As per Section 22 of
Income Tax Act, 1961 Income from House property shall be taxable if income from
property fulfils the following conditions:
a) Income from property where
property means any building or land appurtenant thereto;
b)
Such property should be in the name
of the taxpayer i.e tax payer should be
the owner of such property;
c)
Such Property is not used for own business or profession. Here property owned
by partner can be used by a firm as both are separate entities but in
proprietary business one can not book expenses of rent paid and take rental
income under the head of house property.
DETERMINATION OF INCOME FROM HOUSE PROPERTY :
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Income from a house property shall be
determined in the following manner:
The Gross Annual Value or Let Out Value is
Income which is higher of following:
a) Expected rent. Expected
rent shall be higher of municipal valuation or fair rent of the property,
subject to maximum of standard rent;
b)
Rent actually received or receivable after excluding unrealized rent but before
deducting loss due to vacancy
Deductions against Rental Income:
-
Municipal Taxes paid
( Accrued taxes but not paid are not allowed. So if taxes are to be borne by
the owner and actually paid during the year are allowed)
-
Deduction @30% of Net
Annual Value under Section 24(a) ( Gross Rental Value less Municipal Taxes is Net
Annual Value so after the vacancy allowance the Annual Let Out value less taxes
paid is Net Annual Value )
-
Interest on Borrowed Capital as per Section
24(b)
Interest
on Borrowed Capital as per Section 24(b):
a) For let-out property, actual interest
incurred on capital borrowed for the purpose of acquisition, construction,
repairing, re-construction is allowed as deduction.
b) For
Self-occupied residential house property, interest incurred on capital borrowed
for the purpose of acquisition or construction of house property is allowed
upto Rs.2 lakhs if
i) capital
is borrowed on or after 01-04-1999 and
ii) acquisition
or construction of house property is completed within 5 years.
c) For Self-occupied residential house
property, interest incurred on capital borrowed for the purpose of reconstruction, repairs or renewals of a
house property is deductible up to Rs.30000 only. Deduction for interest on
borrowed capital shall be limited to Rs. 30,000 in following circumstances if
capital is borrowed :
a)
Before 01-04-1999 for purchase or construction
of a house property.
b)
On or after 01-04-1999 for the re-construction,
repairs or renewals of a house property;
c)
On or after 01-04-1999 but construction
of house property is not completed within five years from end of the
previous year in which capital was borrowed.
Prior
Period Interest or interest during construction period:
Any
interest for the period prior to the year of acquisition/ construction of the
house property is allowed as deduction in five equal installments, beginning
with the year in which the property was acquired/ constructed but with the overall
ceiling amount of interest on borrowed capital under Section 24(b)
Deduction for interest on housing loan
under Section 80EE
Deduction
of up to Rs 50,000 is allowed to an Individual for interest payable on loan
taken for the purpose of acquisition of a house property subject to following
conditions:
a)
Loan sanctioned by Financial institution during the Fin.year 2016-17 and does
not exceed Rs.35 Lakhs.
b)
The value of residential property does not exceed Rs 50,00,000;
d)
The assessee does not own any residential house property on the date of
sanction of loan;
e)
Where deduction under Section 80EE is allowed,
then no deduction shall be allowed in respect of such interest under any other
provision.
COMPUTATION
OF INCOME FROM HOUSE PROPERTY AND AMOUNT
OF DEDUCTION OF INTEREST ON BORROWED CAPITAL:
One Self Occupied House Property or House
property could not be occupied by the owner due to employment or business
carried on at any other place :
-
No Deduction on
account of Municipal Taxes or Standard Deduction or Vacancy Allowance as Gross
Annual Value is NIL.
-
Deduction for
interest on borrowed capital is allowed up to Rs. 30,000 or Rs. 2,00,000, as
the case may be as detailed above.
More than one-self occupied property
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Only one property on
the choice by the taxpayer will be considered as self-occupied house property and
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All other properties shall be deemed to be
let-out for the purpose of computation of income under the head house property.
