Income from House

Property
Property

Income

Taxable under
Income Tax
Act
 Property Income

Rental Notional
Income Income
 Assessee should
be the owner of
the property
Property
Property should
consists of
not be used for
Buildings and
the purpose of
lands
business or
appurtenant
profession
thereto

Basis of
charge
Condition 1-Property consists of Buildings and
Lands appurtenant thereto

• Flats, shops, residential

Building houses, godowns, hotel
building

Lands • Courtyards,
Backyards,
appurtenan Garage, Parking
t spaces

• Not taxable
Vacant Land under IHP –
Why?
Apply Your Mind……….

Mr. X has one big house. It includes vast open area

within its boundaries. The house has been let out
at a rent of Rs. 1,00,000 p.m., out of which rent of
Rs. 25,000 p.m. is attributable to the open land.
What will be the income from House Property?
 Condition 2- Assessee should be the owner of
the property

Who is considered as owner

Property may be given to a third party either for

residential purposes or for business purposes

Is Income from subletting taxable under this head?

Condition 3- Property should not be used for the
purpose of business or profession

Y owns a building It is used by him for carrying on business

or is used as his office, factory, godown

The employer company is providing residential

quarters to the workers within the factory campus

Use for business must be by owner

Running a Hotel in a Building v/s Hotel building let out

 Some Typical Cases

Co - Ownership

Property held as stock in trade

 Types of
Property

Self -
Let Out
Occupied
Computation of Income from a Let Out
House Property
Particulars Rs
Gross Annual Value xxxxx
Less: Municipal Taxes -------
Net Annual Value xxxxx
Less: Specific Deductions u/s 24
1. Standard Deduction ------
2. Interest on Borrowed Capital ------
Income from House Property xxxxx
Gross Annual Value
Notional Actual
Rent Rent

Step 1: Step 2: Step 3:

Reasonable Actual Rent Higher of Step 1
Expected Rent received or Step 2

Step 4:
Step 5:
Find Loss due
GAV= Step 3- Step 4
to vacancy
Step 1: Reasonable Expected Rent (RER)

Municipal (c) = (a) Or (b)

Fair Rent
Valuation whichever is
(b)
(a) higher

RER = (c) or (d)

Standard Rent
whichever is
(d)
lower
 Illustration – Find Out Reasonable Expected
Rent

Case 1 Case 2 Case 3

Municipal Valuation 40 lacs 40 lacs 40 lacs
(a)
Fair Rent (b) 46 lacs 48 lacs 51 lacs

(c) =(a) orRent

Standard (b) w.i.h.
(d) 46
45lacs
lacs 48 lacs
35 lacs 63
51 lacs
lacs

Reasonable 45 lacs 35 lacs 51 lacs

Expected Rent[(c)
or (d) w.i.l]
 Step 2: Actual Rent Received
Rs

Annual Rent of the previous year for which -------

the property is available for letting out

Less: Unrealized Rent of only current -------

previous year
Actual Rent actually received xxxxx
 Step 3:
Consider Step 4: Loss Step 5: GAV
higher of due to (Step 3- Step
Step 1 and vacancy 4)
Step 2
Illustration
Calculate the Gross Annual Value in the following cases for P.Y. 2020-21

Particulars (Value in Rs. Lacs) Case A

Municipal Value (a) 60
Fair Rent (b) 62 (a) or (b) w.i.h.= 62 (c)
Standard Rent (d) 62 Step 1: RER= (c) or (d) w.i.l. = 62
Annual Rent 67
Unrealized Rent of P.Y. 2020-21 2 Step 2: Actual Rent= 67 -2 = 65
Unrealized Rent of P.Y. 2019-20 3 Step 3: Step 1 or Step 2 w.i.h = 65
Loss due to vacancy 1
Step 4: Loss of vacancy = 1

Gross Annual Value= Step 5: Step 3- Step 4 = 64

Illustration
Calculate the Gross Annual Value in the following cases for P.Y. 2020-21

Particulars (Value in Rs. Lacs) B C D E

Municipal Value 60 60 112 112
Fair Rent 68 68 117 117
Standard Rent 62 70 115 115
Annual Rent 67 73 121 110
Unrealized Rent of P.Y. 20-21 6 5 50 40

