or profession.”

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3. CIT v. Hariprasad Bhojnagarwala (2012) 342 ITR 69 (Guj.) (Full Bench)

Issue Can benefit of self- occupation of house property u/s 23(2) be denied to a HUF
on the ground that it, being a fictional entity, cannot occupy a house property?

Judgement  HUF is a group of individuals related to each other i.e., a family comprising
of a group of natural persons.

 The said family can reside in the house, which belongs to the HUF.

 Since a HUF cannot consist of artificial persons, it cannot be said to be a

fictional entity. Therefore, the HUF is entitled to claim benefit of self-
occupation of house property u/s 23(2).

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