A self-occupied property let-out for the
part of the year :
-
The house will be
taken as let-out property and
-
No concession shall
be available for the duration during which the property was self-occupied
One part of the property is let-out and other
part is used for self-occupied purposes :
- Each part of the property shall be considered
as separate property and
- Income of each part will be computed separately.
Let out property:
Income
: Gross Annual Value to be computed as
per provisions of Section 23(1) which is higher of following:
a) Expected rent. Expected
rent shall be higher of municipal valuation or fair rent of the property,
subject to maximum of standard rent;
b)
Rent actually received or receivable after excluding unrealized rent but before
deducting loss due to vacancy
Deductions :
-
Municipal Taxes actually paid if to be borne by owner.
-
Standard Deduction @ 30%
of Net Annual Value i.e Gross Annual Value less Municipal Taxes Paid
-
Entire amount of
interest paid or payable on borrowed capital shall be allowed as deduction.
Pre-construction interest shall be allowed as deduction in 5 annual equal
installments (Subject to certain conditions)
Composite Rent:
a) If letting out
of Building is with movable assets and transaction is inseparable:
If income from letting out of
building along with movable assets which may include machinery, furniture or fixtures, etc. and transaction is inseparable
then the composite rent is not taxable
under Income from House property but taxable as Profits and gains from business or profession / Income from
other sources.
b)
If letting out of Building is with movable assets and
transaction is separable:
-
Income from letting
out of building is taxable as Income from house property and
-
Income from letting
out of other assets is taxable as Profits and gains from business or profession/
Income from other sources.
Deduction for unrealized rent in case of
Income from House Property:
-
Unrealized rent is rental
income which could not be realized from the tenant by the owner and in such
case a deduction from actual rent received or receivable upto the amount of
unrealized rent is allowed if the following conditions are satisfied:
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 same owner;
d)
The owner of the property has initiated legal proceedings for the recovery of
the unpaid rent or satisfies the Assessing Officer that legal proceedings would
be useless.
Income from Arrears of rent or recovery of
unrealized rent:
In case the arrears of rent received or any
subsequent recovery of unrealized rent is taxable as Income from house property
in the year of such actual recovery even if such owner of such property is not
owner in the year of recovery and accordingly the standard deduction @30% of
amount received is also allowed.
Income in case of property owned by
co-owners:
-
In case house
property is owned by co-owners and their share in house property is definite
and ascertainable than the income of such house property will be assessed in
the hands of each co-owner separately in the proportion of ownership and other
deductions also as allowed under Income from House property as per law.
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In case house
property is owned by co-owners and their share in house property are not
definite, the income of the property shall be assessed as that of an
Association of persons.
Income
in case of Deemed owners:
Income from house property is
taxable in the hands of its owner but sometimes legal owner is not considered as the real owner of the property and
any other person is considered
as the deemed owner of the property then such person is chargeable to tax on income earned from such house property:
1.
A transferor is a deemed
owner
- In
case any house property is transferred otherwise than for adequate
consideration to his or her spouse and such transfer is not as per an agreement
to live apart,
- In case property is transferred to a minor
child not being a married daughter.
2.
The holder of an estate shall be deemed to be the individual owner of all the
properties comprised in the estate if such estate is not divisible;
3.
A member of a co-operative society, company or any other association of persons
if such property to whom allotment or lease is done under a house building
scheme.
4.
A person who is allowed to take or retain possession of any building or part
thereof in part performance of a contract and shall be deemed to be the owner
of that building or part thereof;
5.
A person who acquires any rights (excluding any rights by way of a lease from
month to month or for a period not exceeding one year) in or with respect to
any building or part thereof shall be deemed to be the owner of that building
or part thereof.
RESTRICTION
ON SET OFF OF HOUSE PROPERTY INCOME:
As amended by Finance Act, 2017
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In case the net result of computation
of income under the head Income from House Property is negative or in other
words there is loss from House property then such loss can be set-off against
any other income but restricted to Rs. 2 Lakh in any assessment year from Assessment
Year 2018-19 onwards.
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However, the loss which couldn't be
set off can be carried forward for set-off in subsequent years. It can be
carried forward for 8 Assessment years for set-off.