Unrealized Rent of P.Y. 19-20 4 5 10 10

Loss due to vacancy 1 1 1 -

Gross Annual Value 61 67 114 115
Illustration
Find out GAV in the following case for 2020-21

Particulars X
Step 1: RER = 60,000
Municipal Value 61,000
Fair Rent 1,08,000 Step 2: Actual Rent = 96,000
(5000*3) + (9000 *9)
Standard Rent 60,000
Rate of Rent : Step 3: Step 1 or 2 w.i.h. = 96,000
(1.4.2020 – 30.6.2020) 5,000 pm
(1.7.2020– 31.03.2021) 9,000 pm Step 4: Loss of Vacancy = 27,000
(9000*3)
Vacancy Period (3 1.1.2021-
months) 31.3.2021
Step 5: Step 3 – Step 4= 69,000
(GAV)
Computation of Income from a Let Out
House Property
Particulars Rs
Gross Annual Value xxxxx
Less: Municipal Taxes -------
Net Annual Value xxxxx
Less: Specific Deductions u/s 24
1. Standard Deduction ------
2. Interest on Borrowed Capital ------
Income from House Property xxxxx
 Gross Net
Annual Municipal
Annual
Value Taxes
Value

 Municipal taxes are deducted only if:

These taxes are borne by the owner

They are actually paid by the owner during the previous
year
Illustration
Calculation of Net Annual Value in the following cases for P.Y.
2020-21
X owns 3 house properties situated in Delhi. The particular of the
houses are as under:
Particulars House I House II House III
Municipal Value 1,20,000 72,000 60,000
Fair rent 1,50,000 75,000 75,000
Standard rent 1,30,000 80,000 72,000
Actual rent (per annum) 1,40,000 84,000 63,000
Municipal taxes Rs.12,000 (due Rs. 8,000 for Rs.60,000 (It
but not paid) last year paid includes
in this year and Rs.54,000 paid
Rs.9,000 of as advance for
current year next 9 years)
due but not
paid
 House 1 House 2 House 3

Step 1: Reasonable 1,30,000 75,000 72,000

Expected Rent
Step 2: Actual Rent 1,40,000 84,000 63,000

Step 3: Step 1 or Step 2 1,40,000 84,000 72,000

whichever is higher
Step 4: Loss of vacancy NA NA NA

Step 5: GAV (3 – 4) 1,40,000 84,000 72,000

Less: Municipal Taxes NA 8,000 60,000

Net Annual Value (NAV) 1,40,000 76,000 12,000

Computation of Income from a Let Out
House Property
Particulars Rs
Gross Annual Value xxxxx
Less: Municipal Taxes -------
Net Annual Value xxxxx
Less: Specific Deductions u/s 24
1. Standard Deduction ------
2. Interest on Borrowed Capital ------
Income from House Property xxxxx
Specific Deductions u/s 24

Standard Deduction- Why Claimed

30% of Net Annual Value

It is deductible irrespective of any

expenditure incurred by the
taxpayer
Illustration Calculate Income from House Property

X Y
Municipal Value 1,20,000 1,20,000
Fair Rent 1,30,000 1,30,000
Standard Rent 1,10,000 1,10,000
Annual Rent 1,26,000 1,26,000
Unrealized rent of P.Y. 2020-21 10500 Nil
Loss Due to vacancy 10500 Nil
Municipal Taxes of P.Y. 2020-21
Paid by X and Y during 2020-21 17000 8000
Paid by X and Y after 31.3.2021 1000 1000
Paid by tenants during 2020-21 Nil 9000
 X Y

Step 1: Reasonable 1,10,000 1,10,000

Expected Rent
Step 2: Actual Rent (Annual 1,15,500 1,26,000
Rent – Unrealised Rent)
Step 3: Step 1 or Step 2 1,15,500 1,26,000
whichever is higher
Step 4: Loss of vacancy 10,500 NA

Step 5: GAV (3 – 4) 1,05,000 1,26,000

Less: Municipal Taxes 17,000 8,000

Net Annual Value (NAV) 88,000 1,18,000

Less: Specific Deduction 26,400 35,400

1. Standard Deduction
(30% of NAV) 61,600 82,600
INCOME FROM PROPERTY
Computation of Income from a Let Out
House Property
Particulars Rs
Gross Annual Value xxxxx
Less: Municipal Taxes -------
Net Annual Value xxxxx
Less: Specific Deductions u/s 24
1. Standard Deduction ------
2. Interest on Borrowed Capital ------
Income from House Property xxxxx
Specific Deductions u/s 24

