Income From House Property

In this we will cover the following aspects of income coming from house property:-

☆Important points
☆Format for Computation
☆An important term for gross annual value(GAV)
☆Computation of GAV
☆Important points for self-occupied property
☆Miscellaneous points
☆Deduction

TAX:-

1)LOP- Let out property
2)SOP- Self-occupied property
3)DLOP- Deemed to be let out property

☆The important point for house property:-

  1. (1)House property is the enclosure of bricks, cement, and stone which is covered by a roof and land adjoining the house is known as ‘House property’
  2. (2)Assessee must be a legal or deemed owner of the house property
  3. (3)As per Income tax act 1961, house properties are divided into 3 categories
    (a)LOP- Let out property
    (b)SOP- Self-occupied property
    (c)DLOP- Deemed to be let out property
  4. (4)House property should not be used for business or profession
  5. (5)Income tax is a charge on national income (assumed income)
  6. (6)Assumed income is known as ‘Gross Annual Value (GAV)

Format for computation:-

Computation of Income from House Property

ParticularsLOP & DLOP
Gross annual value(w.note) xx
(-)Municipal taxes paid by
owner in p.y (it may be for any year)
(-)xx
Net annual value (NAV)(=)xx
(-)Deduction u/s 24
(a)Standard deduction (30%of nav)(-)xx
(b)Interest on capital borrowed loan(-)xx
Taxable income from H.P(=)xx

Computation of Income from House Property

ParticularsSOP
Gross annual value(w.note)nil
(-)Municipal taxes paid by
owner in p.y (it may be for any year)
nil
Net annual value (NAV)nil
(-)Deduction u/s 24
(a)Standard deduction (30%of nav)nil
(b)Interest on capital borrowed loan(-)30,000 or (-)2,00,000*
Taxable income from H.P (-)30,000 or (-)2,00,000

This deduction is available only when certain conditions are satisfied.

Important terms for GAV (Gross Anual Value):-

  • °fair rent or reasonable rent
  • °municipal valuation
  • °standard rent
  • °annual rent
  • °loss due to vacancy
  • °unrealised rent
  • °actual rent received
  • °(Annual rent – loss due to vacancy – unrealized rent)

Computation of Gross Annual Value:-

  • (a)fair rent or reasonable rent
  • (b)municipal valuation
  • (c)=(a) or (b) whichever is higher
  • (d)standard rent
  • (e)expected rent (c) or (d) whichever is lower
  • (f)expected rent – loss due to vacancy
  • (g)actual rent received
  • (Annual rent-loss due to vacancy-unrealized rent)
  • (h)gross annual value = (f) or (g) whichever is higher

Computation of GAV (Gross Annual Value)
Example
Compute GAV for the following (₹in 1000)

ParticularsPQRST
Municipal Value140180180140231
Fair Rent145185185145262
Standard Rent142175175142241
Annual Rent168168168168252
Unrealized Rent1442424042
Loss Due to Vacancy07011442-

Steps for computation of GAV (Gross Annual Value)

ParticularsPQRST
(a)Fair Rent145185185145262
(b)Municipal Valuation140180180140231
(c)=(a) or (b) Whichever is Higher145185185145262
(d)Standard Rent142175175142241
(e)Expected Rent 142172175142241
(c) or (d) Whichever is Lower
(f)Expected Rent - (Loss Due to Vacancy)142-7=135175-1=174175-1=174142-42=100241-nil=241
(g)Actual Rent Received 147125112086199
(Actual Rent-Loss
Due to Vacancy-Unrealised Rent)
168-14-7168-42-1168-42-14168-40-42252-42-nil
(h)Gross Annual Rent147174174100241
(f) or (g) Whichever is Higher

Important points on SOP:-

~In case of SOP, GAV, Municipal Tax, NAV, and Standard Deduction are NIL
~If assessee wants to take full advantage of SOP then such property is not to be let out even for benefits is received by the assessee from such property in the considered as LOP ( let out property)

Miscellaneous points:-

  • ¤Income received from vacant land is chargeable to tax as income from other sources and not as income from house property
  • ¤If the house property is situated outside India then municipal taxes charges by the foreign government will be allowed as deductions provided it must be paid by the assessee (owner) in the financial year
  • ¤If assessee has more than 1 property and both are used for residential purpose then as per the income tax act, 1961 one of the property as per the choice of the owner is considered as SOP and another property is considered as DLOP
  • ¤If an assessee receives composite rent for house property then the entire amount is chargeable to tax as income from other sources provided composite rent is not divisible. If composite rent is divisible between house property and other facilities then rental charges for house property are chargeable to tax as income from house property and rental charges for other facilities are taxable as income from other sources.
  • ¤Unrealised rent of the property is taxable in the year in which it is received provided earlier deductions have been allowed It is calculated as

Particulars ₹ Example

ParticularsExample
Unrealised rent received In p.y 2012-2013X50,000+75,000+100,000=2,25,0000
(-)Unrealised Rent (Not Allowed) as Deduction Earlier(-) X25000
Amount Chargeable to TaxXX2,00,000
(-)Standard Deduction u/s 25 A (30%)(-) XX60,000
Chargeable AmountXX1,40,000

Arrears of Rent
The rent which was due but not received due to some unavoidable reason is known as ‘unrealized rent’ but rent which was not due but has become due now is known as “arrears of rent”. It is calculated as follows:-
Example
Mr. A. the owner of LOP received rent as follows:-
Financial year Rent P.M
2009-2010 ₹10,000
2010-2011 ₹12,500
2011-2012 ₹13,000

He has given the notice to the tenant for an increase in the rent @₹15,000 p.m with effect from the financial year 2009-2010 which is duly agreed by the tenant Calculate arrears of rent chargeable to tax

ParticularsExample
Arrears of Rent Received
in p.y 2012-2013
1,14,000
less:-Standard Deduction
(30% of Arrears of Rent)
-(34,200)
Taxable Income79,800

Deduction u/s 24

(A)Standard deduction
LOP & DLOP     SOP

⇓                    ⇓

30% of NAV      Nil

Note:-
In lieu of standard deduction following expenses are not allowed as a deduction

  • 1)Repairs
  • 2)Collection charges
  • 3)Insurance premium
  • 4)Annual charge
  • 5)Ground rent
  • 6)Land revenue

(B)Interest on borrowed capital (loan)
~Post construction interest

1)SOP
₹30,000 maximum limit
-if the loan is taken before 01.04.99 for PCRRR
P- Purchase
C- Construction
R- Repair
R- Renewable
R- Re-construction
-if the loan is taken after 01.04.99 and used for RRR

2)LOP or DLOP
₹2,00,000 maximum limit
3 condition

  • (i)the loan is taken after 01.04.99
  • (ii)the loan is used for P or C
  • (iii) construction of H.P is completed within 3 years from the financial year in which loan is taken

~pre-construction interest
Considered separately
-Conditions
》No maximum limit
》Allowed on due basis
》Loan should be used for PCRRR
》Interest on interest for delayed payment is not allowed
》Interest on the fresh loan is taken to repay the old loan is allowed

Pre-construction interest
~Meaning:-
It is the interest on the loan for the period between due of loan and date of construction of the property
~Deduction:-
*Pre-construction period starts on the date on which loan is taken and it ends on the date on which loan is repaid or on 31st march immediately proceedings the date of construction whichever is earlier
*⅕ of the pre-construction interest amount is allowed every year in the next 5 consecutive years from the year in which construction is completed

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