Interest on Borrowed Capital

For Purchase, Construction, Repair, Renewal or

Reconstruction of property

Deductible on accrual basis

Interest on unpaid interest not deductible
Interest on fresh loan taken to repay the original loan
No maximum ceiling on interest deduction
Illustration: R owns a house property in Delhi. From the
particulars given below compute the income from house
property for the assessment year 2021-22
Municipal value 2,00,000
Fair rent 2,52,000
Standard rent 2,40,000
Actual rent (per month) 23,000
Municipal taxes 20% of municipal value
Municipal taxes paid during the year 50% of tax levied
Expenses on repairs 20,000
Insurance premium 5,000
R had borrowed a sum of Rs 12,00,000 @ 10% p.a in 2017
and the loan is still not repaid
Income from House Property of Mr. R Amount (Rs)
Step 1: Reasonable Expected Rent 2,40,000
Step 2: Actual Rent (23000 *12) 2,76,000
Step 3: Step 1 or Step 2 w.i. higher 2,76,000
Step 4: Loss of vacancy NIL
Step 5: Gross Annual Value (3 – 4) 2,76,000
Less: Municipal Taxes 20,000
50% of (20% of 2,00,000)
Net Annual Value (NAV) 2,56,000
Less: Specific Deductions : 76,800
1. Standard Deduction (30% of NAV)
2. Interest on Borrowed Capital 1,20,000
(10% of 12,00,000)
INCOME FROM HOUSE PROPERTY 59,200
Illustration 1: R owns 3 house properties situated in
Delhi. The particular of the houses are as under:
C House I House II House III
Municipal Value 1,00,000 1,50,000 2,00,000
Fair rent 1,40,000 1,80,000 2,40,000
Standard rent 1,20,000 2,00,000 ----
Actual rent(per 12,000 17,500 21,000
month)
Period of vacancy Nil 1 month 6 months
Municipal taxes for 20% of 40,000 50,000
the year municipal
value
Municipal tax paid 20,000 80,000 30,000
during the year
Income from House House I House II House III
Property of Mr. R
Step 1: RER 1,20,000 1,80,000 2,40,000
Step 2: Actual Rent 1,44,000 2,10,000 2,52,000
Step 3: Step 1 or Step 2 w.i.
higher 1,44,000 2,10,000 2,52,000
Step 4: Loss of vacancy NIL 17,500 1,26,000
Step 5: GAV (3-4) 1,44,000 1,92,500 1,26,000
Less: Municipal Taxes 20,000 80,000 30,000
Net Annual Value (NAV) 1,24,000 1,12,500 96,000
Less: Specific Deductions :
1. Standard Deduction (30% 37,200 33,750 28,800
of NAV)
INCOME FROM HOUSE 86,800 78,750 67,200
PROPERTY
 Illustration 2 :For the A.Y. 2021-22 X submits the following information:
Particulars House I House II
Fair Rent 3,50,000 3,20,000
Municipal Valuation 3,60,000 3,50,000
Standard Rent 3,00,000 5,00,000
Annual Rent 6,00,000 4,20,000
Unrealised Rent of P.Y. 2020-21 10,000 80,000
Unrealised Rent of P.Y. 2019-20 ---- 3,00,000
Vacant Period (no. of months) (2) (4)
Municipal taxes paid 40,000 50,000
Repairs 5,000 7,000
Insurance 20,000 30,000
Land Revenue 25,000 40,000
Ground Rent 66,000 82,000
Interest on capital borrowed by mortgaging House I 1,40,000 -------
(funds are used for construction of House II)
Nature of Occupation Let out for Let out for
residence business
Income from House Property House I House II
Step 1: RER 3,00,000 3,50,000
Step 2: Actual Rent 5,90,000 3,40,000
Annual Rent – Unrealised Rent (6,00,000 - (4,20,000 –
10,000) 80,000)
Step 3: Step 1 or Step 2 w.i.h. 5,90,000 3,50,000
Step 4: Loss of vacancy 1,00,000 1,40,000
Annual Rent/12 * vacant mths 600000/12*2 420000/12*4
Step 5: GAV (3-4) 4,90,000 2,10,000
Income from House Property House I House II
Step 5: GAV (3-4) 4,90,000 2,10,000
Less: Municipal Taxes 40,000 50,000
Net Annual Value (NAV) 4,50,000 1,60,000
Less: Specific Deductions : 1,35,000 48,000
1. Standard Deduction (30% of
NAV)
2. Interest on Borrowed NIL 1,40,000
Capital
INCOME/(LOSS) FROM HOUSE 3,15,000 (28,000)
PROPERTY
Illustration 3:
R furnishes the following information in respect of a house
owned by him in Delhi:
Municipal Valuation Rs. 2,00,000
Fair Rent Rs. 2,40,000
Actual rent (p.m.) Rs. 21,000
Municipal tax paid during the year Rs. 20,000

The tenant vacated the property on 31.10.2020 and

thereafter the property was let out for Rs.25,000 p.m.

R could not realise the rent for the month of September and
October 2019 due to the death of the earlier tenant.

Calculate the annual value of the property for A.Y. 2020-21.

Will your answer be different if the unrealized rent is for 1

month instead of 2 months?
Income from House Property of Mr. R Amount (Rs)
Step 1: Reasonable Expected Rent 2,40,000
Step 2: Actual Rent (Annual- Unrealised) 2,30,000
[(21000*7)+(25000*5)] – (21000*2)
Step 3: Step 1 or Step 2 w.i. higher 2,40,000
Step 4: Loss of vacancy NIL
Step 5: Gross Annual Value (3 – 4) 2,40,000
Less: Municipal Taxes 20,000
Net Annual Value (NAV) 2,20,000
Less: Specific Deductions : 66,000
1. Standard Deduction (30% of NAV)
INCOME FROM HOUSE PROPERTY 1,54,000
Income from House Property of Mr. R Amount (Rs)
Step 1: Reasonable Expected Rent 2,40,000
Step 2: Actual Rent (Annual- Unrealised) 2,51,000
[(21000*7)+(25000*5)] – (21000*1)
Step 3: Step 1 or Step 2 w.i. higher 2,51,000
Step 4: Loss of vacancy NIL
Step 5: Gross Annual Value (3 – 4) 2,51,000
Less: Municipal Taxes 20,000
Net Annual Value (NAV) 2,31,000
Less: Specific Deductions : 69,300
1. Standard Deduction (30% of NAV)
INCOME FROM HOUSE PROPERTY 1,61,700
Illustration 4:
Mr. Raman is a co-owner along with his brother in a house
property holding equal share in the property.

Municipal value of the property is Rs.1,60,000 p.a., Fair Rent

is Rs.1,50,000 p.a. and Standard Rent is Ra.1,70,000 p.a. Rent
received from the property was Rs.15,000 p.m.
The loan for the construction of this property is jointly taken
and the interest charged by the bank is Rs.25,000, out of
which Rs.21,000 has been paid. Interest on the unpaid
interest is Rs. 450. To repay this loan Raman and his brother
have taken a fresh loan and interest charged on this loan is
Rs.5,000.
Municipal taxes of Rs.5,100 has been paid by the tenant.

Calculate the income from this property chargeable in the

hands of Mr. Raman for the A.Y.2020-21
Income from House Property of Mr. R Amount (Rs)
Step 1: Reasonable Expected Rent 1,60,000
Step 2: Actual Rent (Annual- Unrealised) 1,80,000
(15000*12)
Step 3: Step 1 or Step 2 w.i. higher 1,80,000
Step 4: Loss of vacancy NIL
Step 5: Gross Annual Value (3 – 4) 1,80,000
Less: Municipal Taxes
Net Annual Value (NAV) 1,80,000
Less: Specific Deductions : 52,470
1. Standard Deduction (30% of NAV)
2. Interest on Capital (25,000+5000) 30,000
INCOME FROM HOUSE PROPERTY 97,530
 Case on GAV

Step 1: Municipal Valuation = Rs. 60,000

Step 2: Actual Rent = (Annual Rent – Unrealized Rent) + Rent adjusted
= (12500*12) – (12500*10) +30000
= 55000
Step 3 (GAV): 60000 ( There is no vacancy)
 Case -Basis of Charge

People Housing Ltd. is engaged in the business of

constructing residential and commercial properties. One of
the building properties was included in the closing stock in
the Balance Sheet. The said building was let out for a
monthly rent as suitable buyers cannot be found. All other
buildings had been sold by the company.

State with reasons whether the income by way of rent from

the unsold property is assessable as income from business
or income from house property.

Rent of unsold property will be taxable under the head

Income from house property even if it is held as stock in
trade.
 Case -Basis of Charge
In the following cases, state the head of income under which
the receipt is to be assessed-
a) Anirudh let out his property to Abhinav. Abhinav sublets
it. How is subletting receipt to be assessed in the hands of
Abhinav.
• Income from other sources
a) Anish has built a house on a leasehold land. He has let-
out the above property and has considered the rent from
such property under the head “income from other
sources” and deducted expenses on repairs, security
charges, insurance and collection charges in all amounting
to 50% of repairs.
• The rent from the property will be treated as Income from
house property and Anish can claim a standard deduction
@30 % of NAV to claim for the expenses.
Case: Deductions from Income from House
Property

Ankit Private Limited has, in its return of income, claimed a

sum of Rs.40,000 as a deduction on account of payments for
stamp duty and registrations charges from the income shown
under the head “Income from house property”. The Assessing
Officer disallowed the claim of the assessee company in the
assessment order passed under section 143(3).
Examine the correctness of the action of the Assessing
Officer.

• The Assessing Officer is right in disallowing the claim of the

assessing company. The company can claim a standard
deduction of 30% from the NAV of the property.
 Case- Deduction on repairs to House
Property

• Mr. X is owning an immovable property at Mumbai

which is given on rent. He has spent money on
repairs but unfortunately he lost those bills. In the
absence of such bills, etc., and other documentary
evidences whether he will be able to claim
deduction in respect of repairs?
• Yes, standard deduction of 30% will be allowed,
irrespective of the expenditure incurred. No
documentary evidences are required.
Case- Deduction on Legal Expenses to House
Property
Mr. X is the owner of a big multi-storeyed building which is given on rent to
commercial establishments.
Some of the tenants do not make payment of the rent in time while some
tenants are not making payment of rent at all. Hence, Mr. X has filed legal
cases.
In the current financial year Mr. X spent nearly Rs. 38,000 being the
payment made to lawyers, etc., for fighting legal case to recover the rent
from the tenants.

Whether Mr. X will be allowed to deduct legal expenses incurred for

making payment of legal fees?

• No, Mr.X will not be allowed to claim a deduction for the legal expenses.
• Only standard deduction can be claimed.
 Case- Deduction on Interest on Loan
For the year ending 31st March, 2021 Mr. X is required to make
payment of Rs. 1,22,000 in respect of the interest on loan taken
by him from the bank. However, due to very bad financial
position he is not in a position to make payment of the interest
this year.
Mr. X will, however, makes the payment of interest in the
subsequent year. Mr. X’s question is, where interest on housing
loan has not actually been paid in the financial years whether the
deduction will be allowed of the interest payable by him?

• Yes Mr. X can claim the deduction of the interest on loan in the
year in which it is due , even if it is not actually paid in that year.
 Case- Basis of Charge
The assessee who was deriving income from ‘house
property, realised a sum of Rs.52,000 on account of
display of advertisement hoardings of various
concerns on the roof of the building.
He claims that this amount should be considered
under the head ‘Income from House Property’.
Is his claim correct?
• No the claim of the assessee is not correct.
• Rent received from display of advertisement
hoardings on the roof of the building will be taxable
as Income from other sources.
 Case- Basis of Charge

Income from letting out of godowns and provision of

warehousing services. Will the rental income be
Income from House Property?

Deciding factor is not ownership, but the nature of

activity of the assessee and nature of operations
related to the activities
It will be treated as Business Income
 Case-
Assessee-company let out its two properties to wife of one of its
Directors, namely ‘R’ – ‘R’ sub-letted said properties at a much
higher rent within a short span of four months – Assessing Officer
thus, held it a colourable device to avoid tax, determined ALV at an
amount which ‘R’ was getting from sub-tenant.
On facts, it could be concluded that rent agreement between
assessee-company and ‘R’ was generated as a device not only to
reduce tax liability of assessee-company but also with a view to
allow ‘R’ to enjoy fruits of property of assessee-company.

Pramila Estates (P.) Ltd. VS. ITO [2009] 27 SOT 133 (MUM.)